| Year Ended December 31, | Nine Months Ended September 30, | |||||||||||||||||||||||
|
2017 |
2018 |
2019 |
2019 |
2020 |
||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
| Cash flows from financing activities: |
||||||||||||||||||||||||
| Proceeds from issuance of long-term debt and warrants, net of issuance costs |
$ | — | $ | — | $ | — | $ | — | $ | 1,928,880 | ||||||||||||||
| Principal repayment of long-term debt |
— | — | — | — | (2,500) | |||||||||||||||||||
| Proceeds from exercise of stock options |
1,007 | 16,043 | 5,873 | 5,690 | 5,411 | |||||||||||||||||||
| Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs |
49,865 | — | — | — | — | |||||||||||||||||||
| Proceeds from tenant improvement allowance under build-to-suit leases |
4,844 | 6,886 | — | — | — | |||||||||||||||||||
| Change in funds payable and amounts payable to customers |
617,238 | 117,587 | 848,706 | 678,508 | (769,029) | |||||||||||||||||||
| Other, net |
— | — | — | — | 11,445 | |||||||||||||||||||
| Net cash provided by financing activities |
672,954 | 140,516 | 854,579 | 684,198 | 1,174,207 | |||||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash |
227,172 | (158,919 | ) | (25,284 | ) | (77,021 | ) | 35,210 | ||||||||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash |
362,407 | (91,017 | ) | 704,867 | 976,189 | (97,309 | ) | |||||||||||||||||
| Cash, cash equivalents, and restricted cash, beginning of year |
4,167,186 | 4,529,593 | 4,438,576 | 4,438,576 | 5,143,443 | |||||||||||||||||||
| Cash, cash equivalents, and restricted cash, end of year |
$ | 4,529,593 | $ | 4,438,576 | $ | 5,143,443 | $ | 5,414,765 | $ | 5,046,134 | ||||||||||||||
| Supplemental disclosures of cash flow information: |
||||||||||||||||||||||||
| Cash paid for income taxes, net of refunds |
$ | 8,740 | $ | 44,620 | $ | 28,192 | $ | 15,114 | $ | 10,453 | ||||||||||||||
| Cash paid for interest |
$ | 13,768 | $ | 21,151 | $ | 5,178 | $ | 2,960 | $ | 77,576 | ||||||||||||||
| Noncash investing and financing activities: |
||||||||||||||||||||||||
| Common stock and stock awards issued for acquisitions |
$ | 81,087 | $ | 4,587 | $ | 240,687 | $ | 240,687 | $ | — |
The accompanying notes are an integral part of these consolidated financial statements.
F-9
Notes to Consolidated Financial Statements
Note 1. Description of Business
Airbnb, Inc. (the “Company” or “Airbnb”) was incorporated in Delaware in June 2008 and is headquartered in San Francisco, California. The Company operates a global platform for unique stays and experiences. The Company’s marketplace model connects hosts and guests (collectively referred to as “customers”) online or through mobile devices to book spaces and experiences around the world.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and include accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Stock Split
On October 26, 2020, the Company effected a two-for-one stock split of its common stock and redeemable convertible preferred stock. All share and per share information has been retroactively adjusted to reflect the stock split for all periods presented.
Unaudited Interim Consolidated Financial Information
The accompanying interim consolidated balance sheet as of September 30, 2020 and the interim consolidated statements of operations, comprehensive loss, cash flows, and redeemable convertible preferred stock and stockholders’ deficit for the nine months ended September 30, 2019 and 2020 and the related notes to such interim consolidated financial statements are unaudited. These unaudited interim consolidated financial statements are presented in accordance with the rules and regulations of the U.S. Securities and Exchange Commission and do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with U.S. GAAP. In management’s opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of September 30, 2020 and the Company’s consolidated results of operations and cash flows for the nine months ended September 30, 2019 and 2020. The results of operations for the nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.
Reclassifications (Unaudited)
Certain reclassifications have been made to the prior years’ consolidated financial statements to conform to the current period’s presentation. These reclassifications had no impact on net loss, stockholders’ deficit, or cash flows as previously reported.
COVID-19 Pandemic (Unaudited)
In December 2019, a novel strain of coronavirus disease (“COVID-19”) was reported and in March 2020, the World Health Organization characterized COVID-19 as a global pandemic. The COVID-19 pandemic has
F-10
Airbnb, Inc.
Notes to Consolidated Financial Statements
forced international, federal, state, and local governments to enforce prohibitions of non-essential activities.
The Company first saw the impact of COVID-19 in China in the last week of January, which when contained to China, had a minor impact on the entire business. The outbreak spread throughout Asia, and then through Europe, North America, and the rest of the world by the end of the first quarter of 2020. Since then, the Company has experienced a significant decline in revenue resulting from a decrease in bookings and an increase in cancellations. The extent and duration of the adverse impact of COVID-19 on the Company over the longer term remain uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of COVID-19, the extent and effectiveness of containment actions taken, including mobility restrictions, the timing, availability, and effectiveness of vaccines, and the impact of these and other factors on travel behavior in general and on the Company’s business.
As a result, the Company has taken a number of actions in response to the significant decrease in bookings and the adverse impacts on its revenue, operating results, and financial condition as described in Note 11, Debt, Note 13, Commitments and Contingencies, and Note 19, Restructuring (Unaudited).
As the impact of COVID-19 continues to evolve, estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require increased judgment. These estimates and assumptions may change in future periods and will be recognized in the consolidated financial statements as new events occur and additional information becomes known. To the extent the Company’s actual results differ materially from those estimates and assumptions, the Company’s future financial statements could be affected.
Unaudited Pro Forma Information
Unaudited Pro Forma Balance Sheet
The unaudited pro forma balance sheet as of September 30, 2020 reflects the automatic conversion of all shares of redeemable convertible preferred stock outstanding into an aggregate of 240,910,588 shares of the Company’s Class B common stock, which includes 1,286,694 additional shares of Class B common stock to be issued upon conversion of the Series C redeemable convertible preferred stock as discussed in Note 12, Redeemable Convertible Preferred Stock and Stockholders’ Deficit, as if such conversion had occurred on September 30, 2020.
The Company granted to certain employees and nonemployees restricted stock units (“RSUs”) that vest upon the satisfaction of both service-based and liquidity-event performance-based vesting conditions. The service-based vesting condition for these awards is generally satisfied over four years. The liquidity-event performance-based vesting condition is satisfied upon (i) the occurrence of the effective date of an initial public offering of the Company’s securities (“IPO”) or (ii) a change in control of the Company as defined in the Company’s equity incentive plans. If the RSUs vest, the Company will deliver one share of Class A common stock for each vested RSU on the applicable settlement date. In November 2019, the Company also began granting to employees and nonemployees RSUs that vest only upon the satisfaction of a service-based vesting condition.
F-11
Airbnb, Inc.
Notes to Consolidated Financial Statements
For RSUs granted with a liquidity-event performance-based vesting condition, in the period in which the liquidity-event performance-based vesting condition becomes probable, the Company will recognize cumulative stock-based compensation expense related to RSUs for which the service-based vesting condition was satisfied or partially satisfied. Accordingly, the unaudited pro forma balance sheet as of September 30, 2020 gives effect to stock-based compensation expense of $ billion associated with these RSUs, calculated using the accelerated attribution method. This pro forma adjustment is reflected as an increase in accumulated deficit and additional paid-in capital. RSU holders will generally incur taxable income based upon the fair value of the shares on the date they are settled. The Company is required to withhold taxes on such value at applicable minimum statutory rates. Accordingly, to satisfy the tax withholding obligations related to the RSUs, the Company will withhold the number of shares necessary to satisfy the tax obligations, based on the IPO price. The Company currently expects that the average of these withholding tax rates will be approximately %; however, the final withholding amounts will be determined when the actual withholdings and payments are required to be made. Based upon the assumed IPO price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, the Company estimates that its tax withholding and remittance obligation would be approximately $ million in the aggregate. Such amount is included as an increase to accrued expenses and other current liabilities and an equivalent decrease to additional paid-in capital in the unaudited pro forma balance sheet as of September 30, 2020. The unaudited pro forma balance sheet disclosure of shares outstanding of Class A common stock also gives effect to the settlement of RSUs for which the service-based vesting condition was satisfied as of September 30, 2020, net of shares withheld for tax obligations.
Unaudited Pro Forma Net Loss Per Share
Unaudited pro forma basic net loss per share is computed to give effect to (i) the automatic conversion of all outstanding shares of the Company’s redeemable convertible preferred stock into 240,910,588 shares of Class B common stock, which includes 1,286,694 additional shares of Class B common stock to be issued upon conversion of the Series C redeemable convertible preferred stock (as discussed in Note 12, Redeemable Convertible Preferred Stock and Stockholders’ Deficit) and (ii) the net issuance of shares of Class A common stock issued for RSUs granted to employees with both service-based and liquidity-event performance-based vesting conditions for which the service-based vesting condition was satisfied as of September 30, 2020 and the qualifying liquidity event will be satisfied in connection with an IPO, after giving effect to shares withheld to satisfy the associated tax withholding obligations. The Company used the if-converted method as though the conversion of the redeemable convertible preferred stock had occurred as of the beginning of the period or the original date of issuance, if later.
The pro forma net loss used to calculate pro forma basic net loss per share is not adjusted for stock-based compensation expense associated with these RSUs. In addition, pro forma diluted net loss per share is the same as the pro forma basic net loss per share for the period as the impact of any potentially dilutive securities is anti-dilutive.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and variable interest entities (“VIE”) in which the Company is the primary beneficiary in
F-12
Airbnb, Inc.
Notes to Consolidated Financial Statements
accordance with consolidation accounting guidance. All intercompany transactions have been eliminated in consolidation.
The Company determines, at the inception of each arrangement, whether an entity in which it has made an investment or in which it has other variable interest in is considered a VIE. The Company consolidates a VIE when it is deemed to be the primary beneficiary. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to direct the activities that most significantly affect the economic performance of the VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Periodically, the Company determines whether any changes in its interest or relationship with the entity impact the determination of whether the entity is still a VIE and, if so, whether the Company is the primary beneficiary. If the Company is not deemed to be the primary beneficiary in a VIE, the Company accounts for the investment or other variable interest in a VIE in accordance with applicable U.S. GAAP. As of December 31, 2018 and 2019 and September 30, 2020 (unaudited), the Company’s consolidated VIEs were not material to the consolidated financial statements.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company regularly evaluates its estimates, including those related to bad debt reserves, fair value of investments, useful lives of long-lived assets and intangible assets, valuation of acquired goodwill and intangible assets from acquisitions, contingent liabilities, insurance reserves, revenue recognition, valuation of common stock, stock-based compensation, and income and non-income taxes, among others. Actual results could differ materially from these estimates.
Segment Information
Operating segments are defined as components of an entity for which discrete financial information is available and is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in making decisions regarding resource allocation and performance assessment. The Company’s CODM is its Chief Executive Officer. The Company has determined it has one operating and reportable segment as the CODM reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.
F-13
Airbnb, Inc.
Notes to Consolidated Financial Statements
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents are held in checking and interest-bearing accounts and consist of cash and highly-liquid securities with an original maturity of 90 days or less. The following table reconciles cash, cash equivalents, and restricted cash reported on the Company’s consolidated balance sheets to the total amount presented in the consolidated statements of cash flows (in thousands):
| December 31, | September 30, | |||||||||||||||||||
|
2017 |
2018 |
2019 |
2019 |
2020 |
||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Cash and cash equivalents |
$ |
2,207,843 |
$ |
2,140,877 |
$ |
2,013,547 |
|
$ |
2,513,598 |
|
$ |
2,664,390 |
| |||||||
| Cash and cash equivalents included in funds receivable and amounts held on behalf of customers |
|
2,321,750 |
|
2,297,699 |
|
3,129,781 |
|
2,900,066 |
|
|
2,326,116 |
| ||||||||
| Restricted cash |
|
— |
|
|
— |
|
|
115 |
|
|
1,101 |
|
|
55,628 |
||||||
| Total cash, cash equivalents, and restricted cash presented in the consolidated statements of cash flows |
$ | 4,529,593 | $ | 4,438,576 | $ | 5,143,443 | $ | 5,414,765 | $ | 5,046,134 |
Marketable Securities
The Company considers all highly-liquid investments with original maturities of greater than 90 days to be marketable securities. The Company determines the appropriate classification of its investments in marketable securities at the time of purchase. As the Company views these securities as available to support current operations, it accounts for these debt securities as available-for-sale and classifies them as short-term assets on its consolidated balance sheets. The Company determines realized gains or losses on the sale of equity and debt securities on a specific identification method.
Unrealized gains and non-credit related losses on available-for-sale debt securities are reported as a component of accumulated other comprehensive income (loss) in stockholders’ deficit. Realized gains and losses and impairments are reported within other income (expense), net in the consolidated statements of operations. The assessment for impairment takes into account the severity and duration of the decline in value, adverse changes in the market or industry of the investee, the Company’s intent to sell the security and whether it is more likely than not that it will be required to sell the security before recovery of the amortized cost basis.
The Company’s marketable equity securities with readily determinable fair values are measured at fair value on a recurring basis with changes in fair value recognized within other income (expense), net in the consolidated statements of operations.
Subsequent to January 1, 2020, the Company accounts for credit losses on available-for-sale debt securities in accordance with ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU No. 2016-13”), which the Company adopted on January 1, 2020 (unaudited). If the amortized cost basis of an available-for-sale security exceeds its fair value and if the Company has the intention to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of the amortized cost basis, an impairment is recognized in the consolidated statements of operations (unaudited). If the Company does not have the intention to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of the amortized cost basis and the Company determines that the unrealized loss is entirely or partially due to credit-related factors, the
F-14
Airbnb, Inc.
Notes to Consolidated Financial Statements
credit loss is measured and recognized as an allowance on the consolidated balance sheets with a corresponding charge in the consolidated statements of operations (unaudited). The allowance is measured as the amount by which the debt security’s amortized cost basis exceeds the Company’s best estimate of the present value of cash flows expected to be collected (unaudited). Any remaining decline in fair value that is non-credit related is recognized in other comprehensive income (loss) (unaudited). Improvements in expected cash flows due to improvements in credit are recognized through reversal of the credit loss and corresponding reduction in the allowance for credit loss (unaudited).
Non-Marketable Investments
Non-marketable investments consist of debt and equity investments in privately-held companies, which are classified as other assets, noncurrent on the consolidated balance sheets. The Company classifies its non-marketable investments that meet the definition of a debt security as available-for-sale. The accounting policy for debt securities classified as available-for-sale is described above. The Company’s non-marketable equity investments are accounted for using either the equity method of accounting or equity investments without readily determinable fair value measurement alternative.
The Company uses the equity method if it has the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. For investments accounted for using the equity method, the Company’s proportionate share of its equity interest in the net income or loss of these companies is recorded in the consolidated statements of operations within other income (expense), net. The carrying amount of the investment in equity interests is adjusted to reflect the Company’s interest in the investee’s net income or loss and any impairments and is classified in other assets, noncurrent on the consolidated balance sheets.
Investments for which the Company is not able to exercise significant influence over the investee are accounted for using the measurement alternative. Such investments are carried at cost, less any impairments, and are adjusted for subsequent observable price changes obtained from orderly transactions for identical or similar investments issued by the same investee. This election is reassessed each reporting period to determine whether non-marketable equity securities have a readily determinable fair value, in which case they would no longer be eligible for this election. Changes in the basis of the equity investment are recognized in other income (expense), net in the consolidated statements of operations.
The Company reviews each of its non-marketable debt and equity investments for impairment at the end of each reporting period or whenever events or circumstances indicate that the carrying value may not be fully recoverable. Impairment indicators might include negative changes in industry and market conditions, financial performance, business prospects, and other relevant events and factors. Upon determining that an impairment exists, the Company recognizes as an impairment in other income (expense), net in the consolidated statements of operations the amount by which the carrying value exceeds the fair value of the investment.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in
F-15
Airbnb, Inc.
Notes to Consolidated Financial Statements
measuring financial instruments at fair value. This hierarchy requires the Company to use observable market data when available and to minimize the use of unobservable inputs when determining fair value. Financial instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Financial instruments measured and disclosed at fair value are classified and disclosed based on the observability of inputs used in the determination of fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets.
Level 2: Observable inputs other than Level 1 prices, such as quoted prices in less active markets or model-derived valuations that are observable either directly or indirectly.
Level 3: Unobservable inputs in which there is little or no market data that are significant to the fair value of the assets or liabilities.
The carrying amount of the Company’s financial instruments, including cash equivalents, funds receivable and amounts held on behalf of customers, accounts payable, accrued liabilities, funds payable and amounts payable to customers, and unearned fees approximate their respective fair values because of their short maturities.
Level 2 Valuation Techniques
Financial instruments classified as Level 2 within the Company’s fair value hierarchy are valued on the basis of prices from an orderly transaction between market participants provided by reputable dealers or pricing services. Prices of these securities are obtained through independent, third-party pricing services and include market quotations that may include both observable and unobservable inputs. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices and market transactions in comparable investments and various relationships between investments. The Company’s foreign exchange derivative instruments are valued using pricing models that take into account the contract terms, as well as multiple inputs where applicable, such as interest rate yield curves and currency rates.
Level 3 Valuation Techniques (Unaudited)
Financial instruments classified as Level 3 within the Company’s fair value hierarchy consist primarily of a derivative warrant liability relating to the warrants issued in conjunction with the second lien loan discussed in Note 11, Debt. Valuation techniques for the derivative warrant liability include the Black-Scholes option-pricing model with key assumptions such as stock price volatility, expected term, and risk-free interest rates.
Internal-Use Software
The Company capitalizes certain costs in connection with obtaining or developing software for internal use. Additionally, the Company capitalizes qualifying costs incurred for upgrades and enhancements that result in additional functionality to existing software. Amortization of such costs begins when the project is substantially complete and ready for its intended use. Capitalized software development costs are classified as property and equipment, net on the consolidated balance sheets and are amortized using the straight-line method over the estimated useful life of the applicable software.
F-16
Airbnb, Inc.
Notes to Consolidated Financial Statements
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation and amortization on property and equipment is calculated using the straight-line method over the estimated useful lives indicated below:
| Asset Category |
Period | |
| Computer equipment |
5 years | |
| Computer software and capitalized internal-use software |
1.5 to 3 years | |
| Office furniture and equipment |
5 years | |
| Buildings |
25 to 40 years | |
|
Leasehold improvements |
Lesser of estimated useful life or remaining lease term |
Costs of maintenance and repairs that do not improve or extend the useful lives of assets are expensed as incurred. Upon retirement or sale, the cost and related accumulated depreciation are removed from the consolidated balance sheet and the resulting gain or loss is reflected in the consolidated statements of operations.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting, under which all assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. The excess purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Transaction costs associated with business combinations are expensed as incurred.
Leases
The Company determines whether an arrangement is or contains a lease at inception. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease ROU assets represent the Company’s right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
The Company’s leases typically contain rent escalations over the lease term. The Company recognizes expense for these leases on a straight-line basis over the lease term. Additionally, tenant incentives, primarily used to fund leasehold improvements, are recognized when earned and reduce the Company’s right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term.
The Company’s lease agreements may contain variable costs such as common area maintenance, operating expenses or other costs. Variable lease costs are expensed as incurred on the consolidated statements of operations. The Company’s lease agreements generally do not contain any residual value guarantees or restrictive covenants.
F-17
Airbnb, Inc.
Notes to Consolidated Financial Statements
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. The Company has one reporting unit. The Company tests goodwill for impairment at least annually, in the fourth quarter, or whenever events or changes in circumstances indicate that goodwill might be impaired. There were no impairment charges in any of the periods presented in the consolidated financial statements. Refer to Note 7, Intangible Assets and Goodwill, for additional information.
Intangible Assets
Intangible assets are amortized on a straight-line basis over the estimated useful lives ranging from one to ten years. The Company reviews intangible assets for impairment under the long-lived asset model described below. There were no impairment charges in any of the periods presented in the consolidated financial statements. Refer to Note 7, Intangible Assets and Goodwill, for additional information.
Impairment of Long-Lived Assets
Long-lived assets that are held and used by the Company are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Determination of recoverability of long-lived assets is based on an estimate of the undiscounted cash flows resulting from the use of the asset and its eventual disposition. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals.
Any impairments to ROU assets, leasehold improvements, or other assets as a result of a sublease are initially recognized when a decision to sublease is made and recorded as an operating expense (unaudited). Similar to other long-lived assets, management tests ROU assets for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets (unaudited). For leased assets, such circumstances would include subleases that do not fully recover the costs of the associated leases (unaudited). For the nine months ended September 30, 2020, the Company recorded $25.3 million of ROU asset impairment charges within restructuring charges in the consolidated statement of operations (unaudited).
Deferred Offering Costs (Unaudited)
Deferred offering costs of $1.4 million have been recorded as other assets, noncurrent on the consolidated balance sheet as of September 30, 2020 and consist of expenses incurred in connection with the Company’s planned IPO, including legal, accounting, printing, and other IPO-related costs. Of this amount, the amount paid as of September 30, 2020 was not material. Upon completion of the IPO, these deferred offering costs will be reclassified to stockholders’ equity and recorded against the proceeds from the offering. If the Company terminates its planned IPO or if there is a significant delay, all of the deferred offering costs will be immediately written off to operating expenses in the consolidated statements of operations. As of December 31, 2018 and 2019, the Company had not incurred such costs.
Revenue Recognition
The Company generates substantially all of its revenue from facilitating guest stays at accommodations offered by hosts on the Company’s platform.
F-18
Airbnb, Inc.
Notes to Consolidated Financial Statements
The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). The Company adopted ASC 606 effective January 1, 2018, using the full retrospective transition method. Under this method, the Company is presenting the consolidated financial statements for the year ended December 31, 2017 as if ASC 606 had been effective for that period. The adoption of ASC 606 did not have a material impact on the Company’s accumulated deficit balance as of January 1, 2017.
The Company considers both hosts and guests to be its customers. The customers agree to the Company’s Terms of Service (“ToS”) to use the Company’s platform. Upon confirmation of a booking made by a guest, the host agrees to provide the use of the property. At such time, the host and guest also agree upon the applicable booking value as well as host fees and guest fees (collectively “service fees”). The Company charges service fees in exchange for certain activities, including the use of the Company’s platform, customer support, and payment processing activities. These activities are not distinct from each other and are not separate performance obligations. As a result, the Company’s single performance obligation is to facilitate a stay, which occurs upon the completion of a check-in event (a “check-in”). The Company recognizes revenue upon check-in as its performance obligation is satisfied upon check-in and the Company has the right to receive payment for the fulfillment of the performance obligation.
The Company charges service fees to its customers as a percentage of the value of the booking, excluding taxes. The Company collects both the booking value from the guest on behalf of the host and the applicable guest fees owed to the Company using the guest’s pre-authorized payment method. After check-in, the Company disburses the booking value to the host, less the fees due from the host to the Company. The Company’s ToS stipulates that a host may cancel a confirmed booking at any time up to check-in. Therefore, the Company determined that for accounting purposes, each booking is a separate contract with the host and guest, and the contracts are not enforceable until check-in. Since an enforceable contract for accounting purposes is not established until check-in, there were no partially satisfied or unsatisfied performance obligations as of December 31, 2018 and 2019 and September 30, 2020 (unaudited). The service fees collected from customers prior to check-in are recorded as unearned fees. Unearned fees are not considered contract balances under ASC 606-10-50-8 because they are subject to refund in the event of a cancellation.
Guest stays of at least 28 nights are considered long-term stays. The Company charges service fees to facilitate long-term stays on a monthly basis. Such stays are generally cancelable with a 30-day advance notice for no significant penalty. Accordingly, long-term stays are treated as month-to-month contracts; each month is a separate contract with the host and guest, and the contracts are not enforceable until check-in for the initial month as well as subsequent monthly extensions. The Company’s performance obligation for long-term stays is the same as that for short-term stays. The Company recognizes revenue for the first month upon check-in, similar to short-term stays, and recognizes revenue for any subsequent months upon each month’s anniversary from initial check-in date.
The Company evaluates the presentation of revenue on a gross versus net basis based on whether or not it is the principal (gross) or the agent (net) in the transaction. As part of the evaluation, the Company considers whether it controls the right to use the property before control is transferred. Indicators of control that the Company considers include whether the Company is primarily responsible for fulfilling the promise associated with the rental of the property, whether it has inventory risk associated with the
F-19
Airbnb, Inc.
Notes to Consolidated Financial Statements
property, and whether it has discretion in establishing the prices for the property. The Company determined that it does not control the right to use the properties either before or after completion of its service. Accordingly, the Company has concluded that it is acting in an agent capacity and revenue is presented net reflecting the service fees received from guests and hosts to facilitate a stay.
The Company has elected to recognize the incremental costs of obtaining a contract, including the costs of certain referrer fees, as an expense when incurred as the amortization period of the asset that the Company otherwise would have recognized is one year or less. The Company has no significant financing components in its contracts with customers.
The Company has elected to exclude from revenue, taxes assessed by a governmental authority that are both imposed on and are concurrent with specific revenue producing transactions. Accordingly, such amounts are not included as a component of revenue or cost of revenue.
Payments to Customers
The Company makes payments to customers as part of its referral programs and marketing promotions, collectively referred to as the Company’s incentive programs, and refund activities. The payments are generally in the form of coupon credits to be applied toward future bookings or as cash refunds.
Incentive Programs
The Company encourages the use of its platform and attracts new customers through its incentive programs.
Under the Company’s referral program, the referring party (the “referrer”) earns a coupon when the new guest or host (the “referee”) completes their first stay on the Company’s platform. Incentives earned by customers for referring new customers are paid in exchange for a distinct service and are accounted for as customer acquisition costs. The Company records the incentive as a liability at the time the incentive is earned by the referrer with the corresponding charge recorded to sales and marketing expense in the same way the Company accounts for other marketing services from third-party vendors. Any amounts paid in excess of the fair value of the referral service received are recorded as a reduction of revenue. Fair value of the service is established using amounts paid to vendors for similar services. Customer referral coupon credits generally expire within one year from issuance and the Company estimates the redemption rates using its historical experience. As of December 31, 2018 and 2019 and September 30, 2020 (unaudited), the referral coupon liability was not material.
Through marketing promotions, the Company issues customer coupon credits to encourage the use of its platform. After a customer redeems such incentives, the Company records a reduction to revenue at the date it records the corresponding revenue transaction, as the Company does not receive a distinct good or service in exchange for the customer incentive payment.
Refunds
In certain instances, the Company issues refunds to customers as part of its customer support activities in the form of cash or credits to be applied toward a future booking. There is no legal obligation to issue such refunds to hosts or guests on behalf of its customers. The Company accounts for refunds, net of any recoveries, as variable consideration, which results in a reduction to revenue. The Company reduces the
F-20
Airbnb, Inc.
Notes to Consolidated Financial Statements
transaction price by the estimated amount of the payments by applying the most likely outcome method based on known facts and circumstances and historical experience. The estimate for variable consideration was not material as of December 31, 2018 and 2019 and September 30, 2020 (unaudited).
The Company evaluates whether the cumulative amount of payments made to customers that are not in exchange for a distinct good or service received from customers exceeds the cumulative revenue earned since inception of the customer relationships. Any cumulative payments in excess of cumulative revenue are presented within operations and support or sales and marketing on the consolidated statements of operations based on the nature of the payments made to customers.
For the years ended December 31, 2017, 2018 and 2019 and nine months ended September 30, 2019 and 2020 (unaudited), payments made to customers resulted in: reductions to revenue of $138.0 million, $221.5 million, $274.5 million, $209.7 million, and $347.2 million, respectively; charges to operations and support of $42.2 million, $68.9 million, $103.4 million, $78.4 million, and $63.0 million, respectively; and, charges to sales and marketing expense of $68.4 million, $120.2 million, $129.6 million, $99.5 million, and $50.4 million, respectively.
Funds Receivable and Funds Payable
Funds receivable and amounts held on behalf of customers represent cash received or in-transit from guests via third-party credit card processors and other payment methods, which flows through a Company bank account for payment to hosts following check-in. This cash and related receivable represent the total amount due to hosts, and as such, a liability for the same amount is recorded to funds payable and amounts payable to customers.
The Company records guest payments, net of service fees, as funds receivable and amounts held on behalf of customers with a corresponding amount in funds payable and amounts payable to customers when cash is received in advance of check-in. Host and guest fees are recorded as cash with a corresponding amount in unearned fees. For certain bookings, a guest may opt to pay 50% of the total amount due when the booking is confirmed, with the remaining balance due prior to the stay occurring (the “Pay Less Upfront Program”). Under the Pay Less Upfront Program, when the Company receives the first installment payment from the guest upon confirmation of the booking, the Company records the first installment payment as funds receivable and amounts held on behalf of customers with a corresponding amount in funds payable and amounts payable to customers, net of the host and guest fees. The full value of the service fees is recorded as cash and cash equivalents and unearned fees upon receipt of the first installment payment to represent what the Company expects to be recognized as revenue if the underlying booking is not canceled. Upon receipt of the second installment, such payment amounts are also recorded as funds receivable and amounts held on behalf of customers with a corresponding amount in funds payable and amounts payable to customers.
Following check-in, the Company remits funds due to hosts and recognizes unearned fees as revenue as its performance obligation is satisfied.
Bad Debt
The Company generally collects funds related to bookings from guests on behalf of hosts prior to check-in. However, in limited circumstances the Company disburses funds to a host or a guest on behalf of a counterparty guest or host prior to collecting such amounts from the counterparty. Such uncollected
F-21
Airbnb, Inc.
Notes to Consolidated Financial Statements
balances generally arise from the timing of payments and collections related to a dispute resolution between the guest and host or certain alterations to stays and are included in prepaids and other current assets on the consolidated balance sheets. The Company records a customer receivable allowance for credit losses for funds that may never be collected (unaudited). The Company estimated its exposure to balances deemed to be uncollectible based on factors including known facts and circumstances, historical experience, and the age of the uncollected balances. Upon adoption of ASU No. 2016-13, the Company estimates its expected credit losses for the customer receivable allowance based on factors including known facts and circumstances, historical experience, reasonable and supportable forecasts of economic conditions, and the age of the uncollected balances (unaudited). The Company writes off the asset when it is determined to be uncollectible (unaudited). Bad debt expense was $30.9 million, $49.0 million, $77.1 million, $47.9 million, and $85.5 million for the years ended December 31, 2017, 2018 and 2019 and nine months ended September 30, 2019 and 2020 (unaudited), respectively.
Cost of Revenue
Cost of revenue primarily consists of payment processing charges, including merchant fees and chargebacks, costs associated with third-party data centers used to host the Company’s platform, and amortization of internally developed software and acquired technology.
Operations and Support
Operations and support costs primarily consist of personnel-related expenses and third-party service provider fees associated with customer support provided via phone, email, and chat to hosts and guests, customer relations costs, which include refunds and credits related to customer satisfaction and expenses associated with the Company’s host protection programs, and allocated costs for facilities and information technology. These costs are expensed as incurred.
Product Development
Product development costs primarily consist of personnel-related expenses and third-party service provider fees incurred in connection with the development of the Company’s platform and new products as well as the improvement of existing products, and allocated costs for facilities and information technology. These costs are expensed as incurred.
Sales and Marketing
Sales and marketing costs primarily consist of performance and brand marketing, personnel-related expenses, including those related to field operations, portions of referral incentives and coupons, policy and communications, and allocated costs for facilities and information technology. These costs are expensed as incurred. Advertising expenses, which comprise the majority of performance marketing, were $403.9 million, $474.5 million, $712.6 million, $539.5 million, and $141.6 million for the years ended December 31, 2017, 2018 and 2019 and nine months ended September 30, 2019 and 2020 (unaudited), respectively.
General and Administrative
General and administrative costs primarily consist of personnel-related expenses for executive management and administrative functions, including finance and accounting, legal, and human resources, as well as general corporate and director and officer insurance. General and administrative costs also
F-22
Airbnb, Inc.
Notes to Consolidated Financial Statements
include certain professional services fees, allocated costs for facilities and information technology expenses, indirect taxes including lodging taxes where the Company may be held jointly liable with hosts for collecting and remitting such taxes, and bad debt expense. These costs are expensed as incurred.
Restructuring Charges (Unaudited)
Costs and liabilities associated with management-approved restructuring activities are recognized when they are incurred. One-time employee termination costs are recognized at the time of communication to employees, unless future service is required, in which case the costs are recognized ratably over the future service period. Ongoing employee termination benefits are recognized as a liability when it is probable that a liability exists and the amount is reasonably estimable. Restructuring charges are recognized as an operating expense within the consolidated statements of operations and related liabilities are recorded within accrued expenses and other liabilities on the consolidated balance sheets. The Company periodically evaluates and, if necessary, adjusts its estimates based on currently available information.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax law in effect for the years in which the temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company evaluates and accounts for uncertain tax positions using a two-step approach. Recognition, step one, occurs when the Company concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement, step two, determines the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Derecognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained.
Foreign Currency
The Company’s reporting currency is the U.S dollar. The Company determines the functional currency for each of its foreign subsidiaries by reviewing their operations and currencies used in their primary economic environments. Assets and liabilities for foreign subsidiaries with functional currency other than U.S. dollar are translated into U.S. dollars at the rate of exchange existing at the balance sheet date. Statements of operations amounts are translated at average exchange rates for the period. Translation gains and losses are recorded in accumulated other comprehensive income (loss) as a component of stockholders’ deficit. No amounts were reclassified from accumulated other comprehensive income (loss) for the years ended December 31, 2017, 2018, and 2019 and nine months ended September 30, 2020 (unaudited).
Remeasurement gains and losses are included in other income (expense), net in the consolidated statements of operations. Monetary assets and liabilities are remeasured at the exchange rate on the balance sheet date and nonmonetary assets and liabilities are measured at historical exchange rates. Total
F-23
Airbnb, Inc.
Notes to Consolidated Financial Statements
net realized and unrealized gains (losses) on foreign currency transactions and balances totaled $11.0 million, $(6.0) million, $(4.8) million, $5.7 million, and $34.6 million for the years ended December 31, 2017, 2018, and 2019 and nine months ended September 30, 2019 and 2020 (unaudited), respectively.
Derivative Instruments
The Company enters into financial derivative instruments, consisting of foreign currency contracts to mitigate its exposure to the impact of movements in currency exchange rates on its transactional balances denominated in currencies other than the functional currency. The Company does not use derivatives for trading or speculative purposes. Derivative instruments are recognized in the consolidated balance sheets at fair value. Gains and losses resulting from changes in the fair value of derivative instruments that are not designated as hedging instruments for accounting purposes are recognized in the consolidated statements of operations in the period that the changes occur.
Stock-Based Compensation
The Company measures and recognizes the compensation expense for all stock-based awards based on the estimated fair value of the award.
The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options on the date of grant. Calculating the fair value of stock options using the Black-Scholes model requires certain highly subjective inputs and assumptions. The Company estimates the expected term of stock options granted based on the simplified method and estimates the volatility of its common stock on the date of grant based on the average historical stock price volatility of comparable publicly-traded companies. The simplified method calculates the expected term as the mid-point between the weighted-average time to vesting and the contractual maturity. The simplified method is used as the Company does not have sufficient historical data regarding stock option exercises. In addition, the Company accounts for forfeitures as they occur. The Company records stock-based compensation expense for its stock options on a straight-line basis over the requisite service period, which is generally four years. The contractual term of the Company’s stock options is ten years.
The absence of an active market for the Company’s common stock also requires the Company’s board of directors, which includes members who possess extensive business, finance, and venture capital experience, to determine the fair value of its common stock for purposes of granting stock options and RSUs. The Company obtains contemporaneous third-party valuations to assist the board of directors in determining the fair value of the Company’s common stock. All stock options granted are exercisable at a price per share not less than the fair value of the shares of the Company’s common stock as determined by the board of directors (the “Fair Value”) underlying those stock options on their respective grant dates.
The fair value of RSUs is estimated based on the Fair Value on the date of grant. Substantially all of the Company’s RSUs vest upon the satisfaction of both a service-based condition and liquidity-event performance-based vesting condition. Stock-based compensation expense is only recognized for RSUs for which the service-based and liquidity-event performance-based vesting conditions have been met. As of December 31, 2019 and September 30, 2020 (unaudited), the liquidity-event performance-based vesting condition had not been met for those RSUs with this condition. The contractual term of the RSUs is seven years. In November 2019, the Company also began granting RSUs with a service-based vesting condition only.
F-24
Airbnb, Inc.
Notes to Consolidated Financial Statements
Stock-based compensation expense is recorded on a straight-line basis over the requisite service period except for RSUs with both service-based and liquidity-event performance-based conditions as explained above.
Net Loss Per Share Attributable to Common Stockholders
The Company applies the two-class method when computing net loss per share attributable to common stockholders when shares are issued that meet the definition of a participating security. The two-class method determines net income (loss) per share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires earnings available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all earnings for the period had been distributed. The Company’s redeemable convertible preferred stock is a participating security as the holders of such shares participate in dividends but do not contractually participate in the Company’s losses.
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, less weighted-average shares subject to repurchase. The diluted net loss per share is computed by giving effect to all potentially dilutive securities outstanding for the period. For periods in which the Company reports net losses, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, because potentially dilutive common shares are anti-dilutive.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) reflects gains and losses that are recorded as a component of stockholders’ deficit and are excluded from net income (loss). Other comprehensive income (loss) consists of foreign currency translation adjustments related to consolidation of foreign entities and unrealized gains (losses) on securities classified as available-for-sale.
Contingencies
The Company is subject to legal proceedings and claims that arise in the ordinary course of business. The Company accrues for losses associated with legal claims when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change.
Recently Adopted Accounting Standards
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which has subsequently been amended by ASUs 2018-01, 2018-10, 2018-11, 2018-20, 2019-01, and 2019-10. The guidance requires the recognition of ROU assets and lease liabilities for substantially all leases under U.S. GAAP. The guidance retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital
F-25
Airbnb, Inc.
Notes to Consolidated Financial Statements
leases and operating leases under previous U.S. GAAP. The expense recognition and cash flow treatment arising from a finance lease and operating lease by a lessee have not changed significantly from previous U.S. GAAP. For operating leases, a lessee is required to do the following: (i) recognize a ROU asset and a lease liability, initially measured at the present value of the lease payments, on the consolidated balance sheets; (ii) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis; and (iii) classify all cash payments within operating activities in the statement of cash flows. The Company adopted the standard on January 1, 2019.
The adoption of the standard had a material impact on the Company’s financial statements, with the most significant effects related to: (i) the recognition of new ROU assets and lease liabilities on the Company’s consolidated balance sheets for its real estate and data center operating leases; (ii) the derecognition of existing assets and liabilities for certain sale-leaseback transactions (arising from build-to-suit lease arrangements); (iii) the derecognition of existing assets and liabilities for certain assets constructed under build-to-suit lease arrangements that the Company subsequently leased; (iv) no longer reporting in the consolidated statements of operations a portion of lease expense for build-to-suit leases in interest expense, but rather, as a component of costs and expenses; and (v) providing significant new disclosures about the Company’s leasing activities.
Upon adoption, the Company recognized an operating lease ROU asset of $340.2 million and lease liabilities of $366.0 million, which included the derecognition of $62.0 million of build-to-suit assets and $84.0 million of corresponding financing obligations subsequently assessed as operating leases. The new standard also provided practical expedients for an entity’s ongoing accounting as well as transition. The Company has elected the: (i) short-term lease recognition exemption for all leases that qualify, whereby the Company will not recognize ROU assets or lease liabilities for existing short-term leases of those assets in transition; (ii) practical expedient to not separate lease and non-lease components for all of the Company’s leases; (iii) optional transition method that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods, which resulted in a cumulative-effect adjustment to the opening balance of accumulated deficit of $22.2 million; and (iv) transition package of three expedients, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs.
Recently Adopted Accounting Standards (Unaudited)
In June 2016, the FASB issued ASU No. 2016-13, which amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities from an incurred loss methodology to an expected loss methodology. For assets held at amortized cost basis, the guidance eliminates the probable initial recognition threshold and instead requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses are recorded through an allowance for credit losses, rather than a write-down, limited to the amount by which fair value is below amortized cost. Additional disclosures about significant estimates and credit quality are also required. For public companies, the guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. This ASU has subsequently been amended by ASUs 2018-19, 2019-04, 2019-05, 2019-10, and 2019-11. The Company adopted this guidance on January 1, 2020 using the modified
F-26
Airbnb, Inc.
Notes to Consolidated Financial Statements
retrospective basis. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740), which removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public companies, the guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company early adopted this guidance on January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In January 2020, the FASB issued ASU 2020-01, Investments — Equity Securities (Topic 321), Investments — Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323 and Topic 815, which clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the fair value measurement alternative. For public companies, the guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions to contract modifications and hedging relationships that reference the London Interbank Offered Rate or another reference rate expected to be discontinued. The standard is effective upon issuance through December 31, 2022 and may be applied at the beginning of the interim period that includes March 12, 2020 or any date thereafter. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. For public companies, the guidance is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables — Nonrefundable Fees and Other Costs, which clarifies when an entity should assess whether a callable debt security is within the scope of accounting guidance, which impacts the amortization period for nonrefundable fees and other costs. For public companies, the guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Upon adoption, the amendments are to be applied on a prospective basis as of the beginning of the period of adoption for
F-27
Airbnb, Inc.
Notes to Consolidated Financial Statements
existing or newly purchased callable debt securities. Early adoption is not permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
There are other new accounting pronouncements issued by the FASB that the Company has adopted or will adopt, as applicable, and the Company does not believe any of these accounting pronouncements have had, or will have, a material impact on its consolidated financial statements or disclosures.
Note 3. Investments
Debt Securities
The following tables summarize the amortized cost, gross unrealized gains and losses, and fair value of the Company’s available-for-sale debt securities aggregated by investment category (in thousands):
| December 31, 2018 | Classification as of December 31, 2018 | |||||||||||||||||||||||||||||||||||
| Cost or Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Total Estimated Fair Value |
Cash and Cash Equivalents |
Marketable Securities |
Funds Receivable(2) |
||||||||||||||||||||||||||||||
|
Certificates of deposit |
$ |
75,466 |
|
$ |
— |
|
$ |
— |
|
$ |
75,466 |
|
|
|
|
|
|
|
$ |
— |
|
$ |
75,466 |
|
$ |
— |
| |||||||||
|
Government bonds(1) |
|
713,067 |
|
|
38 |
|
|
(69 |
) |
|
713,036 |
|
|
|
|
|
|
|
|
— |
|
|
208,636 |
|
|
504,400 |
| |||||||||
|
Commercial paper |
|
260,151 |
|
|
— |
|
|
— |
|
|
260,151 |
|
|
|
|
|
|
|
|
179,212 |
|
|
80,939 |
|
|
— |
| |||||||||
|
Corporate debt securities |
|
344,413 |
|
|
— |
|
|
(1,913 |
) |
|
342,500 |
|
|
|
|
|
|
|
|
3,239 |
|
|
339,261 |
|
|
— |
| |||||||||
|
Asset-backed securities |
|
38,008 |
|
|
26 |
|
|
(62 |
) |
|
37,972 |
|
|
|
|
|
|
|
|
— |
|
|
37,972 |
|
|
— |
| |||||||||
|
Total |
$ |
1,431,105 |
|
$ |
64 |
|
$ |
(2,044 |
) |
$ |
1,429,125 |
|
|
|
|
|
|
|
$ |
182,451 |
|
$ |
742,274 |
|
$ |
504,400 |
|
| (1) |
Includes U.S. government and government agency debt securities |
| (2) |
Funds receivable and amounts held on behalf of customers |
| December 31, 2019 | Classification as of December 31, 2019 | |||||||||||||||||||||||||||||||||||||||
| Cost or Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Total Estimated Fair Value |
Cash and Cash Equivalents |
Marketable Securities |
Other Assets, Noncurrent |
Funds Receivable(2) |
|||||||||||||||||||||||||||||||||
|
Certificates of deposit |
$ |
33,159 |
|
$ |
— |
|
$ |
— |
|
$ |
33,159 |
|
|
|
|
|
|
|
$ |
— |
|
$ |
33,159 |
|
$ |
— |
|
$ |
— |
| ||||||||||
|
Government bonds(1) |
|
189,034 |
|
|
17 |
|
|
(19 |
) |
|
189,032 |
|
|
|
|
|
|
|
|
— |
|
|
73,627 |
|
|
— |
|
|
115,405 |
| ||||||||||
|
Commercial paper |
|
477,957 |
|
|
— |
|
|
— |
|
|
477,957 |
|
|
|
|
|
|
|
|
187,139 |
|
|
290,818 |
|
|
— |
|
|
— |
| ||||||||||
|
Corporate debt securities |
|
373,941 |
|
|
739 |
|
|
(48 |
) |
|
374,632 |
|
|
|
|
|
|
|
|
5,004 |
|
|
356,599 |
|
|
13,029 |
|
|
— |
| ||||||||||
|
Mortgage-backed and asset-backed securities |
|
43,499 |
|
|
47 |
|
|
(140 |
) |
|
43,406 |
|
|
|
|
|
|
|
|
— |
|
|
43,406 |
|
|
— |
|
|
— |
| ||||||||||
|
Total |
$ |
1,117,590 |
|
$ |
803 |
|
$ |
(207 |
) |
$ |
1,118,186 |
|
|
|
|
|
|
|
$ |
192,143 |
|
$ |
797,609 |
|
$ |
13,029 |
|
$ |
115,405 |
|
| (1) |
Includes U.S. government and government agency debt securities |
| (2) |
Funds receivable and amounts held on behalf of customers |
F-28
Airbnb, Inc.
Notes to Consolidated Financial Statements
| September 30, 2020 | Classification as of September 30, 2020 | |||||||||||||||||||||||||||||||||||||||
| Cost or Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Total Estimated Fair Value |
Cash and Cash Equivalents |
Marketable Securities |
Other |
Funds Receivable)(2) |
|||||||||||||||||||||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||||||||||||||||||||||||||
| Certificates of deposit |
$ | 101,555 | $ | — | $ | — | $ | 101,555 |
|
|
|
|
|
|
$ | 16,250 | $ | 85,305 | $ | — | $ | — | ||||||||||||||||||
| Government bonds(1) |
1,227,059 | 85 | (2 | ) | 1,227,142 |
|
|
|
|
|
|
14,978 | 746,049 | — | 466,115 | |||||||||||||||||||||||||
| Commercial paper |
534,621 | 2 | — | 534,623 |
|
|
|
|
|
|
126,826 | 407,797 | — | — | ||||||||||||||||||||||||||
| Corporate debt securities |
400,860 | 2,525 | (18 | ) | 403,367 |
|
|
|
|
|
|
17,779 | 372,559 | 13,029 | — | |||||||||||||||||||||||||
| Mortgage-backed and asset-backed securities |
36,963 | 960 | (21 | ) | 37,902 |
|
|
|
|
|
|
— | 37,902 | — | — | |||||||||||||||||||||||||
|
|
$ | 2,301,058 | $ | 3,572 | $ | (41 | ) | $ | 2,304,589 |
|
|
|
|
|
|
$ | 175,833 | $ | 1,649,612 | $ | 13,029 | $ | 466,115 |
| (1) |
Includes U.S. government and government agency debt securities |
| (2) |
Funds receivable and amounts held on behalf of customers |
As of September 30, 2020, the Company did not have an allowance for credit losses related to its available-for-sale debt securities (unaudited).
Before reclassifications of gains and losses from accumulated other comprehensive income (loss) on the consolidated balance sheets to other income (expense), net in the consolidated statements of operations, unrealized gains and losses, net of tax, for the years ended December 31, 2017, 2018, and 2019 and nine months ended September 30, 2019 and 2020 (unaudited), were not material. Realized gains and losses reclassified from accumulated other comprehensive income (loss) to other income (expense), net were not material for the years ended December 31, 2017, 2018, and 2019 and nine months ended September 30, 2019 and 2020 (unaudited).
Debt securities in an unrealized loss position had an estimated fair value of $570.8 million and an immaterial amount of unrealized losses as of December 31, 2018, an estimated fair value of $139.7 million and an immaterial amount of unrealized losses as of December 31, 2019, and an estimated fair value of $221.0 million and an immaterial amount of unrealized losses as of September 30, 2020 (unaudited). None of these securities were in a continuous unrealized loss position for more than twelve months as of December 31, 2018 and 2019 and an immaterial amount of securities were in a continuous loss position for more than twelve months as of September 30, 2020 (unaudited).
During the years ended December 31, 2017, 2018, and 2019, the Company did not consider any of its marketable debt securities to be other-than-temporarily impaired. During the years ended December 31, 2017 and 2018, the Company did not purchase or hold a material amount of non-marketable debt securities. During the year ended December 31, 2019, the Company recorded an impairment charge for an available-for-sale non-marketable debt investment totaling $18.0 million. During the nine months ended September 30, 2019 and 2020 (unaudited), the Company did not record any impairment charges for its available-for-sale non-marketable debt investments.
F-29
Airbnb, Inc.
Notes to Consolidated Financial Statements
The following table summarizes the contractual maturities of the Company’s available-for-sale debt securities (in thousands):
| December 31, 2019 | September 30, 2020 | |||||||||||||||
| Amortized Cost |
Estimated Fair Value |
Amortized Cost |
Estimated Fair Value |
|||||||||||||
| (unaudited) | ||||||||||||||||
| Due within one year |
$ | 944,541 | $ | 944,616 | $ | 2,180,055 | $ | 2,180,786 | ||||||||
| Due in one year to five years |
150,674 | 151,236 | 116,298 | 118,857 | ||||||||||||
| Due within five to ten years |
21,322 | 21,290 | 3,217 | 3,404 | ||||||||||||
| Due beyond ten years |
1,053 | 1,044 | 1,488 | 1,542 | ||||||||||||
| Total |
$ | 1,117,590 | $ | 1,118,186 | $ | 2,301,058 | $ | 2,304,589 |
Equity Investments
Equity Investments with Readily Determinable Fair Values
As of December 31, 2018 and 2019 and September 30, 2020 (unaudited), the Company had equity investments with readily determinable fair value totaling $446.2 million, $263.1 million, and $181.2 million, respectively, which consisted of mutual funds measured at fair value and classified within marketable securities on the consolidated balance sheet.
Equity Investments Without Readily Determinable Fair Values
The Company holds investments in privately-held companies in the form of equity securities without readily determinable fair values and in which the Company does not have a controlling interest or significant influence. These investments had net carrying values of $10.1 million, $131.2 million, and $78.1 million as of December 31, 2018 and 2019 and September 30, 2020 (unaudited), respectively, and are classified within other assets on the consolidated balance sheets. These investments were initially recorded using the measurement alternative at cost and are subsequently adjusted to fair value for impairments and price changes from observable transactions in the same or similar security from the same issuer.
The following table summarizes the total carrying value of equity investments without readily determinable fair values (in thousands):
| Year Ended December 31, | Nine Months Ended September 30, |
|||||||||||
| 2018 | 2019 | 2020 | ||||||||||
| (unaudited) | ||||||||||||
| Carrying value, beginning of period |
$ | 4,773 | $ | 10,086 | $ | 131,210 | ||||||
| Additions |
5,313 | 120,575 | — | |||||||||
| Sales |
— | — | — | |||||||||
| Downward adjustments for observable price changes and impairment |
— | — | (53,136 | ) | ||||||||
| Upward adjustments for observable price changes |
— | 549 | — | |||||||||
| Carrying value, end of period |
$ | 10,086 | $ | 131,210 | $ | 78,074 |
F-30
Airbnb, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2019 and September 30, 2020 (unaudited), cumulative upward adjustments for price changes to the Company’s equity investments without readily determinable fair values totaled $0.5 million. The Company did not record any realized gains or losses or impairment for the Company’s equity securities without readily determinable fair value during the years ended December 31, 2017, 2018, and 2019 and nine months ended September 30, 2019 (unaudited). The Company recorded impairment charges of $53.1 million during the nine months ended September 30, 2020, which also represented the cumulative impairment charges as of September 30, 2020 (unaudited).
Gains and Losses on Equity Investments
Net unrealized gains (losses) on marketable equity investments were not material for the years ended December 31, 2017 and 2018 and totaled $13.2 million, $7.8 million, and $(19.5) million for the year ended December 31, 2019 and nine months ended September 30, 2019 and 2020 (unaudited), respectively. The unrealized gains and losses on marketable equity investments were recorded in other income (expense), net on the consolidated statements of operations.
Note 4. Equity Method Investments
As of December 31, 2018 and 2019 and September 30, 2020 (unaudited), the carrying values of the Company’s equity method investments were $21.6 million, $58.7 million, and $22.1 million, respectively. For the years ended December 31, 2017, 2018 and 2019 and nine months ended September 30, 2019 and 2020 (unaudited), the Company recorded losses of $0.8 million, $3.2 million, $6.0 million, $4.3 million, and $7.6 million, respectively, within other income (expense), net in the consolidated statements of operations, representing its proportionate share of net income or loss based on the investee’s financial results. Also, during the year ended December 31, 2019 and nine months ended September 30, 2020 (unaudited), the Company recorded impairment charges of $9.8 million and $29.0 million, respectively, related to the carrying value of equity method investments within other income (expense), net. There were no impairment charges for the years ended December 31, 2017 and 2018 and nine months ended September 30, 2019 (unaudited).
In December 2016, the Company purchased convertible preferred shares of a company (the “2016 Investee”) that provides a mobile app for restaurant reservations for an aggregate price of $10.0 million. In conjunction with this transaction, the 2016 Investee issued warrants, at no cost, to the Company to purchase additional shares, which were exercised in 2018. Prior to exercise, the Company marked-to-market and recorded unrealized losses on the warrants, which were not material for the years ended December 31, 2017 and 2018. As of December 31, 2018, the Company’s aggregate ownership in the 2016 Investee totaled $18.6 million, or approximately 23% of the 2016 Investee’s outstanding shares. In July 2019, the 2016 Investee was acquired by a third party, resulting in a gain of $24.6 million recorded in other income (expense), net in the consolidated statements of operations.
F-31
Airbnb, Inc.
Notes to Consolidated Financial Statements
Note 5. Fair Value Measurements and Financial Instruments
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):
| December 31, 2018 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Money market funds |
$ | 18,099 | $ | — | $ | — | $ | 18,099 | ||||||||
| Commercial paper |
— | 179,212 | — | 179,212 | ||||||||||||
| Corporate debt securities |
— | 3,239 | — | 3,239 | ||||||||||||
|
|
18,099 | 182,451 | — | 200,550 | ||||||||||||
| Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Certificates of deposit |
75,466 | — | — | 75,466 | ||||||||||||
| U.S. government and government agency debt securities |
— | 208,636 | — | 208,636 | ||||||||||||
| Commercial paper |
— | 80,939 | — | 80,939 | ||||||||||||
| Corporate debt securities |
— | 339,261 | — | 339,261 | ||||||||||||
| Asset backed securities |
— | 37,972 | — | 37,972 | ||||||||||||
| Mutual funds |
— | 446,157 | — | 446,157 | ||||||||||||
|
|
75,466 | 1,112,965 | — | 1,188,431 | ||||||||||||
| Funds receivable and amounts held on behalf of customers: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| U.S. government and government agency debt securities |
— | 504,400 | — | 504,400 | ||||||||||||
| Total assets at fair value |
$ | 93,565 | $ | 1,799,816 | $ | — | $ | 1,893,381 | ||||||||
| Liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Other liabilities, noncurrent: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Derivative warrant liability (Note 12) |
$ | — | $ | — | $ | 14,402 | $ | 14,402 |
F-32
Airbnb, Inc.
Notes to Consolidated Financial Statements
| December 31, 2019 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Money market funds |
$ | 3,852 | $ | — | $ | — | $ | 3,852 | ||||||||
| Commercial paper |
— | 187,139 | — | 187,139 | ||||||||||||
| Corporate debt securities |
— | 5,004 | — | 5,004 | ||||||||||||
|
|
3,852 | 192,143 | — | 195,995 | ||||||||||||
| Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Certificates of deposit |
33,159 | — | — | 33,159 | ||||||||||||
| U.S. government and government agency debt securities |
— | 73,627 | — | 73,627 | ||||||||||||
| Commercial paper |
— | 290,818 | — | 290,818 | ||||||||||||
| Corporate debt securities |
— | 356,599 | — | 356,599 | ||||||||||||
| Mortgage-backed and asset-backed securities |
— | 43,406 | — | 43,406 | ||||||||||||
| Mutual funds |
— | 263,117 | — | 263,117 | ||||||||||||
|
|
33,159 | 1,027,567 | — | 1,060,726 | ||||||||||||
| Funds receivable and amounts held on behalf of customers: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| U.S. government and government agency debt securities |
— | 115,405 | — | 115,405 | ||||||||||||
| Prepaids and other current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Foreign exchange derivative assets |
— | 5,263 | — | 5,263 | ||||||||||||
| Other assets, noncurrent: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Corporate debt securities |
— | — | 13,029 | 13,029 | ||||||||||||
| Total assets at fair value |
$ | 37,011 | $ | 1,340,378 | $ | 13,029 | $ | 1,390,418 | ||||||||
| Liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Accrued expenses and other current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Foreign exchange derivative liabilities |
$ | — | $ | 475 | $ | — | $ | 475 |
F-33
Airbnb, Inc.
Notes to Consolidated Financial Statements
| September 30, 2020 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| (unaudited) | ||||||||||||||||
| Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Money market funds |
$ | 32,352 | $ | — | $ | — | $ | 32,352 | ||||||||
| Certificates of deposit |
16,250 | — | — | 16,250 | ||||||||||||
| U.S. government debt securities |
— | 14,978 | — | 14,978 | ||||||||||||
| Commercial paper |
— | 126,826 | — | 126,826 | ||||||||||||
| Corporate debt securities |
— | 17,779 | — | 17,779 | ||||||||||||
|
|
48,602 | 159,583 | — | 208,185 | ||||||||||||
| Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Certificates of deposit |
85,305 | — | — | 85,305 | ||||||||||||
| U.S. government and government agency debt securities |
— | 746,049 | — | 746,049 | ||||||||||||
| Commercial paper |
— | 407,797 | — | 407,797 | ||||||||||||
| Corporate debt securities |
— | 372,559 | — | 372,559 | ||||||||||||
| Mortgage-backed and asset-backed securities |
— | 37,902 | — | 37,902 | ||||||||||||
| Mutual funds |
— | 181,209 | — | 181,209 | ||||||||||||
|
|
85,305 | 1,745,516 | — | 1,830,821 | ||||||||||||
| Funds receivable and amounts held on behalf of customers: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| U.S. government and government agency debt securities |
— | 466,115 | — | 466,115 | ||||||||||||
| Prepaids and other current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Foreign exchange derivative assets |
— | 11,237 | — | 11,237 | ||||||||||||
| Other assets, noncurrent: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Corporate debt securities |
— | — | 13,029 | 13,029 | ||||||||||||
| Total assets at fair value |
$ | 133,907 | $ | 2,382,451 | $ | 13,029 | $ | 2,529,387 | ||||||||
| Liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Accrued expenses and other current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Foreign exchange derivative liabilities |
$ | — | $ | 10,939 | $ | — | $ | 10,939 | ||||||||
| Derivative warrant liability (Note 11) |
— | — | 157,802 | 157,802 | ||||||||||||
| Total liabilities at fair value |
$ | — | $ | 10,939 | $ | 157,802 | $ | 168,741 |
F-34
Airbnb, Inc.
Notes to Consolidated Financial Statements
The following table presents additional information about investments that are measured at fair value for which the Company has utilized Level 3 inputs to determine fair value (in thousands):
| December 31, | September 30, | |||||||||||||||||||||||||||||||
| 2018 | 2019 | 2020 | ||||||||||||||||||||||||||||||
| Derivative Warrant Asset |
Derivative Warrant Liability |
Derivative Warrant Liability |
Other Assets, Noncurrent |
Derivative Warrant Liability |
Other Assets, Noncurrent |
|||||||||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||||||||||
| Balance, beginning of period |
$ | 1,723 | $ | 11,087 |
|
|
|
$ | 14,402 | $ | — |
|
|
|
$ | — | $ | 13,029 | ||||||||||||||
| Additions |
— | — |
|
|
|
— | 13,029 |
|
|
|
116,641 | — | ||||||||||||||||||||
| Settlements |
(1,565 | ) | — |
|
|
|
— | — |
|
|
|
— | — | |||||||||||||||||||
| Reclassifications to equity |
— | — |
|
|
|
(14,117 | ) | — |
|
|
|
— | — | |||||||||||||||||||
| Changes in gains or losses included in earnings |
(158 | ) | 3,315 |
|
|
|
(285 | ) | — |
|
|
|
41,161 | — | ||||||||||||||||||
| Balance, end of period |
$ | — | $ | 14,402 |
|
|
|
$ | — | $ | 13,029 |
|
|
|
$ | 157,802 | $ | 13,029 | ||||||||||||||
| Changes in unrealized gains or losses included in earnings related to investments held at the reporting date |
$ | — | $ | 3,315 |
|
|
|
$ | — | $ | — |
|
|
|
$ | 41,161 | $ | — | ||||||||||||||
| Changes in unrealized gains or losses included in other comprehensive income related to investments held at the reporting date |
$ | — | $ | — |
|
|
|
$ | — | $ | — |
|
|
|
$ | — | $ | — |
There were no transfers of financial instruments between valuation levels during the years ended December 31, 2017, 2018, and 2019 and nine months ended September 30, 2019 and 2020 (unaudited).
The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair value and categorized within Level 3 as of September 30, 2020 (unaudited) (fair value amounts in thousands):
| Fair Value | Valuation Technique | Unobservable Inputs |
Inputs Value | |||||||||
| Liability |
|
|
|
|
|
|
|
| ||||
| Derivative warrant liability |
$ | 157,802 | Black-Scholes option pricing model | Stock volatility | 43.8 | % | ||||||
|
|
|
|
|
|
Risk-free rate | 0.7 | % | |||||
|
|
|
|
|
|
Expected term | 9.5 years |
Derivatives Not Designated as Hedging Instruments
As of December 31, 2019, the fair value of foreign exchange derivative assets and liabilities totaled $5.3 million and $0.5 million, respectively, with the aggregate notional amount totaling $516.7 million. As of September 30, 2020 (unaudited), the fair value of foreign exchange derivative assets and liabilities totaled $11.2 million and $10.9 million, respectively, with the aggregate notional amount totaling $1.7 billion. Derivative assets are included in prepaids and other current assets and derivative liabilities are included in accrued expenses and other current liabilities in the consolidated balance sheets. The Company did not have any non-designated derivatives during the years ended December 31, 2017 and 2018.
F-35
Airbnb, Inc.
Notes to Consolidated Financial Statements
The Company recorded total net realized gains (losses) of $(2.0) million, $(2.7) million, and $(28.6) million and net unrealized gains (losses) of $4.8 million, $(0.7) million, and $(4.5) million for the year ended December 31, 2019 and nine months ended September 30, 2019 and 2020 (unaudited), respectively, related to foreign exchange derivative assets and liabilities. The realized and unrealized gains and losses on non-designated derivatives are reported in other income (expense), net in the consolidated statements of operations. The cash flows related to derivative instruments not designated as hedging instruments are classified within operating activities in the consolidated statements of cash flows.
The Company has master netting arrangements with the respective counterparties to its derivative contracts, which are designed to reduce credit risk by permitting net settlement of transactions with the same counterparty. The Company presents its derivative assets and derivative liabilities at their gross fair values in its consolidated balance sheets. As of December 31, 2019, the potential effect of these rights of set-off associated with the Company’s derivative contracts would be a reduction to both assets and liabilities of $0.5 million, resulting in net derivative assets of $4.8 million. As of September 30, 2020 (unaudited), the potential effect of these rights of set-off associated with the Company’s derivative contracts would be a reduction to both assets and liabilities of $8.7 million, resulting in net derivative assets of $2.5 million and derivative liabilities of $2.2 million.
Note 6. Acquisitions
HotelTonight
On April 15, 2019, the Company completed the acquisition of Hotel Tonight, Inc. (“HotelTonight”), an online marketplace for boutique hotel rentals, to enhance the Company’s offerings in the hotel accommodations space.
The Company acquired all outstanding shares of HotelTonight for a total purchase consideration of $441.4 million funded primarily with cash and 3.2 million shares of the Company’s Class A common stock. The aggregate purchase consideration for HotelTonight was comprised of the following (in thousands):
| Fair Value | ||||
| Cash paid to HotelTonight stockholders and equity award holders |
$ | 237,387 | ||
| Common stock issued to HotelTonight stockholders and equity award holders |
201,079 | |||
| Replacement stock options attributable to pre-acquisition service |
2,891 | |||
| Total purchase consideration |
$ | 441,357 |
Cash consideration included reimbursement of acquisition-related transaction costs of $11.3 million incurred by HotelTonight to execute the transaction. Additionally, the Company recognized $3.9 million of acquisition-related costs, recorded as general and administrative expenses in its consolidated statements of operations.
Certain unvested stock options held by HotelTonight employees were assumed by the Company in connection with the acquisition. The portion of the fair value of the assumed stock options associated with pre-acquisition service of HotelTonight employees represented a component of the total purchase consideration, as presented above. The remaining fair value of $12.3 million of these issued awards was
F-36
Airbnb, Inc.
Notes to Consolidated Financial Statements
excluded from the purchase price. These awards, which are subject to the recipients’ continued service with the Company, will be recognized ratably as stock-based compensation expense over the requisite service period.
The acquisition was accounted for as a business combination with the aggregate purchase price allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The purchase price allocation is preliminary, may change, and will be completed prior to the measurement period, or one year from the transaction date, as prescribed by ASC 805, Business Combinations. The fair value is as follows (in thousands):
| Amount | ||||
| Cash, cash equivalents, and restricted cash |
$ | 55,960 | ||
| Intangible assets |
88,000 | |||
| Goodwill |
329,899 | |||
| Net liabilities assumed |
(32,502 | ) | ||
| Total purchase consideration |
$ | 441,357 |
The final determination of the fair value of the assets acquired and liabilities assumed is expected to be completed as practicable after completion of the transaction, including a period of time to finalize working capital adjustments.
Goodwill is primarily attributable to the assembled workforce and anticipated synergies and economies of scale expected from the integration of the acquired business. The identified intangible assets assumed in the acquisition were recognized as follows based upon their fair values as of the acquisition date (in thousands):
| Estimated Useful Life |
Fair Value |
|||||||
| Developed technology |
3 years | $ | 20,000 | |||||
| Listing relationships |
10 years | 35,100 | ||||||
| Trade names |
5 years | 32,900 | ||||||
| Total identified intangible assets |
|
|
|
$ | 88,000 |
The Company’s consolidated financial statements include the accounts of HotelTonight starting as of the acquisition date.
Other Acquisitions
During the year ended December 31, 2017, the Company completed the acquisition of Luxury Retreats International Holdings, Inc. (“Luxury Retreats”), an online marketplace for luxury home and villa rentals around the world. Under the terms of the share purchase agreement, the Company acquired all shares of Luxury Retreats for a total purchase consideration of $224.1 million primarily in cash and common stock, of which $223.6 million was attributed to goodwill, $64.5 million was attributed to intangible assets, and $64.0 million was attributed to other net liabilities. In addition to the Luxury Retreats acquisition, the
F-37
Airbnb, Inc.
Notes to Consolidated Financial Statements
Company completed various business combinations and asset purchases for total consideration of $39.8 million. Of the total consideration for these acquisitions, $28.1 million was attributed to goodwill, $11.5 million was attributed to intangible assets, and the amount attributed to the remaining net assets acquired was not material.
During the year ended December 31, 2018, the Company completed various business combinations and asset purchases for total consideration of $40.3 million, of which $31.3 million was cash. Of the total consideration for these acquisitions, $31.9 million was attributed to goodwill, $8.1 million was attributed to intangible assets, and the amount attributed to the remaining net assets acquired was not material.
During the year ended December 31, 2019, the Company completed two business combinations in addition to the HotelTonight acquisition described above for total consideration of $63.3 million, of which $11.4 million was paid in cash, $36.7 million was paid in shares of the Company’s Class A common stock, and $15.3 million was contingent consideration. Of the total consideration for these acquisitions, $33.8 million was attributed to goodwill, $31.7 million was attributed to intangible assets, and $2.2 million was attributed to other net liabilities.
For all intangible assets acquired during the years ended December 31, 2017, 2018 and 2019 and nine months ended September 30, 2019 (unaudited), the weighted-average useful life was 2.3 years, 2.3 years, 5.4 years, and 5.4 years, respectively. There were no intangible assets acquired during the nine months ended September 30, 2020 (unaudited).
Each of these acquisitions, including the acquisition of HotelTonight, was made to enhance the Company’s offerings and expand the Company’s expertise in engineering and other functional areas. The amount of goodwill deductible for income tax purposes was $3.1 million, $11.7 million, and $15.0 million as of December 31, 2017, 2018, and 2019, respectively. Pro forma and historical post-acquisition results of operations for acquisitions completed during the years ended December 31, 2017, 2018, and 2019 were not material to the Company’s consolidated statements of operations.
Note 7. Intangible Assets and Goodwill
Intangible Assets
Identifiable intangible assets resulting from business combinations and asset purchases consisted of the following (in thousands):
| December 31, 2018 | ||||||||||||||||
| Weighted- Average Useful Life |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Value |
|||||||||||||
| Listing relationships |
3 years | $ | 34,723 | $ | (21,893 | ) | $ | 12,830 | ||||||||
| Customer contacts |
3 years | 8,352 | (4,740 | ) | 3,612 | |||||||||||
| Developed technology |
2 years | 20,800 | (10,662 | ) | 10,138 | |||||||||||
| Trade names |
1 year | 23,577 | (21,674 | ) | 1,903 | |||||||||||
| Other |
2 years | 660 | (387 | ) | 273 | |||||||||||
| Total intangible assets |
|
|
|
$ | 88,112 | $ | (59,356 | ) | $ | 28,756 |
F-38
Airbnb, Inc.
Notes to Consolidated Financial Statements
| December 31, 2019 | ||||||||||||||||
| Weighted- Average Useful Life |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Value |
|||||||||||||
| Listing relationships |
6 years | $ | 77,533 | $ | (37,057 | ) | $ | 40,476 | ||||||||
| Customer contacts |
3 years | 12,571 | (8,728 | ) | 3,843 | |||||||||||
| Developed technology |
2 years | 55,845 | (27,292 | ) | 28,553 | |||||||||||
| Trade names |
3 years | 56,770 | (27,268 | ) | 29,502 | |||||||||||
| Other |
3 years | 935 | (397 | ) | 538 | |||||||||||
| Total intangible assets |
|
|
|
$ | 203,654 | $ | (100,742 | ) | $ | 102,912 |
| September 30, 2020 | ||||||||||||||||
| Weighted- Average Useful Life |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Value |
|||||||||||||
| (unaudited) | ||||||||||||||||
| Listing relationships |
9 years | $ | 42,502 | $ | (7,997 | ) | $ | 34,505 | ||||||||
| Customer contacts |
3 years | 4,346 | (1,806 | ) | 2,540 | |||||||||||
| Developed technology |
3 years | 37,800 | (24,378 | ) | 13,422 | |||||||||||
| Trade names |
5 years | 35,753 | (11,974 | ) | 23,779 | |||||||||||
| Other |
3 years | 550 | (229 | ) | 321 | |||||||||||
| Total intangible assets |
|
|
|
$ | 120,951 | $ | (46,384 | ) | $ | 74,567 |
Amortization expense related to intangible assets for the years ended December 31, 2017, 2018, and 2019 and nine months ended September 30, 2019 and 2020 (unaudited) was $36.4 million, $22.0 million, $46.1 million, $27.6 million, and $28.4 million, respectively.
Estimated future amortization expense for intangible assets as of December 31, 2019 was as follows (in thousands):
| Year Ending December 31, | Amount | |||
| 2020 |
$ | 32,665 | ||
| 2021 |
25,652 | |||
| 2022 |
14,204 | |||
| 2023 |
10,219 | |||
| 2024 |
5,187 | |||
| Thereafter |
14,985 | |||
| Total future amortization expense |
$ | 102,912 |
F-39
Airbnb, Inc.
Notes to Consolidated Financial Statements
Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2019 and nine months ended September 30, 2020 (unaudited) were as follows (in thousands):
| Amount | ||||
| Balance as of December 31, 2017 |
$ | 258,035 | ||
| Additions related to acquisitions |
31,861 | |||
| Foreign currency translation adjustments |
(35 | ) | ||
| Balance as of December 31, 2018 |
289,861 | |||
| Additions related to acquisitions |
363,681 | |||
| Foreign currency translation adjustments |
(1,454 | ) | ||
| Balance as of December 31, 2019 |
652,088 | |||
| Foreign currency translation adjustments (unaudited) |
1,678 | |||
| Balance as of September 30, 2020 (unaudited) |
$ | 653,766 |
Note 8. Property and Equipment, Net
Property and equipment, net, as of December 31, 2018 and 2019 and September 30, 2020 (unaudited) consisted of the following (in thousands):
| December 31, | September 30, | |||||||||||
| 2018 | 2019 | 2020 | ||||||||||
| (unaudited) | ||||||||||||
| Computer equipment |
$ | 46,729 | $ | 53,916 | $ | 55,318 | ||||||
| Computer software and capitalized internal-use software |
68,994 | 85,522 | 94,372 | |||||||||
| Office furniture and equipment |
34,521 | 47,165 | 48,613 | |||||||||
| Leasehold improvements |
89,548 | 236,027 | 241,500 | |||||||||
| Buildings and land |
164,926 | 16,844 | 16,844 | |||||||||
|
|
404,718 | 439,474 | 456,647 | |||||||||
| Less: Accumulated depreciation and amortization |
(143,711 | ) | (178,735 | ) | (242,984 | ) | ||||||
|
|
261,007 | 260,739 | 213,663 | |||||||||
| Construction in progress |
48,401 | 40,534 | 47,569 | |||||||||
| Total property and equipment, net |
$ | 309,408 | $ | 301,273 | $ | 261,232 |
Depreciation and amortization expense related to property and equipment for the years ended December 31, 2017, 2018, and 2019 and nine months ended September 30, 2019 and 2020 (unaudited) was $42.9 million, $60.4 million, $68.0 million, $48.7 million, and $65.0 million, respectively.
During the years ended December 31, 2017, 2018, and 2019 and nine months ended September 30, 2019 and 2020 (unaudited), amortization of capitalized internal-use software costs was $9.5 million, $12.4 million, $10.9 million, $7.7 million, and $16.0 million, respectively. The net carrying value of capitalized internal-use software as of December 31, 2018 and 2019 and September 30, 2020 (unaudited) was $8.5 million, $24.1 million, and $13.8 million, respectively.
F-40
Airbnb, Inc.
Notes to Consolidated Financial Statements
Note 9. Leases
The Company’s material operating leases consist of office space and data center space. The Company’s leases generally have remaining terms of one to 19 years, many of which include options to extend the leases up to five years. Additionally, some lease contracts include termination options. Generally, the lease term is the minimum of the non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal periods.
The components of lease cost were as follows (in thousands):
| Year Ended December 31, 2019 |
||||
| Operating lease cost (1) |
$ | 82,298 | ||
| Short-term lease cost (1) |
1,128 | |||
| Variable lease cost (1) |
9,619 | |||
| Sublease income (2) |
(261 | ) | ||
| Total lease cost |
$ | 92,784 |
| (1) |
Classified within operations and support, product development, sales and marketing, and general and administrative expenses in the consolidated statements of operations. |
| (2) |
Classified within other income (expense), net on the consolidated statements of operations. |
Supplemental disclosures of cash flow information related to leases were as follows (in thousands):
| Year Ended December 31, 2019 |
||||
| Cash paid for operating lease liabilities |
$72,356 | |||
| Lease liabilities arising from obtaining right-of-use assets |
101,193 |
Lease term and discount rate were as follows:
| As of December 31, 2019 |
||||
| Weighted-average remaining lease term (years) |
8.06 | |||
| Weighted-average discount rate |
4.75 | % |
F-41
Airbnb, Inc.
Notes to Consolidated Financial Statements
Maturities of lease liabilities (excluding short-term leases) were as follows as of December 31, 2019 (in thousands):
| Year Ending December 31, | Amount | |||
| 2020 |
$ | 57,220 | ||
| 2021 |
65,003 | |||
| 2022 |
74,025 | |||
| 2023 |
67,846 | |||
| 2024 |
67,917 | |||
| Thereafter |
207,434 | |||
| Total lease payments |
539,445 | |||
| Less: imputed interest |
(120,049 | ) | ||
| Present value of lease liabilities |
419,396 | |||
| Less: current portion of lease liabilities |
(38,022 | ) | ||
| Total long-term lease liabilities |
$ | 381,374 |
Under ASC Topic 840, Leases (“ASC 840”), contractual commitments related to operating leases were as follows as of December 31, 2018 (in thousands):
| Year Ending December 31, | Amount | |||
| 2019 |
$ | 46,475 | ||
| 2020 |
41,759 | |||
| 2021 |
44,682 | |||
| 2022 |
44,206 | |||
| 2023 |
40,004 | |||
| Thereafter |
131,319 | |||
| Total |
$ | 348,445 |
Rent expense for the years ended December 31, 2017 and 2018 was $34.9 million and $52.6 million, respectively.
Under ASC 840, the Company had the following financing lease obligations for which the Company was deemed the owner of the building under build-to-suit accounting guidance. Upon adoption of Topic 842, the Company derecognized its build-to-suit assets and financing obligations. As of December 31, 2019, the Company did not have any financing obligations. Refer to Note 2, Summary of Significant Accounting Policies — Recently Adopted Accounting Standards — Leases, for additional details.
San Francisco Financing Lease
As of December 31, 2018, $123.5 million was capitalized related to the fair value of the building shell, additions to the building space and capitalized interest. Depreciation on the occupied portion of the building began in 2013, with $4.4 million and $5.1 million of depreciation expense recognized during the years ended December 31, 2017 and 2018, respectively.
F-42
Airbnb, Inc.
Notes to Consolidated Financial Statements
The Company allocates monthly rental payments between the imputed interest on the obligation and rental expense for the land lease. During the year ended December 31, 2017, lease payments totaled $12.5 million and included $10.8 million recorded as interest expense and $1.1 million recorded as rent expense. During the year ended December 31, 2018, lease payments were $13.7 million and included $12.5 million recorded as interest expense and $1.1 million recorded as rent expense.
Under the terms of this lease, the Company is entitled to receive reimbursements from the landlord for specific tenant improvement costs. During 2017 and 2018, tenant improvement reimbursements received by the Company were not material.
Ireland Financing Lease
As of December 31, 2018, $26.8 million was capitalized related to the fair value of the building shell, additions to the building space and capitalized interest. Depreciation on the occupied portion of the building began in 2016, with $0.8 million and $0.9 million of depreciation expense recorded during the years ended December 31, 2017 and 2018, respectively.
The Company allocates monthly rental payments between the imputed interest on the financing obligation and rental expense for the land lease. During the year ended December 31, 2017, lease payments totaled $1.3 million. Interest expense attributed to the financing obligation was $1.0 million, and rent expense for the land lease was $0.6 million for the year ended December 31, 2017. During the year ended December 31, 2018, lease payments totaled $1.7 million and included $0.9 million recorded as interest expense and $0.7 million recorded as rent expense.
Under the terms of this lease, the Company is entitled to receive reimbursements from the landlord for specific tenant improvement costs. In both 2017 and 2018, the Company did not receive tenant improvement reimbursements from the landlord.
India Financing Lease
As of December 31, 2018, $4.6 million was capitalized related to the fair value of the building shell, additions to the space and capitalized interest. Depreciation on the occupied portion of the building began in 2017, with depreciation expense that was not material recognized during the year ended December 31, 2017, and $0.5 million of depreciation expense recognized during the year ended December 31, 2018.
The Company allocates monthly rental payments between the imputed interest on the financing obligation and rental expense for the land lease. The lease payments, interest expense attributed to the obligation and rent expense related to the land were not material during the year ended December 31, 2017. During the year ended December 31, 2018, lease payments totaled $0.4 million and included $0.3 million recorded as interest expense and $0.1 million recorded as rent expense.
F-43
Airbnb, Inc.
Notes to Consolidated Financial Statements
Under ASC 840, contractual commitments related to financing lease obligations as of December 31, 2018 were as follows (in thousands):
| Year Ending December 31, | Amount | |||
| 2019 |
$ | 14,453 | ||
| 2020 |
15,022 | |||
| 2021 |
15,732 | |||
| 2022 |
16,252 | |||
| 2023 |
16,739 | |||
| Thereafter |
55,977 | |||
| Total |
$ | 134,175 |
Note 10. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| December 31, | September 30, | |||||||||||
| 2018 | 2019 | 2020 | ||||||||||
| (unaudited) | ||||||||||||
| Indirect tax reserves |
$ | 218,591 | $ | 262,454 | $ | 177,040 | ||||||
| Indirect taxes payable |
156,721 | 192,038 | 228,315 | |||||||||
| Travel credit liability |
— | — | 226,484 | |||||||||
| Compensation and related benefits |
150,607 | 253,305 | 206,609 | |||||||||
| Derivative liabilities |
— | 475 | 168,741 | |||||||||
| Current portion of long-term debt and accrued interest expense |
— | — | 27,856 | |||||||||
| Sales and marketing |
65,661 | 94,228 | 15,365 | |||||||||
| Income and other tax liabilities |
3,180 | 15,424 | 13,037 | |||||||||
| Other |
269,370 | 406,156 | 397,704 | |||||||||
| Total accrued expenses and other current liabilities |
$ | 864,130 | $ | 1,224,080 | $ | 1,461,151 |
Note 11. Debt
The following table summarizes the Company’s outstanding debt (in thousands):
| September 30, 2020 |
Effective Interest Rate |
|||||||
| (unaudited) | ||||||||
| First lien loan due April 2025 |
$ | 997,500 | 9.5% | |||||
| Second lien loan due July 2025 |
1,000,000 | 15.1% | ||||||
| Total debt |
1,997,500 |
|
|
| ||||
| Less: Unamortized debt discount and debt issuance costs |
(176,198 | ) |
|
|
| |||
| Less: Current portion of long-term debt |
(10,000 | ) |
|
|
| |||
| Total long-term debt, net of current portion |
$ | 1,811,302 |
|
|
|
F-44
Airbnb, Inc.
Notes to Consolidated Financial Statements
Term Loans (Unaudited)
In April 2020, the Company entered into a $1.0 billion First Lien Credit and Guaranty Agreement (the “First Lien Credit Agreement,” and the loans thereunder, the “First Lien Loan”), resulting in proceeds of $961.4 million, net of debt discount and debt issuance costs of $38.6 million. The loan is due and payable in April 2025. The underlying loan can be repaid in whole or in part prior to April 2025 at the Company’s option, subject to applicable prepayment premiums and make-whole premiums. Beginning in September 2020, the Company is required to repay the First Lien Loan in quarterly installments equal to 0.25% of the $1.0 billion aggregate principal amount of the First Lien Loan, with the remaining principal amount payable on the maturity date. Additionally, the First Lien Credit Agreement requires the Company to prepay in cash all or a portion of outstanding First Lien Loan, plus any applicable prepayment premiums and make-whole premiums, in the event of non-ordinary course asset sales or other dispositions of property, or incurrence or issuance of any indebtedness, subject to certain exceptions. The Company can select a per annum interest rate equal to (i) 7.5% plus the London Interbank Offered Rate (customarily defined, with LIBOR replacement provisions consistent with the April 2019 Alternative Reference Rates Committee recommended fallback language for syndicated loans, “LIBOR”), subject to a floor of 1.0%, or (ii) 6.5% plus the greatest of (a) the prime rate, (b) the federal funds effective rate plus 0.5%, and (c) LIBOR for a one-month period plus 1%, subject to a floor of 2%. Interest is payable monthly or quarterly in arrears at the Company’s option depending on the selected per annum interest rate and interest period.
Also in April 2020, the Company entered into a $1.0 billion Second Lien Credit and Guaranty Agreement (the “Second Lien Credit Agreement,” and the loans thereunder, the “Second Lien Loan”), resulting in net proceeds of $967.5 million, net of debt discount and debt issuance costs of $32.5 million. The loan is due and payable in July 2025. The underlying loan can be repaid in whole or in part prior to July 2025, subject to applicable prepayment premiums, make-whole premiums, and the priority of lenders under the First Lien Credit Agreement over any proceeds the Company receives from the sale of collateral. Additionally, subject to the Company’s obligation to make mandatory prepayments under the First Lien Credit Agreement, the Second Lien Credit Agreement requires the Company to prepay in cash all or a portion of outstanding Second Lien Loans, plus any applicable prepayment premiums and make-whole premiums, in the event of non-ordinary course asset sales or other dispositions of property, or incurrence or issuance of any indebtedness, subject to certain exceptions. The Company can select the per annum interest rate equal to (i) 10% plus LIBOR, subject to a floor of 1%, or (ii) 9% plus the greatest of (a) the prime rate, (b) the federal funds effective rate plus 0.5%, and (c) LIBOR for a one-month period plus 1%, subject to a floor of 3%. Interest is payable monthly or quarterly in arrears, at the Company’s option depending on the selected per annum interest rate and interest period. In addition, at the Company’s election, payment-in-kind interest up to 5.5% per annum may be paid by increasing the principal amount of the Second Lien Loan by such amount.
The debt discount and debt issuance costs are amortized to interest expense using the effective interest rate method. For the nine months ended September 30, 2020, interest expense of $100.5 million was recorded for the First Lien and Second Lien Loans relating to the contractual interest and amortization of the debt discount and debt issuance costs.
F-45
Airbnb, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2020, the estimated fair value of the First Lien Loan and Second Lien Loan were $1.1 billion and $1.2 billion, respectively, and were determined based on quoted prices in markets that are not active, or Level 2 inputs.
The First Lien Loan and the Second Lien Loan are unconditionally guaranteed by certain of the Company’s domestic subsidiaries and are both secured by substantially all the assets of the Company and of these subsidiary guarantors.
The First Lien Loan and Second Lien Loan contain customary affirmative and negative covenants, subject to certain exceptions, including restrictions on the Company’s and its subsidiaries’ ability to, among other things, incur debt and liens, undergo fundamental changes including mergers and consolidations, sell or transfer assets, pay dividends or other distributions, make acquisitions, investments, loans or advances, or payments and prepayments of junior or unsecured indebtedness. The First Lien Loan and Second Lien Loan also contain customary events of default, including a change in control.
The future principal payments for the Company’s long-term debt as of September 30, 2020 are summarized as follows (in thousands):
| Year Ending December 31, | Amount | |||
| Remainder of 2020 |
$ | 2,500 | ||
| 2021 |
10,000 | |||
| 2022 |
10,000 | |||
| 2023 |
10,000 | |||
| 2024 |
10,000 | |||
| Thereafter |
1,955,000 | |||
| Total |
$ | 1,997,500 |
In connection with the Second Lien Loan, the Company issued warrants to purchase 7,934,794 shares of Class A common stock with an initial exercise price of $28.355 per share, subject to adjustment upon the occurrence of certain specified events, to the Second Lien Loan lenders. The warrants expire on April 17, 2030 and the exercise price can be settled in cash or in net shares at the holder’s option. The fair value of the warrants at issuance was $116.6 million and was recorded as a liability in accrued expenses and other current liabilities on the consolidated balance sheet with a corresponding debt discount recorded against the Second Lien Loan. The warrant liability is remeasured to fair value at each reporting date as long as the warrants remain outstanding and unexercised with changes in fair value recorded in other income (expense), net in the consolidated statements of operations. The fair value of the warrant liability increased $41.2 million during the nine months ended September 30, 2020.
Revolving Credit Facility
In April 2016, the Company entered into a five-year unsecured revolving Credit and Guarantee Agreement (the “Facility”) with a group of lenders led by Bank of America, N.A. The Facility provides an initial borrowing commitment by the lenders of $1.0 billion, which can be increased by a maximum of $250.0 million. The Facility also provides a $100.0 million sub-limit for the issuance of letters of credit. The Facility includes a commitment fee of 0.125% per annum on any undrawn amounts.
F-46
Airbnb, Inc.
Notes to Consolidated Financial Statements
Outstanding borrowings bear interest at a fluctuating rate per annum equal to the highest of: (i) the Federal Funds Effective Rate plus 0.50%; (ii) the rate of interest in effect for such day by Bank of America as its “prime rate”; or (iii) the Eurocurrency Rate for one month plus 1.00%. Borrowing terms vary based on the type of borrowing with all outstanding balances being due on April 26, 2021, the termination date of the Facility. Outstanding balances may be repaid prior to maturity without penalty. The Facility contains customary affirmative and negative covenants, including restrictions on the Company’s and certain of its subsidiaries’ ability to incur debt and liens, undergo fundamental changes, and pay dividends or other distributions, as well as certain financial covenants. The Company was in compliance with all financial covenants as of December 31, 2019.
As of December 31, 2018 and 2019, there were no borrowings outstanding on the Facility and outstanding letters of credit totaled $10.9 million and $53.0 million, respectively. On April 17, 2020, the Company terminated the Facility (unaudited). Letters of credit under the Facility were transferred to new issuers upon the termination of the Facility (unaudited). As of September 30, 2020 (unaudited), letters of credit totaled $55.6 million and were secured by cash collateral of $55.6 million, which was recorded as restricted cash on the consolidated balance sheet.
Note 12. Redeemable Convertible Preferred Stock and Stockholders’ Deficit
Redeemable Convertible Preferred Stock
The following table presents the Company’s authorized and outstanding redeemable convertible preferred stock as of December 31, 2018 and 2019 (in thousands, except per share amounts):
| Shares Authorized |
Shares Issued and Outstanding |
Issuance Price Per Share |
Net Carrying Value |
Aggregate Liquidation Preference |
||||||||||||||||
| Series Seed |
63,656 | 63,656 | $ | 0.01 | $ | 552 | $ | 615 | ||||||||||||
| Series A |
34,396 | 34,396 | 0.21 | 7,128 | 7,200 | |||||||||||||||
| Series B |
34,702 | 34,006 | 3.31 | 112,399 | 112,641 | |||||||||||||||
| Series B-1 |
1,904 | 1,412 | 1.11 | 1,560 | 1,560 | |||||||||||||||
| Series C |
33,920 | 33,920 | 5.90 | 199,741 | 200,000 | |||||||||||||||
| Series D |
25,530 | 20,900 | 20.36 | 421,108 | 425,470 | |||||||||||||||
| Series E |
34,000 | 32,224 | 46.55 | 1,488,438 | 1,499,867 | |||||||||||||||
| Series F |
19,110 | 19,110 | 52.50 | 1,000,576 | 1,003,312 | |||||||||||||||
| Total |
247,218 | 239,624 |
|
|
|
$ | 3,231,502 | $ | 3,250,665 |
F-47
Airbnb, Inc.
Notes to Consolidated Financial Statements
The following table presents the Company’s authorized and outstanding redeemable convertible preferred stock as of September 30, 2020 (unaudited) (in thousands, except per share amounts):
| Shares Authorized |
Shares Issued and Outstanding |
Issuance Price Per Share |
Net Carrying Value |
Aggregate Liquidation Preference |
||||||||||||||||
| Series Seed |
63,656 | 63,656 | $ | 0.01 | $ | 552 | $ | 615 | ||||||||||||
| Series A |
34,396 | 34,396 | 0.21 | 7,128 | 7,200 | |||||||||||||||
| Series B |
34,702 | 34,006 | 3.31 | 112,399 | 112,641 | |||||||||||||||
| Series B-1 |
1,904 | 1,412 | 1.11 | 1,560 | 1,560 | |||||||||||||||
| Series C |
33,920 | 33,920 | 5.90 | 199,741 | 200,000 | |||||||||||||||
| Series D |
25,530 | 20,900 | 20.36 | 421,108 | 425,470 | |||||||||||||||
| Series E |
34,000 | 32,224 | 46.55 | 1,488,438 | 1,499,867 | |||||||||||||||
| Series F |
19,110 | 19,110 | 52.50 | 1,000,576 | 1,003,312 | |||||||||||||||
| Total |
247,218 | 239,624 |
|
|
|
$ | 3,231,502 | $ | 3,250,665 |
The following summarizes the rights, preferences, and privileges of the Company’s redeemable convertible preferred stock:
Dividends
Holders of redeemable convertible preferred stock are entitled to receive annual, noncumulative dividends of at least 8% of the original issue price per share, if, when and as declared by the Company’s board of directors prior to payment of any dividends to common stockholders (other than dividends on shares of common stock payable in common stock). After such dividends, any additional dividends are payable on a pro rata basis to the holders of common stock and redeemable convertible preferred stock (assuming the conversion of redeemable convertible preferred stock into common stock at the then current applicable conversion price).
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company or “Deemed Liquidation Event” (as defined below) (collectively, a “Liquidation Event”), holders of redeemable convertible preferred stock are entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment to the holders of common stock, an amount per share equal to the greater of (i) the applicable original issue price per share plus any declared but unpaid dividends or (ii) an amount per share as would have been payable had all the shares of redeemable convertible preferred stock been converted into common stock, at the then-applicable conversion rate, immediately prior to the Liquidation Event (“Liquidation Amount”). In the event the Company has insufficient assets to pay the holders of shares of redeemable convertible preferred stock the full liquidation preference, the holders of redeemable convertible preferred stock would be paid ratably in proportion to the full amounts to which they would otherwise be entitled. Any assets of the Company remaining after payment of the above liquidation preference to the holders of redeemable convertible preferred stock will be distributed solely to holders of common stock, pro rata, based on the number of shares held by each holder. A Deemed Liquidation Event is defined to include (i) a sale, lease, transfer or other disposition of all or substantially all of the Company’s assets (other than to a wholly-owned
F-48
Airbnb, Inc.
Notes to Consolidated Financial Statements
subsidiary of the Company) or (ii) the merger or consolidation of the Company in which the shares of capital stock of the Company outstanding immediately prior to such merger or consolidation do not continue to represent immediately following such merger or consolidation at least a majority, by voting power, of the outstanding capital stock of the surviving or resulting corporation or the parent corporation that wholly owns the surviving or resulting corporation. The Company classifies its redeemable convertible preferred stock as mezzanine equity, or outside of stockholders’ deficit, because the shares contain liquidation features that are not solely within the Company’s control.
Conversion Rights
Each share of redeemable convertible preferred stock is initially convertible at the option of the holder into one share of common stock. The conversion ratio is subject to adjustment upon certain issuances of additional shares of common stock and other convertible securities as well as upon the occurrence of certain common stock events (such as stock splits or stock combinations).
All shares of the Company’s redeemable convertible preferred stock automatically convert into shares of Class B common stock, at the then-applicable conversion rate, upon the closing of a firm-commitment underwritten public offering pursuant to an effective registration statement resulting in at least $75.0 million of gross proceeds to the Company, or the vote or written consent of holders of a majority of the then outstanding shares of redeemable convertible preferred stock as a single class on an as-converted basis; provided that such vote or consent will include the approval of holders of at least (i) a majority of the outstanding shares of Series B redeemable convertible preferred stock to convert all of the outstanding shares of Series B redeemable convertible preferred stock in connection with a Deemed Liquidation Event in which the Series B redeemable convertible preferred stockholders receive or would at the time of conversion be reasonably be expected to receive less than the amount per share equal to the applicable Series B redeemable convertible preferred stock Liquidation Amount; (ii) a majority of the outstanding shares of Series C redeemable convertible preferred stock to convert all of the outstanding shares of Series C redeemable convertible preferred stock in connection with a Deemed Liquidation Event in which the Series C redeemable convertible preferred stockholders receive less than the applicable Series C redeemable convertible preferred stock Liquidation Amount; (iii) 66 2/3% of Series D redeemable convertible preferred stock to convert all of the outstanding shares of Series D redeemable convertible preferred stock in connection with a Deemed Liquidation Event in which the Series D redeemable convertible preferred stockholders receive less than the applicable Series D redeemable convertible preferred stock Liquidation Amount; (iv) a majority of the outstanding shares of Series E redeemable convertible preferred stock in connection with (1) any Deemed Liquidation Event in which such holders of Series E redeemable convertible preferred stock receive at the closing an amount per share less than the applicable Series E redeemable convertible preferred stock Liquidation Amount or (2) any equity financing of the Company in which the pre-financing valuation of the Company in such financing is $8.0 billion or more; and (v) a majority of the outstanding shares of Series F redeemable convertible preferred stock to convert all of the outstanding shares of Series F redeemable convertible preferred stock in connection with a Deemed Liquidation Event in which the Series F redeemable convertible preferred stockholders receive less than the applicable Series F redeemable convertible preferred stock Liquidation Amount.
The Series C redeemable convertible preferred stockholders are entitled to an anti-dilution feature, whereby the conversion price of the Series C redeemable convertible preferred stock is adjusted based on
F-49
Airbnb, Inc.
Notes to Consolidated Financial Statements
an adjustment formula in the Company’s Restated Certificate of Incorporation for events triggered by the issuances and expiration of certain qualifying equity awards to certain qualifying parties until the effective date of an IPO. As of both December 31, 2019 and September 30, 2020 (unaudited), 1,286,694 of additional shares of Class B common stock were reserved for issuance upon conversion of the Series C redeemable convertible preferred stock based on the adjustments to the conversion price due to the occurrence of such events.
Pursuant to a conversion agreement entered into among the Company and the holders of Series D redeemable convertible preferred stock, the holders of shares of Series D redeemable convertible preferred stock are entitled to receive additional shares of Class B common stock in respect of each share of Series D redeemable convertible preferred stock (or common stock issuable upon conversion of such stock) held by them based on a formula set forth in such agreement, in the event that the offering price per share in the Company’s IPO is less than the original issue price of the Series D redeemable convertible preferred stock.
Voting Rights
Except as provided in the Company’s Restated Certificate of Incorporation, holders of redeemable convertible preferred stock will vote together with the holders of common stock as a single class on an as-converted to common stock basis.
Redemption Rights