fbpx

Is Airbnb The Next Worldcom?

THE VIEW FROM HERE - Remember Worldcom?  A lot of people don’t. It was like Enron and Sears.

No matter how big you think you are, arrogant hubris can bring you to ruin.  In Worldcom’s case is was Bernard John Ebbers (August 27, 1941 – February 2, 2020), its co-founder and CEO.  While his corporation was skyrocketing to success, his megalomania grew even faster until his empire crumbled in 2002 amid revelations of accounting frauds, making it at the time one of the largest accounting scandals in the United States.  

The same arrogance beset Ken Lay of Enron.  While the company was collapsing, Ken Lay was urging his employees to buy more Enron stock. Lay was selling all his Enron stock and the more his employees bought, the more he could conceal from the public that the company was irretrievably bankrupt. 

Sears may be the sorriest example.  At one time the world’s largest retailer, it became dominated by men of overwhelming arrogance who treated others like trash.  In 1993 as others were seeing the marketing future of the World Wide Web, Sears ended its world-famous catalogue and got rid of its warehouses. "Whom the gods would destroy they first make mad.”  (There are some brick and mortar Sears stores owned by Transform SR Brands LLC.) 

Airbnb Is Following in These Time Honored Footsteps 

While Airbnb does not make me privy to its inner workings, a lot is evident from the outside.  Prior to the pandemic, Airbnb party houses made a lot of money in a couple ways.  Airbnb catered to “bookers,” i.e. people whose business was to bring tours from one country to another. They provided Airbnb a steady stream of revenue.  The owners of the houses, the Hosts, however, were misled into believing that they were renting to private persons, not that they were dealing with a middle person who was charging their clients substantially more that the were paying the Airbnb host.  When the guests arrived, they expected to be treated like royalty, since they were paying such high prices to the booker.  These guests also had a knack for throwing lavish parties despite the owners’ express No Parties provisions.  The property destruction made renting out through Airbnb a questionable business decision, but there are basically two platforms Airbnb and the inept HomeAway/Vrbo. 

Since party-income made Airbnb look good to Wall Street, Airbnb sided with the party givers. Some were locals who would rent the homes and sell tickets bringing hundreds of rowdy partiers, especially to nice homes with pools.  The police were called so often that town councils started imposing restrictions on Airbnb houses. Airbnb execs were intransigent and duplicitous, publicly saying they were anti-party while purposely booking parties into unsuspecting owners homes.

High Occupancy Rates and a Good Cash Flow Are Good for a Wall Street IPO 

The fact that Airbnb was trashing the homes of its hosts did not matter since that info never made it to Wall Street investors. “Airbnb skyrockets 112% in public market debut, giving it a market cap of $86.5 billion” Dec 2020. https://cnb.cx/3ghyOdu   Los Angeles had imposed serious restrictions on Airbnb rentals, but those rules did not deter massive Airbnb parties during 2020 Covid pandemic. Even murders at Airbnb Hip Hop raves did not deter Wall Street, which has never shown concern for how many people must suffer and die for the bankers etc. to make an extra buck.   November 30, 2020, CityWatch, Did Airbnb’s Super Spreader Parties Doom Los Angeles Reopening?  

What Goes Up Never Comes Down 

Wall Street lives by the absurd maxim of “whatever goes up never comes down.”  From Equity Funding through a gazillion of other colossal crashes and burns, Wall Street still acts as if any stock that goes up will never come down.  But what seems to be happening behind the scenes at Airbnb? 

There’s reason to believe that Airbnb likes to rake in cash but it does not like providing a decent product for guests or hosts.  After years of catering to horrid guests, Airbnb has a reputation that guests can do no wrong and hosts can do no right. After all, it is the guests who pay the bills. What is a homeowner to do?  Guests, who fashion themselves as Attila the Hun, result in hosts’ complaints and that wastes Airbnb time and forces it to hire more staff to mediate the complaints. 

Enter the Corporate Home Hoarders. 

There are a slew of corporations buying single family homes, Invitation Homes owned by Blackstone Group, is probably the largest. It started in 2012 and it and similar corporations bought up billions of dollars’ worth of homes to rent. This was a major way that the Obama administration turned America into a nation of renters rather than homeowners. It seems that Airbnb has hit upon the idea that it can cut costs and increase profits by getting rid of its Mom and Pop homeowners. Instead, it favors corporations which list hundreds of homes and then it lets the intermediary corporations handle all the complaints.  Being large and arrogant, the corporate homeowners, believing the Wall Street hype, thought that they could gouge even more rent of their huge inventory of homes by listing them on Airbnb. It seemed like a marriage made in heaven. 

Here Comes The Crash 

Airbnb seems to have harassed away so many of its small Mom and Pop hosts that Airbnb has made itself dependent upon the whims of the corporate intermediaries who supply the homes.  Corporations like Blackstone have been notorious for treating tenants like serfs and doing virtually no maintenance.  Now that their homes are in need of repairs due to the Airbnb Attila the Huns who have ransacked their properties, Airbnb does not look so beneficial.  When Invitation Homes has a renter for one year, it need not repair anything, but the Airbnb renter is gone in a couple days and then leaves a review which deters future renters.  The combination of destructive renters and bad reviews eats into the corporations’ rental profits.  Naturally, the intermediate corporations start the transition back to long term rentals.  The likely result is that after throwing out its Mom and Pop type homeowners, Airbnb appears to be losing its corporate supply.  Also, the corporate suppliers have the clout to force Airbnb to share in the financial loses. 

The Raiders-Rams Game Gave Us A Peak At Airbnb’s Impending Crash 

Airbnb advertised for more hosts during last weekend’s Raiders-Rams play off game. (Interestingly, the ad did not show the guests destroying the furniture, stuffing wash cloths down the toilet, defecating on the floors, or marauding through neighbors’ yards.)  Look for more ads during the Super Bowl.  This campaign to attract more hosts was supposed to be short lived from February 2021 to summer 2021, but it appears to be even more aggressive in 2002.  It is reminiscent of Ken Lay’s telling employees to buy more Enron stock while the company was crashing.  For some reason, Wall Street seems full of the world most gullible people who constantly fall for the scam. Is Airbnb really any different from Equity Funding in 1970?

 

(Richard Lee Abrams has been an attorney, a Realtor and community relations consultant as well as a CityWatch contributor. The views expressed herein are his own and do not necessarily reflect the views of CityWatch. You may email him at [email protected])