The does Airbnb do? They go public and

The fundamentals of finance will be
ones guiding light throughout the life of one’s business.  Whether one has an idea that will become “the
next Uber” or is an already established business that wants to expand you’re
going to need to raise capital and knowing the steps behind this process is
key. Tied to knowing the steps behind raising capital one should have an
understanding of the basic structures of money markets and what they’re
composed of. Companies that are going to be raising capital should also know
the difference between the primary market (the part in which they raise the
capital) and the secondary (more speculative) market. Finally the importance of
studying a company’s financial statements cannot be understated especially when
one is in the process of raising capital and in the eventuality that the entire
affair turns sour (or extremely well) one should also know financial
restructuring actually entails.  Now
while the “unicorn” club is certainly exclusive there are some out there and
more important for us some might be poised to go public.

Airbnb is one of those “unicorns”
that many are eager to go public. The markets have given this company a
valuation of $31 billion
should they decide to go public Not that Airbnb needs any help from us lowly
peasants as they’ve “reportedly turned
a profit in the last half of 2016” (Santo, 2017) but let’s speculate a bit. Airbnb
is planning on declaring a holy war on the hotel and hospitality business that
will completely crush them out of the business and they have a surefire
strategy that will do this. But there’s a problem, they need cash, massive
amounts of cash. So what does Airbnb do? They go public and raise that cash.
When they go public they come out with their IPO (initial public offer) and
they issue some combination of bonds, common stock, and preferred stock to the
entire Wall Street trading market that’s been salivating for years to get a piece
of this company. This here ends the role they play in the primary market. In
the primary market a company opens up some percent of their company to the
public so they can raise the capital they seek to gain. This here is the only
time in which a company ever receives cash directly from the public. After this
has happened everything that happens with the different types of securities
issued by the company happens in the secondary market. In the secondary market
all money made is by the public trading parts of the company they own and it
makes no difference if it’s debt securities (that includes notes or bonds) or
equity securities (common or preferred stock). Important to restate that the
company that issued the stocks for example doesn’t make any money off trades
that occur in the secondary market. The second step after they’ve raised the
capital is figuring out what they’re going to do with all the cash they’ve
raised. This cash can be used to recruit new employees or on an expensive
marketing campaign or simply buy stock in their competitors company and perform
a hostile takeover. For the sake of our example here Airbnb has successfully
beat every single competitor they have in the world. With their absolute
worldwide monopoly they have nothing but profits in their spreadsheets and they
move on to the third step of spreading around the wealth to their stockholders,
bonuses to their employees, and paying off their debt. And finally as they’re
now publicly traded companies they need to keep track of the value of the stock
out in the market to ensure the stockowners maximize their gains. 

As we saw the financial markets play
a key role in bringing together companies that need cash now and those that
have the cash and are willing to invest said cash. That is the basic structure
of the financial markets: on one side you have the borrowers (those that need
cash) and on the other you have the lenders, aka savers, who lend out the cash
the borrowers need. These financial markets are separated in two separate
groups: money markets on one side which have longevity of 12 months or shorter
and on the other side you have capital markets which deal with those with
longevity of over a year.

When the company first goes public
investors will want to look at all the financial data available on this
company. The reason behind this is simple: they don’t want to make a bad
investment. While some companies like twitter we see on the news that keep
reporting losses but continue to hold such high regards not all companies are
that lucky. As an investor I want to make sure that the company I’m going to
put my hard earned money into is financially sound. I want to know how much
debt if any they already have what percentage they’ve already sold off before
they went public and how their cash flow looks. As a publicly traded company
the accountants that issue these reports have to abide by some guidelines. One
of these guidelines is the full disclosure principle. Accountants must make all
information that may be of importance to the shareholder known. (Accounting
Principles, n.d.) And the rules of the FASB (Financial Accounting Standards
Boards) must be followed.

Although it’s nice to speculate about
the perfect scenario in which Airbnb becomes a monopoly in the hospitality
business it’s nothing more than a fantasy. Let’s say that things aren’t all
peaches and cream for Airbnb. In this scenario they may need to look into a
financial restructure of their company. Instead of opting for a take over the
world route they may opt for some horizontal restructuring and buy out some of
their competitors. Instead of simply offering cheaper alternatives to expensive
hotels they can join the standard hotel business as we know it and force the
hotel industry not only to fight them in terms of affordability but change the
hotel industry completely from within as well as from outside. In somewhat
recent news UnderArmour decided to buy two fitness apps to incorporate them
into their model. (Gibbs, 2015) Buying out companies doesn’t
necessarily need to imply a hostile takeover but instead a mutually beneficial
agreement in which two companies in the same field (in this case fitness) joins
forces to become stronger together. Another method they could go is the
vertical restructuring route but from my point of view Airbnb already has this
covered. They “franchise out” because they don’t own the properties being
rented.  But if this were their model
(like McDonalds) it seems like everything has lined up beautifully thanks to
Republicans in Congress to deliver another year of big growths. (Rogers, 2018) Airbnb however simply
act as the middle man for renters and those who want to rent. And the most
complicated of all is the corporative restructuring in which they need to
address all the difficulties of changing how dividends are paid, establishing a
new vision and mission for the company and much more.

            Knowing the fundamentals of finance
is important to guide one through the life of one’s business. First of all it’s
important for those going into the public trading game to know how they can
raise their capital. When entering the money markets its key to know the
difference between the primary and secondary market as well as their basic
structure. The longer the life of a company the more likely it is that it will
evolve and go through a process of restructuring and knowing the different
types available to the owners can be valuable. And throughout the entire
process of going public the accountant’s role cannot be understated as they are
responsible for ensuring that the financial statements that investors will look
at are in order and not misleading in the slightest. 

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