Airbnb CEO says the company is ready for another downturn thanks to significant cost cuts

Published Mon, Jun 22 202011:09 AM EDTUpdated Mon, Jun 22 202011:31 AM EDT

Key Points

Airbnb CEO Brian Chesky said the company made significant cost cuts to prepare it for another downturn if Covid-19 cases spike again.
Chesky also said the company is waiting for the market to settle before it moves forward with its plans to go public, which were put on pause this year due to the pandemic.

(This story is for CNBC PRO subscribers only.) Airbnb CEO Brian Chesky sat down with CNBC's Deirdre Bosa to discuss the Covid-19 pandemic, recovery and going public. The following is a rough transcript of the interview: Deirdre Bosa: And now let's just jump right into it. So I know that over the last few weeks, Airbnb has been seeing some green shoots a little bit of a rebound, particularly here in the United States. But is that now in jeopardy given the increase in Covid infections that we've seen in certain states? Brian Chesky: Well, it's hard to know. I mean, I think one thing I've learned is not to try to get in the business of predicting the future. Anyone who has not done very well the last few months, so but what I can tell you is the following. Beginning with March, travel was in a standstill, almost virtually stopped, two and a half billion people locked down. And now surprising, we spent 12 years building Airbnb business and lost almost all of it in a matter of four to six weeks. What's happened over the last three, four months though, was something else entirely. People are saying they want to get out of the house, but they want to be safe. They don't want to get on airplanes. They don't want to travel for business, they don't want to go to cities, they don't want to cross borders. What they are willing to do is get in a car and drive a couple hundred miles to a small community where they are willing to stay in a house. And because of that, though, our business has not recovered, I'm going to be very clear. But something remarkable happened, which was the end of May, early June, we have a same volume of bookings in the United States as a year before, without any marketing, zero marketing whatsoever. I think this is just showing that people are yearning for something. They're yearning for connection, and they want to be connected to each other, to the communities, they want to get outside. And so I think that travel is gonna come back, it's just going to take a lot longer than, you know, who would have thought and it's going to be different. Bosa: Right. I think I've heard it and call the summer of the road trip, which is what you're describing: no airplane, not going to crowded spaces, but take your own vehicle and that said Brian, you guys have been, you know, very good and giving some extremely up to date information. Up until just a few weeks ago, is there anything that you can share over the last, you know, one or two weeks, that indicates any kind of change for the company in terms of bookings? Chesky: I mean, it's been a, it's been a sustained recovery, it could be a temporary recovery. Again, we don't know how much of the recovery is pent up demand, right? If you don't allow someone to buy something for three months, then they can all buy all at once and get the finger on top of the world. And that might just be pent up demand. At the same time, it may actually portend a more sustainable recovery. United States have seen a recovery France has seen a recovery. Italy, Spain, Germany is starting to see recovery. United Kingdom not at all, still locked down until July 1. Asia, Latin America less so. So it's quite interesting to see it really varies by country. It seems to map to the country's politics, but there is a huge mix shift from cities to less urban areas. business travel to vacation, flying to driving, and you know, certainly a lot more people staying at home. So we're definitely the recipient of some adoption, maybe. Bosa: Not just country to country but state to state within the US. So how closely are you watching the rise of infections in some states like Arizona, Florida, Texas, California? What are you anticipating for the business as you watch these numbers of infections spike up? Chesky: Well, it's unclear, right? I mean, do rise infections lead to people sheltering in place again, and even if they do, do they shelter in the place they've been? I mean, it's very important that we all honor local cleaning protocols. We are working with the former Surgeon General United States, Dr. Yvette Murphy, we created a 24-hour window between the time guests check out and new guest check in, we rolled out an enhanced cleaning protocol for a guest to meet the standards. And we want to make sure that people can feel like they can get away but they can do it in a way that is safe. So whether or not you know, people choose to keep traveling getting in cars? I think it's to be seen, probably will. I don't think they're gonna be flying anytime soon, though, and I don't think they're going to be going to dense urban areas, getting on double decker buses and standing in front of landmarks with selfie sticks. I'm not sure they're doing that stuff anytime soon. Bosa: Ah the selfie sticks, are you, is Airbnb prepared if we do see an up, perhaps not lock down, but potentially down two or more businesses close, more communities sort of shutting down to outsiders? Are you prepared for that? And is there anything that you might do differently? This time around than the first time around? Chesky: Yeah, we're prepared for almost any conceivable scenario that could happen from Covid because we now know Covid going on and so we can scenario plan, right? We weren't prepared for Covid, I don't think anyone was because no one was prepared for something that was more profoundly impacting travel than World War Two. If you're going to a company that existed like Marriott or Hilton, they'll tell you their business was even more impacted now than World War Two, I mean, it's just really hard to prepare for that. That being said, we, you know, have dramatically reduced our cost. We reduced our costs and it was an incredibly difficult, harrowing experience. Because we said, we don't know how long the storm will, will take. And so I'm gonna hope for the best, but I'm planning for the worst. So if there's a shutdown, or multiple shutdowns, if communities get shut down, if travel stops, we'll be okay because of the changes we've made. We've cut nearly a billion dollars in marketing,we've had to reduce our staff, we've been very, very lean and nimble. And we've also been resilient. We've launched online experiences people can do from home, we have longer term stays, a large percent of our bookings almost a fifth of our bookings are nights or stays longer than 30 days. And you know,the other thing is, we have not lost any hosts on our platform, or I should say differently, we have more hosts today and more homes today than before Covid started. So the important thing here is that the market is resilient, the community is resilient. And I think that one trend that is going to happen is the following. Travel as we knew it is over. It doesn't mean travel is over, just the travel we knew is over. And it's never coming back. It's just not, no one quite knows what it will look like. But I have a couple thoughts. I do think that instead of the world population traveling to only a few cities, and staying in big tourist districts, I think you're gonna see a redistribution of where people travel, they're gonna start traveling because they're going nearby to thousands of local communities. This is a very, very important phenomenon it has to be done responsibly, has to be done in partnership with cities. And so we're starting to partner with dozens of direct marketing organizations and basically tourism bureaus to be able to help them receive travelers. If they don't want to receive travelers, we want to be responsible not send people to communities that don't want them. So this is I think where travel is gonna go. Bosa: Now you mentioned some of those very difficult cuts that you made over the last few months. Are you done there? Or is there more room to cut costs at Airbnb? Chesky: Well, we're certainly done with the layoffs, we told we told our team there will be one layoff, we're not going to want to do this twice. So you when you do cut, you must cut deep enough. And we made sure we cut deep enough so we didn't have to do this twice and we'd have enough money to be able to take care of people and do everything we can for those departing. So we gave them 14 week severance plus a week of per year of service. We gave them a year of health care in United States, everyone got to keep their computers and we dedicated entire recruiting team to help people leave and find a new job and I hope they all get jobs. And I also told them whenever Airbnb does recover,and it does come back, we'd love to get the love to have them back. Although it may take some time. But our cost cutting for the most part. I mean, we cut like nearly a billion dollars of marketing spend run rate. We're not doing any marketing right now. We're not we're not spending any in advertising and actually what it turns out is that our business is probably a little more efficient and profitable than we realize because of all the demand we're getting. There's still opportunities on AWS and customer service to get more efficient in how we use data, how we handle contacts. So we'll continue to make the business more efficient, but the businesses definitely pretty, pretty lean at this moment. Bosa: So I know that also current investments have taken over the last few months is focus back on your core. And that means scaling back some of the additions in the hotel space, are there assets that you can actually shed, they made a number of investments in acquisitions, like Hotel Tonight, investment in OYO are those what is the future of those businesses as you focus on the core, homesharing? Chesky: Well, yeah, so you know, there's nothing like a crisis to give you clarity. And that crisis gives you clarity about what's really important and who you really are and what your purpose is. And we had to like kind of stare into what felt like into an abyss. We had to be really honest about who we are what we stand for. We said the reason we started this company was because we got into this to connect people. It was really about connection and belonging. And so we're not really about real estate. So we said let's get back to the roots. Let's get back to host everyday people often their homes, experiences and let's grow from there. So we temporarily paused our transportation business, our content business. We scaled back hotels, we scaled back a lot of efforts. We're not going to we're not I don't I don't have any news about any assets tendingto sell. Bosa: Is it on the table though, is what it is. It makes it sound like the business is really shifting to the roots. Are they on the table? Chesky: We're not selling Hotel Tonight. I'm really happy we acquired the company and we are not selling it. We're really happy with that asset. We just are, the things I thought we're going to accomplish in a year, it's going to take now longer than a year because we don't have as many people working on it. We have to focus it. Bosa: Now as we had into a holiday weekend, July 4 just a few weeks away, any indication of how that's shaping up? Do you think that you'll see year-over-year growth in terms of booking? Chesky: Yeah, I think so. I mean, we'll see. Bosa: And what can see that indication? Just the number, the numbers that you're seeing so far? Chesky: Yeah. Well, the way our business works is, people come to the site, that you would call those a visitor, a visitor inputs in search, a destination, they add dates, we call those searchers. And then then they contact the host, and then they create a booking. Now, this all happens in the course of two, three weeks. So you can predict bookings two or three weeks from now by looking at the volume of people visiting a site and the volume of people searching. So I have a pretty good understanding of what bookings will look like for Fourth of July. And yeah, though, again, it may be temporary. This could be pent up demand, but it could be much stronger than we thought. Bosa: Next, tech companies, Twitter, Square, Facebook, Shopify, they're letting some of their employees work from home and definitely Airbnb. I've been to your headquarters, prime real estate, and you guys have expanded over the years. But you, as you mentioned, made that difficult decision to cut a quarter of your workforce. Are you looking at potentially cutting the corporate footprint? Chesky: We have fairly ambitious real estate expansion plans. And we have paused those plans. So we're not adding a lot more new real estate. I think more people are gonna work remotely. But here's let me give you my thought here. I've seen a lot of CEOs give pronouncements about the way we're all going to work in the future. And some are saying we're all going to be remote or this or that. But here's my principal. My principle is flexibility. Three, four months ago, none of us knew what the road would look like today. We will not know what the road will look like in three or four months. So there are times when you can plan years in advance and there are times, like now, we're all living a little bit month by month. I think it's pretty obvious that the world is going more remote, that many jobs that you thought you had to be at a desk in an office you now can do from home. And work from home also can be worked from any home. And that's an opportunity for Airbnb because you're going to see major populations redistribution on the table, not everyone's going to want to live in the same city. That being said, we don't know the full cost of entire workforces being remote. What does that do to opportunities for young people or underrepresented minorities or others that are typically less seen? You know, do our social circles get smaller? Does that have a negative byproduct? We're kind of playing that experiment out. I think we'd be very, very thoughtful that there is still a value of human connection the real world. That being said, talent comes from anywhere in the world of absolutely will be more remote. So Zoom has totally unlocked the world. We're going to be more remote but to say we're all going to be remote all the time would be to oversimplify and not value this very fundamental thing that we call human connection in the real world. Bosa: I want to talk a little bit about diversity, because I know you've been talking about this a lot. And this has been a years long mission for Airbnb. And really, because of how the platform has developed at the same time, you guys have a history of very unwittingly, or wittingly enabling people to act on their biases. There was a study a few years ago that found that it was harder for guests with African American sounding names to book rooms on the platform. So tell me a little bit about how you make progress and what your sort of markers are, especially in this moment, where you want to be. Chesky: Yeah, what you're referring to, let me talk about that. You know, for a company like ours, discrimination is an existential risk. It's an obstacle to people connecting. In 2016, a hashtag started growing on Twitter; hashtag #AirbnbWhileBlack. Black guests, primarily United States, were describing bad experiences trying to get Airbnbs and feeling discriminated against. This was an existential crisis and a wake up call for us. And so we brought on Laura Murphy from ACLU and Eric Holder, and we did a full survey, and we developed an action program. We asked all our members globally, to commit to policy where they won't discriminate on the basis of race, race, religion, gender orientation, believe it or not, more than 1 million people chose not to sign that just anti-discrimination commitment, and we removed them from the platform. Two years ago, we started working on a bigger project. We said we want to actually know the systemic nature of discrimination on our platform, we can't know the scope until we measure it. Otherwise, all we're doing is responding to complaints, phone calls and emails from people are anecdotal on Twitter. We want to actually measure. The problem is, how do you actually measure the amount of racism discrimination and unconscious bias happening on a tech platform? You have to actually track the data. How do you do that while honoring people's privacy? So we work with civil rights groups, including Color of Change, and leading privacy groups. And what we did is we built the system that we launched last week, where we we allow people to opt out. But they're informed that otherwise they're going to be in this in the United States that we're going to decouple their account for their photo and their their name, but we're going to track them as a cohort to see if they're experiencing discrimination. We're looking at a large set of users. So we're going to use this over the coming years to measure the amount of discrimination and bias in our platform. We're going to be reporting on it publicly so people know what data we're collecting, what we're doing with it, and if we're making progress. We're going to open source our learnings to other companies because we don't want this to be proprietary, we want this to get a head start for other companies. And my hope is that we use this data to actually design a more just, equitable platform. Because I think the days of internet companies saying, we're just platforms, and we're immune systems is over. Bosa: Are you talking about anyone in particular there? Chesky: I think I'm talking about every one of us. I mean, like, let's be honest, I came to Silicon Valley 10, 12 years ago, you know what the word technology could have been a dictionary definition for the word good. Every one of us, what we were told that the whole idea was technology was progress and every forward step to humanity is making the world a better place. That's where this whole making the world a better place thing came from. And the problem is that the world was more complicated than that. And platforms facilitate really good things and really bad things. And so it actually turns out that we actually have to take responsibility for the content on our platform. We can't just be waiting for government to pull us into the future kicking and screaming, we have to actually lead the way. This is what we need to be doing as an industry. And I think history is going to look at what we did. And those that were ahead, those who took responsibility, they'll be remembered and those that didn't, that will be noticed as well. And I think we're taking a point that we don't want to be a mirror to society's problems. We want to step forward and try to be a little bit better, a little further up front. And it means that we have to honor the honest that so you've got some challenges and we need to go a bit further. Bosa: Are you making a distinction between platforms like an Airbnb that is active in you know, moderating some of the content and it sounds to me like a Facebook. Is Facebook not doing enough in your opinion? Chesky: I'm making a distinction from the old internet and the new internet, the world that I came from. This idea that we're immune systems that are hands off, it's not our responsibility, those days are over. I think every internet company realizes that the extent that some are going to take more dramatic measures than others, we're all going to get pulled into the future. We can either walk into the future or get pulled in the future. But the old world is over. And I think this is something that goes way beyond any one platform. It's an industry thing. Bosa: Okay, my last question for you, and thanks for taking a few extra minutes, is just as you are you seeing longer stays. I think you were even before the crisis, are people renting on a month to month basis? Can you quantify that at all for us? Chesky: I mean, before Covid I think, you know, certainly well over 10% of our nights were people staying for a month or longer. During the height of the crisis because short term rentals had gone down so much, it was almost half of our business. It has now come down a bit. But you know, almost a fifth of our business by room nights are people staying for longer than a month. I think this is going to grow a ton because I think the days of one year leases will soon be over, you're not going to pay a landlord first month's rent, last month's rent to have a rental contract with a security deposit, and then your roommates are on the hooker. Those days are over, we're moving towards a world where people are going to pay, they're going to own their home, are going to pay for housing on a nightly basis, or a month per month basis, that's where the road is going to. And I think we're gonna see a lot more people do that because of mobility and Zoom. And we'll be there to help them. Bosa: I don't think you're going to say much, but how are you thinking an IPO these days, it was on track for this year, but the question remains Chesky: Was on track, then the crisis happened. We kind of focused our efforts on other things. And at this point, it is we're not ruling out going public this year, but we're not committing. We want the world to be ready for Airbnb and that means that travel needs to see a little bit more of sustained in recovery. The market needs to recover a bit. And we just need to kind of weight our options. So we don't have anything new say, but we're not ruling anything out. Bosa: Are you encouraged though, we've seen a number of IPOs go out pretty successfully so far, at least in the market. I mean, look at them all a volatile week. But they made up a lot of ground. Chesky: Well, you know, what, I think it would have been unthinkable if you had me on the show two months ago that you would have even asked me that question. And so here, you're asking your question. So it does not just tell you something incredible? Maybe what it tells us is that our ability to predict the future isn't as good as we thought. And that whenever you think you're doomed, it's not so bad. We figure on top of the world, something difficult might be around the corner. And so maybe we just have to start living in a little bit more of a measured world and not get too high, not get too low. I hope this last four months has been a lesson. So I'm trying to take that advice and say things are never quite as good as they seem or as bad as they seem. And so we're going to kind of play it by ear and be pretty careful and pretty thoughtful.

(This story is for CNBC PRO subscribers only.)

Airbnb CEO Brian Chesky sat down with CNBC's Deirdre Bosa to discuss the Covid-19 pandemic, recovery and going public.