Virus epidemic gives tech darlings a hard reality check

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Just as the epidemic of coronavirus has invaded society, it has also forced high-tech companies dependent on the freedom of people to move and meet.

Since the start of March, for example, Uber stocks have lost a quarter of their value. Rival Lyft is down 28%. Over the same period, the S&P 500 has only dropped 10%, even with wild oscillations along the way. The picture is even less clear for other companies still unicorns, still valued at more than a billion dollars, like Airbnb and WeWork.

“What market pressure will mean for all businesses is the survival of the fittest,” said Allen Adamson, co-founder of marketing company Metaforce and professor of commerce at New York University. “If you’re going into this bad weather storm, it’s not going to be pretty. “

Just a few weeks ago, Airbnb was about to take advantage of a booming stock market with its highly anticipated public offering. But with the market faltering and few people looking away from home, Airbnb would rack up millions of dollars in losses while fending off reactions from hosts who rely on its services to survive.

The hosts were furious when the company told customers they could cancel their stay without penalty. Last week, Airbnb agreed to pay the hosts $ 250 million to make up for some of the money lost in the event of a cancellation.

AirDNA, a data company that helps landlords set rental rates, says the impact on US Airbnb hosts has been mixed. In New York, bookings fell 66% in March, but in the suburbs they increased when people fled the city. Reservations at Westhampton Beach, N.Y., have increased six-fold. Likewise, bookings in the city of Chicago fell 11% last month, but in St. Joseph, Michigan – a lakeside community within driving distance – they quadrupled.

Cary Gillenwater, who has a suite of friends adjoining Amsterdam listed on Airbnb, said 20 guests canceled reservations between March and June, costing him nearly $ 11,000. He had hoped for compensation from the company, but was told that only reservations canceled through Airbnb specifically mentioning the coronavirus would be eligible. Several of his potential guests contacted him directly to cancel; he refunded their money, but may have no luck with the refund. Airbnb did not immediately respond to a request for comment.

The company got some kind of lifeline on Monday when two private equity firms – Silver Lake and Sixth Street Partners – invested $ 1 billion in debt and equity in the company. Companies say Airbnb should emerge from the crisis in a stronger position.

The Wall Street Journal reported on Tuesday, however, that the company will pay more than 10% interest on these loans and that it has “verbally” committed to reducing fixed costs and resorting to additional management – conditions that often involve layoffs and other cost reductions. Airbnb did not immediately respond to a request for comment on the Journal’s report.

Uber, meanwhile, is trying to reassure nervous investors that its aggressive hailstorm expansion plans are on track. Like rival Lyft, he saw demand for cars hit a wall as states increased orders for home stays. The two companies are trying to save money so they can withstand the fallout from the pandemic, in part by focusing on deliveries of food and other goods.

Even in the worst-case scenario – an 80% drop in ridership until 2020 – the company said it would end the year with $ 4 billion in cash. That would still mean burning nearly $ 7 billion this year, which could create problems for Uber’s biggest ambitions such as autonomous cars and air taxis.

Analysts, however, remain largely bullish. “We think Uber and Lyft will come out on the other side, always in a good position to seize growth and opportunities,” said Daniel Ives, analyst at Wedbush Securities.

Pilots are another story. San Diegan Christopher Chandler, who has been driving for the two companies for two years, said he has lost more than 80% of his earnings since the pilots were nearly gone. “I’m going to have to make tough choices on the bills I won’t pay this month,” said Chandler, who has switched to deliveries that aren’t close to covering his previous driving earnings.

However, other lesser-known companies have benefited from the pandemic. Zoom, the video conferencing provider, has seen its stock skyrocket in the past few weeks; stocks almost quadrupled from their introductory price just 11 months ago.

Not long ago, meal kit maker Blue Apron was threatened with delisting from the New York Stock Exchange after its shares fell below the $ 1 trading minimum. Since the start of March, however, the company’s shares have more than tripled after reporting a surge in consumer demand, fueled by home orders.

CB Insights lists more than 450 startups worldwide valued at $ 1 billion or more. While it can be difficult to paint these unicorns with a wide brush due to their variety of business models and leadership styles, co-founder and CEO Anand Sanwal said that what COVID-19 does to the economy will be “difficult for any weather company, start up or not. ”

Sanwal said it is already seeing a drop in start-up investments that are helping to launch new tech startups. But he said investors who have poured large sums into unicorn startups will likely try to do what they can to help them stay healthy, at least preparing them for sale rather than waiting for them when they collapse.

“Investors will make difficult decisions as to whether this is a temporary downturn or an unlucky business,” he said.

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AP technology writer Matt O’Brien contributed to this story.

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