Have you been waiting a Very Long Time for Airbnb to go public? Did you get all excited back in September of last year when Airbnb announced that it would go public in 2020? Are you beginning to wonder if it will ever happen? All that lovely stock, all those beautiful RSUs, all those tempting stock options…when will they turn into MONEY?!
A couple weeks ago, Airbnb announced that it was raising an additional $1B (as in, bajillion) in debt and equity. And then another $1B was announced last week. This comes after a fourth quarter when Airbnb lost more money than in previous quarters, and in contrast to profits in 2017 and 2018. Then the Covid-19 pandemic hit, and bookings dropped through the floor. And now, raising a bunch more money from private equity firms.
What does this do to the value of your Airbnb stock? What does this mean for when Airbnb will go public? Right now it’s rather hard to imagine it happening in 2020.
Point is, we don’t know. So we’re left to plan with what feels like an overwhelming amount of uncertainty…not to mention a hefty dose of disappointment and anxiety.
(If you take a moment to muse on it, though, you might realize that this has always been utterly unknowable. We’re just more painfully aware of it right now.)
So, what can you usefully do, in the midst of this exasperating uncertainty? It depends on whether you have RSUs, outright shares, or options.
If you have stock options that are expiring soon, see my last blog post for a framework for making that decision.
If You Have RSUs, It’s Mostly a Waiting Game.
If you have RSUs, there really is nothing active for you to do now.
The RSUs won’t turn into stock until:
- You’ve passed the time- and service-based requirement (this is the usual “stay at the company long enough, and RSUs will vest”), and
- Airbnb goes public or has a “change in control.”
If you still work at Airbnb, you can continue working at Airbnb so that more RSUs vest under that first requirement (time and service). But those shares aren’t really yours until Airbnb goes public…and you can’t do anything with shares that don’t belong to you.
What might be helpful to you, especially if you’ve had a very rosy expectation up until recently about the imminent riches in your life, is to start playing around with scenarios:
- What if these RSUs never become worth anything?
- What if these RSUs become worth half of what I thought they’d be worth?
How would you adapt your expectations? Your plans?
To be sure, there’s still some planning to be done, around tax optimization. The year those RSUs fully vest is gonna be a big-income, high-tax-rate year for you. Are there things you can do to minimize other income in that year? A CPA would be a great professional to help you figure out ways to minimize taxes across several years, not knowing right now when that RSU income is going to come in, and how big it will be.
If You Own Shares, Either Wait or Try to Sell on the Secondary Market.
If you own shares of Airbnb stock because you exercised options in the past, there’s, again, not much you can do right now.
Maybe you could sell some of the shares on the secondary market, to help get some liquidity, some cash, out of your Airbnb holdings. To help reduce the risk of being so concentrated in Airbnb stock.
My understanding is that Airbnb doesn’t like its shareholders (you) to sell on the secondary market, so it’s all legally complicated and I disclaim any knowledge of the inner workings of such sales. Harumph.
From a very practical point of view, I’m not sure the private secondary market is going to help you out much right now. Even before the pandemic struck and the travel industry took a nosedive, the secondary market was starting to worsen for Airbnb shares. It was harder and harder to find buyers, and the price they were willing to pay was lower and lower.
I have only one anecdote since since #stayathome became the New Normal, and this person was quoted a purchase price of waaaaaay less than what I saw clients get in Q4 of 2019. That said, the only way to find out is to actually contact the private secondary marketplaces and ask.
If You Have Stock Options, the $2B Might Help.
Believe it or not, this (hopefully temporary) punch to the gut that Airbnb has taken creates an opportunity to reduce your taxes, if you have stock options.
Non-Qualified Stock Options (NSOs)
If you have non-qualified stock options, exercising them creates an immediate tax impact. The difference between your strike price and the fair-market value of a stock (for a private company like Airbnb, that is their 409(a) valuation) is counted as ordinary income, just like your salary, the moment you exercise the option.
Example: Higher 409(a)
- Strike price = $1
- 409(a) = $121/share
- You exercise 1000 NSOs.
- Your taxable income = ($121-$1)*1000 = $120,000
- Your marginal tax rate = 40%
- Tax due = $48,000
Let’s say that, by raising $2B in debt and equity, Airbnb’s 409(a) valuation falls to $91/share. (I have heard rumblings, but I just made this number up.) Well, now you can exercise the same number of options and owe less tax.
Example: Lower 409(a)
- Strike price = $1
- 409(a) = $91/share
- You exercise 1000 NSOs.
- Your taxable income = ($91-$1)*1000 = $90,000
- Your marginal tax rate = 40%
- Tax due = $36,000
- Tax savings = $12,000
If the price eventually goes back up, you will end up paying less in taxes for the same amount of Airbnb stock value, because you were able to exercise when it was worth less.
Incentive Stock Options (ISOs)
If you still have incentive stock options hanging about, the benefit is not as straightforward, but it could still exist. When you exercise an ISO, you don’t necessarily incur a tax. You only incur a tax if the spread between strike price and 409(a) exceeds a certain threshold, above which you become subject to AMT (Alternative Minimum Tax).
By lowering the 409(a) valuation, the spread per option (called “the bargain element”) is smaller, which means you can exercise more options, at that smaller spread, before you hit that threshold.
And beyond this, I usually call in a CPA.
With so much uncertainty (will Airbnb go public? If so, when? And at what price? How much money will I get out of this? And when?), I think there are some fundamentals important to keep in mind:
- I wouldn’t rely on any of this money.
- Don’t jeopardize your financial health because you’re making any assumptions about Airbnb.
- Try to make a plan that works okay for you in a variety of outcomes, because who knows which outcome will come true.
Good luck. God speed. Fingers crossed.
Do you want to work with a financial planner who understands how to navigate the vagaries of private-company stock? Reach out to me at or schedule a free consultation.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.
