Why Airbnb stock fell today

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What happened

Shares in Airbnb (NASDAQ: ABNB) are down 2.5% on Friday afternoon at 2:45 p.m. EST, and I have to say even with that Composite Nasdaq Index We’ve been in a total skid today – initially down 2.5% just to turn around, and now headed for a 1% gain – that’s an odd reaction investors have to the latest news from Airbnb.

You’ve probably heard that Airbnb is looking to raise some cash, right? On Wednesday, the company announced plans to add $ 2 billion convertible bonds due in 2026.

Image source: Getty Images.

so what

Well now it has. Just after midnight on Thursday, Airbnb announced that it would – better sit down – pay a total of 0% interest on that $ 2 billion it borrows.

Correctly. Someone agreed to borrow $ 2 billion from Airbnb to use freely for the next five years and isn’t asking Airbnb a dime for that privilege. Instead, the lender hopes that at some point Airbnb will “convert” the debt into Airbnb’s equity, so that for every $ 1,000 the company owes it will instead receive 3.4645 shares.

(Put your calculators away. Airbnb already did the math for you: that’s “roughly $ 288.64 per share of Class A common stock.”)

What now

Why wouldn’t these lenders just buy Airbnb stock now if they want to get at the company’s $ 176 and change its share price, you ask?

Presumably the idea is for lenders to put some sort of call option on the stock that they expect to rise to more than $ 288.64 in the next five years – up 64% and even more – but I honestly can’t say for sure. This level of “high finance” is not for mortals.

In any case, investors today seem to expect a conversion to take place at some point that will result in the creation of around 577,000 more new Airbnb shares, diluting their own ownership interests accordingly. That seems to me at least the most likely explanation. On the other hand, on a stock with nearly 600 million shares outstanding, that’s a tiny fraction of a 1% stock dilution.

And it doesn’t seem like a very good reason to sell the stock today.

This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.

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