In the first nine months of 2019, Airbnb posted a loss of $322 million, according to the Wall Street Journal, and the timing could hardly be worse.
In the same period in 2018, the home-sharing company revealed profits of $200 million. But now, as Wall Street casts increasingly disfavorable looks at profit-shy tech companies, black has turned to red. Now investors must decide if the losses are due to one-off fixes to potential long-standing problems, or a more serious issue with the revenue model.
Airbnb makes its money by charging a service fee from users who book and host people in their homes. For a company offering accommodation to so many people, it has very few overheads, but there has been major spending in some areas pre-IPO.
The company has reportedly increased its spending on marketing in the run up to going public, something which could partially account for the increase in losses. The Information reported last year that the company spent $367 million on sales and marketing in the first quarter of 2019, a quarter which saw losses double compared to the same period a year earlier. That marketing spend was a 58 percent jump from the same quarter a year earlier.
The startup has also made a number of acquisitions as it seeks to expand its offering and revenue streams. Last spring Airbnb bought HotelTonight, the hotel booking site, and also acquired Urbandoor, a competitor which targets business customers. The HotelTonight deal alone was reported to be worth $400 million-plus in cash and stock. Alongside these acquisitions, Airbnb has expanded its experiences product, which lets users book tours and tickets in the places they are staying through the website and app.
Airbnb has also been forced to spend money on security. Due to the nature of the company’s service, there have always been concerns over the security of those staying in stranger’s housing. To combat this, Airbnb announced last year it planned to spend $150 million on safety initiatives such as verifying each listing for accuracy and quality, creating a safety hotline for users, and manual screening of reservations that are deemed high risk.
Much of Airbnb’s spending appears to be justified one-off expenses that will make the company more profitable in the long run, and should appeal to public investors as a sign that the executive team is forward thinking enough to survive the scrutiny of public markets. But the fact the company is loss-making will still have a large impact on the IPO, purely because of the failure of technology unicorns last year. Many other outside influences could ultimately decide the success of the listing in this tumultuous election year, but any loss-making unicorns appear to begin the process with a distinct disadvantage.