The latest company to show big losses is — surprise — Airbnb
Losing money has been quite the tech trend in recent months. This time, home-sharing platform Airbnb is under scrutiny, a surprise given the numerous headlines lauding it for turning a profit on the road to IPO.
Until recently, Airbnb was the rare Silicon Valley unicorn that had somehow cracked the code—somehow figured out a way to make money! Over its 12-year history, Airbnb proved to be much more conservative in its spending compared to other fast-growing startups.
But the Silicon Valley darling valued at $35 billion may be falling from grace. Airbnb had a net loss of $322 million in the first nine months of 2019, down from a profit of $200 million during the year-earlier period, according to a new report from The Wall Street Journal.
And that’s not all. My colleague Aric Jenkins astutely points out that these losses don’t even reflect new spending that the company committed to late last year on safety control across its network of rental homes.
Jenkins recently took an inside look at Airbnb as it tries to implement safety changes and stake its claim as the ultimate one-stop-shop travel company. In a new analysis, he notes that Airbnb’s safety spending could very well eat into future profits.
Hunter Walk, a partner at seed stage venture fund Homebrew, has written about Silicon Valley’s desire for “software margins”—high gross and net profits due to fixed development costs and ability to scale, often found in tech companies whose main product is a “platform.” The tradeoff of pursuing those margins is that engineering efforts are often focused on growth and revenue, rather than operational issues like safety standards.
“There are a host of innovative and valuable startups—Airbnb included—which touch the physical world in ways that traditional software companies never had to deal with,” Walk tells Fortune. “The complexity of trust and safety when dealing with housing or transportation is far greater than staffing a call center to just deal with enterprise software bugs, and accordingly we should assume it might cost more too.”
In other words: This might just be the beginning of a new economic reality for Airbnb, as the company sacrifices software margins while addressing the expenses of protecting the people using its platform.
We don’t know how Airbnb’s public market debut will go, but we certainly know that investors are raising eyebrows at companies with losses and no clear path to profitability. With Airbnb under even more examination following the meltdown of WeWork and the underwhelming performances of other newly public tech companies, we’ll have to see if Silicon Valley’s tech darling can win the validation of the public investor.
Read more at Fortune.
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Polina Marinova
Twitter: @polina_marinova
Email: polina.marinova@fortune.com
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