Airbnb: finally, a tech listing that may not flop

Tech start-ups tend to be very talkative when it comes to becoming public companies. In recent months, there has been an acceleration of Airbnb updates. Many posts focus on the big heart of the home sharing business. But Airbnb is likely to turn out to be a hit list this year because it makes money, not because it’s cool.

As a user, there is a lot to like about Airbnb. Homeowners earn money by renting out their rooms. Customers have a better place to stay than an anonymous hotel. The platform is easy to navigate. Meanwhile, its tenant-tenant mutual feedback system helps keep things civil.

Co-founder and boss Brian Chesky also inspires confidence. Unlike Travis Kalanick, the pugnacious founder of Uber, or bombastic WeWork co-founder Adam Neumann, the 38-year-old appears to be remarkably balanced. It is also good for a business to recognize the irresponsibility of seeking profit at the expense of society.

But what sets Airbnb apart is the fact that it doesn’t bleed billions of dollars. In the past two years, he has not raised any new funds. Valued at $ 31 billion during its last round table in 2017, its decision to go public appears to be motivated by the expiration of stock options granted to the first employees, and not by the need for new capital. . Airbnb is reportedly considering a direct listing, a low-key way to reach markets where no new shares are sold but where existing investors can sell their shares.

After last year’s disappointing run of initial public offerings, all of this should be a relief. No one wants to be responsible for another WeWork-style flop. Like many large tech start-ups, Airbnb has been private for over a decade. Unlike them, he says he makes money. The company says it was profitable on an EBITDA basis – earnings before interest, taxes, depreciation and amortization – in 2017 and 2018.

That’s why a recent Wall Street Journal report that the company lost money in 2019 created such a shock. The sum was not large compared to the $ 1 billion quarterly losses of online taxi company Uber. Nonetheless, Airbnb’s $ 322 million loss in the first nine months of the year, following a profit of $ 200 million the year before, is puzzling.

As a private company, Airbnb does not have to report financial details. There is no way to know what adjustments Airbnb is making for its ebitda numbers, or what caused losses last year.

But it’s a lightweight business that makes it easy to short-term rentals of places it doesn’t own, making money by charging fees on both sides. A sudden increase in costs seems strange.

The crucial question is what kind of costs it was. Spending money on updating the platform or marketing can be a one-time fee. Taking more responsibility for the properties won’t do it.

The brand is so well known that people tend to refer to the places they stay as “Airbnbs”. But the company has always emphasized that this is only a platform and therefore should not be responsible for the quality of the ads, nor for tasks such as collecting occupancy taxes or compliance of rooms with local regulations.

Ongoing battles with city officials and reports of fraudulent advertisements have changed that. Airbnb collects taxes in some jurisdictions. Now he plans to check all of his lists. But monitoring means higher costs, although most of the checks will be done online. The world’s largest hotel chain, Marriott International, has 1.4 million rooms. Airbnb lists 7 million properties.

Airbnb must also fight against the spread of the coronavirus on the global tourism industry. New revenue lines would help balance rising costs. But so far these have been slower to take off than the core business. Tourist activities are less popular than accommodation rentals. Airbnb bought the HotelTonight hotel reservation app last year and may add more rooms. But that can undermine what it sees as its “authenticity” as a different travel site.

Airbnb will continue to send out notifications about guest standards and other ways to “build trust” as it prepares to go public. But the cost of this additional monitoring is the information to seek. The responsibility is admirable. But profitability is Airbnb’s best chance at becoming the list of big names in technology that doesn’t sink.

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