Tech start-ups tend to become very chatty when they want to become public companies.
For the past few months there has been an acceleration of updates from Airbnb. Many of the messages focus on how big-hearted the home-sharing company is. But Airbnb is likely to prove a blockbuster listing this year because it makes money, not because it's nice.
As a user, there is a lot to like about Airbnb. Homeowners earn spare cash by renting out their rooms. Guests have somewhere more interesting to stay than an anonymous hotel. The platform is easy to navigate. Meanwhile, its system of mutual feedback between renters and rentees help keeps things civil.
Co-founder and boss Brian Chesky inspires confidence, too. Unlike Travis Kalanick, the pugnacious founder of Uber, or WeWork's bombastic co-founder Adam Neumann, the 38-year-old appears to be remarkably level-headed. It is also good for a company to recognise the irresponsibility of pursuing profit at the expense of society.
But what sets Airbnb apart is the fact that it does not bleed billions of dollars. For the past two years it has not raised any new cash. Valued at US$31 billion ($49b) at its latest funding round in 2017, its decision to go public seems fuelled by the expiration of stock options given to early employees, not the need for fresh capital. Airbnb is reportedly considering a direct listing, a low key way to join markets where no new shares are sold but existing investors can sell their stock.
After last year's disappointing run of initial public offerings, all this should come as a relief. No one wants to be responsible for another WeWork-style flop. Like many big tech start-ups, Airbnb has remained private for over a decade. Unlike them, it says it makes money. The company claims that it was profitable on an ebitda basis — earnings before interest, taxes, depreciation and amortisation — in both 2017 and 2018.
That is why a recent report in the Wall Street Journal that the company lost money in 2019 created such a jolt. The sum was not large compared with the billion dollar quarterly losses of online taxi company Uber. Nevertheless, Airbnb's US$322 million loss in the first nine months of the year, after a profit of US$200m the previous year, is unnerving.
As a private company, Airbnb does not have to report financial details. There is no way of knowing what adjustments Airbnb makes for its ebitda figures, or what caused losses last year.
But it is an asset-light company that facilitates short-term rentals of places that it does not own, making money by charging a fee on both sides. A sudden uptick in costs looks odd.
The crucial question is what sort of costs these were. Spending money on updating the platform or marketing may be one-off charges. Taking more responsibility for properties will not.
The brand is so well-known that users tend to refer to the places they stay as "Airbnbs".
But the company has always emphasised that it is just a platform and therefore should not be responsible for the quality of listings, or for jobs such as collecting occupancy taxes or ensuring rooms comply with local regulations.
Continuing fights with city officials and reports of scam listings have changed that.
Airbnb collects taxes in some jurisdictions. Now it plans to verify all of its listings. But oversight means higher costs, even if most verification 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 grapple with 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 rental. Airbnb bought hotel booking app HotelTonight last year and could add more rooms. But that may undermine what it considers its "authenticity" as a different sort of travel site.
Airbnb will keep sending notifications about guest standards and other ways to "build trust" as it prepares to go public. But the cost of that extra oversight is the information to look out for. Responsibility is admirable. But profitability is Airbnb's best chance of becoming the big name tech listing that does not sink.
Written by: Elaine Moore
© Financial Times