Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
This morning we’re exploring Airbnb’s march to the public markets. The popular DIY hospitality startup promised last year that it would go public in 2020. That timeline means that its 2019 performance will be included in an eventual S-1 filing, putting the results on public display.
Recent news, however, doesn’t paint a perfect picture for the famous unicorn. Indeed, Airbnb’s history of rapid growth and profitability appears to have been replaced by slowing growth and profit struggles. The Wall Street Journal reported results from the company’s third quarter that are at once encouraging — a return to profitability — and troublesome; Airbnb’s first three quarters of 2019 are in the red as a group, a change from historical profitability.
If Airbnb goes public soon, as it has promised, its recent, trailing results will matter. To get ready for its IPO, let’s rewind through what we’ve learned about Airbnb’s revenue, revenue growth and profitability over the years. Doing this will help us understand how the startup went from rising profitability to posting, through the first three quarters of 2019, a nine-figure net loss.
The Airbnb public offering (likely a direct listing) is going to be the financial event of the year. Get excited.
Rewind
The following data points were culled from a host of reports over the past half decade. Each is accompanied by its original source, and I encourage you to read the pieces to get a feel for how Airbnb has been discussed through time. The tone of Airbnb coverage largely tracks its performance; when Airbnb was at the steepest part of its growth curve, the media was enthused. Lately, however, the writing is a bit different.
You’ll see why:
- 2015: Around $900 million in revenue (24/7 Wall St., implied math)
- Q3 2015: $340 million in revenue (MarketWatch)
- 2016: Revenue of $1.7 billion, $100 million in adjusted EBITDA (Fortune)
- 2017: Over $2.5 billion in revenue (Reuters)
- Q3 2018: Over $1 billion in revenue (Reuters)
- Q1-Q3 2018: $200 million in net profit (WSJ)
- 2018: Earnings before interest, and taxes of $18.7 million (The Information)
- Q1 2019: Revenue of $839 million, operating loss of $306 million (The Information)
- Q2 2019: “substantially more than” $1 billion in revenue (USA Today)
- Q3 2019: Revenue of $1.65 billion, generating net profit of $266 million (WSJ)
- Q1-Q3 2019: A net loss of $322 million (WSJ)
- 2019: The company expected $4.6 to $5 billion in revenue (The Information)
Got all that? The picture is one of rapid growth and rising profitability until it wasn’t. The end of 2018 and the beginning of 2019 appear to be when the temperature changed.
In 2018, Airbnb had its first quarter with more than $1 billion in revenue, and it had periods of profitability. Hell, it even had full-year EBIT, if reporting holds up. 2019, to contrast, saw losses and what appears to be slowing growth. Rising unprofitability and falling revenue expansion (in percentage terms) are not a great combination for a company looking to perhaps direct list. (Airbnb is cosmically cash rich, making a normal public offering plebeian compared to its enlightened plans.)
Why the change?
Airbnb is suffering from increasingly expensive growth, and a rising cost profile that is eating into its profitability.
The company is spending heavily to grow; a reported sales and marketing spend of “as much as $2 billion” in 2019 likely lowered its operating profitability and net results. Given that the company only expected as much as $5 billion in revenue for the year, the possible $2 billion figure makes it clear why the company might struggle on a net basis.
That the company’s growth rate has slowed to around 30% in Q3 2019 is another issue; all that spend led not to staggering growth, but more moderate, slowing expansion. Airbnb is having to try harder, and pay more, to grow as it has expanded.
And the company’s other costs are rising. The firm promised to verify all the listings on its service after scams and tragedies received media attention. That process is expected to continue this year. The costs of the security push are said to be around $150 million.
Add all that up and Airbnb lands where it is: Expanding with sporadic profits, but a bit apart now from its formerly juggernaut-esque self.
So what?
Airbnb remains an immensely valuable company. However, where the public markets will value it in comparison to its former valuation of over $30 billion isn’t clear. The company has lots going for it since that 2017 funding event. It’s larger, and it has posted periods of strong profitability in the interim.
But with sales and marketing costs likely nipping at its operating results, and security costs presumably undercutting its gross margins, Airbnb won’t have as clear a path to trading publicly as it likely expected.
Now, can we get an S-1 already?