When we discussed the spectacular implosion of the WeWork IPO last fall, one of the main companies we used to contrast its flawed business model was online marketplace and homesharing giant Airbnb. While the San Francisco-based startup has had its fair share of problems and critics, unlike most other “tech unicorns”, it has been quite profitable in recent years—bolstering hopes that it could transition successfully as a publicly listed firm (Uber and Lyft have seen their stock price flounder and decline, respectively, since going public last year). [1]

However, the latest financial reports indicate that Airbnb lost $322 million during the first nine months of 2019 before posting profits in the last months of the year, a sharp contrast with the first nine months of 2018, when the company made $200 million in profits. But while top-line numbers might seem worrisome for investors as well as observers of dynamics in the nation’s real estate markets, analysts have been quick to point out the reasons underpinning these poor numbers should allay most long-term concerns. [2]

This is because many of the costs that dented the company’s bottom line appear to be one-offs. These include marketing costs associated with selling the company to public investors, a string of high-profile acquisitions aimed at making the Airbnb a full-service travel company with hotel bookings and loyalty programs. That said, it must be acknowledged that some of the new costs appear baked in, notably increased administrative costs as the company expands and more worryingly, $150 million in new safety initiatives. Much of the worst publicity Airbnb has received has come when customers became victims of violent crimes on their properties. Much like Uber, Airbnb is being held to account to take proactive steps to ensure the safety of its clients and provide more oversight of the properties it helps rent out. If safety costs were to balloon further, this could certainly threaten the company’s profitability.

In truth, the biggest threat to Airbnb’s business model is not one of market competition or costs. The company has succeeded enormously in its first decade of existence at changing the expectations and tastes of consumers, especially younger travelers and vacationers. For this segment of the short-term rental market, the idea of staying in the same hotel room wherever one travels, rather than in an authentic local home, is distinctly unappealing. Of course, traditional hotels will continue to play an important role, especially for the legions of business travelers who prize reliability as well as some of the other extra services that hotels provide. Rather, Airbnb is at risk from lawmakers and regulators—while the company has been a boon for traveler-consumers as well as people with a second home to let, there can be little doubt that its business model increases rents by limiting the supply of housing available for locals, especially cities with many tourists. As we have seen in other places, most notably Barcelona, municipal bans on Airbnb are the greatest risk for the company. Whether a more generalized or international backlash to Airbnb will materialize remains to be seen, and in any case would likely be some ways away in the future. Until that point, it seems Airbnb will probably continue moving from strength to strength as it prepares to go public.

[1] Molla, R. (February 2020) Why Airbnb is suddenly struggling to make money from Vox https://www.vox.com/2020/2/12/21134477/airbnb-loss-profit-ipo-safety-tech-marketing Accessed February 18 2020

[2] Eaglesham, J. (February 2020) Airbnb Swings to a Loss as Costs Climb Ahead of IPO from Wall Street Journal https://www.wsj.com/articles/airbnb-swings-to-a-loss-as-costs-climb-ahead-of-ipo-11581443123 Accessed February 18 2020