Airbnb Is Losing Money From Its Fast Rising Expenses

Airbnb is in a problematic situation involving its profitability. It was once a profitable company that stood out of other companies exceeding a net worth of a billion dollars. However, the situation is turning differently for this once soaring company.

Before the planned IPO of the company in 2020, it had already spent a great deal with its issues with safety, technological advancement, and user base growth.

From January to September 2019, the home-sharing organization had reported a loss of $322 million. However, in the same period in 2018, it had reported a $200 million profit.

In the third quarter of 2019, Airbnb did not attain a positive profit. However, the results of the third quarter of 2018 were higher. The seen cause of the difference was the fast increase in expenses compared to the soaring of the company's revenue.

Airbnb earns money through service fees. This is done by receiving a percentage of the total payment for renting out space.

Here are some points to ponder in determining the cause of the falling trend of Airbnb's profits:

Safety

The company had been connected with a network of issues with safety. It includes issues such as gun violence, prostitution, and racism.

In October 2019, a nationwide scam was discovered. The scam includes the exploitation of guests by making last-minute transfers to higher-priced rooms.

Before the IPO, the company had been exerting safety efforts through its platform. This move is for preventive purposes.

Through careful monitoring, Airbnb makes a move for its platform to become safer for its users and the owners of the company. However, implementing additional safety measures requires additional cash outflow due to its costly investment.

Technology and Administrative Costs

An article from Vox stated that it should be clear to everyone that Airbnb is not the owner of the properties posted on its platform. The platform is the thing that makes the company valuable. The platform serves as a meeting point between accommodation property owners and renters from different parts of the world. Airbnb simply serves as the two party's intermediary.

It was reported that the company is using $100 million for the upgrade of the technology of their platform. Also, the company's administrative expenses had increased to $175 million in the third quarter of 2019.

Marketing

Marketing expenses are an important cost for a company that aims to conduct an IPO in the future. An IPO allows a business to expand. Through intense marketing efforts, businesses can convince potential investors to purchase their stocks.

However, spending money on marketing efforts affects a business's profits.

In 2019's first quarter, the company doubled its losses to $306 million compared to the previous year. This amount was greatly affected by its marketing costs.

Acquisitions

Airbnb has been reported to have acquired high-profile companies such as HotelTonight and Urbandoor. These businesses were acquired to transform the company into a full-fledged travel organization rather than just a home-sharing service mediator. Also, the company is planning its strategy to launch a loyalty program for its customers.