Airbnb’s heavy investments in marketing and technological overhauls have resulted in a loss of nearly $400 million for the first half of 2019. The Information reported that Airbnb lost about $100 million in the second quarter, on top of a first-quarter loss of about $306 million. The loss is a result of higher marketing and administrative expenses as Airbnb has decided to boost sales growth ahead of its planned public listing next year.
Sales in the second quarter grew by 34 percent to $1.2 billion from the second quarter of last year, according to The Information. This growth comes as marketing costs jumped by 47 percent to nearly $390 million in the quarter as Airbnb competes for hosts and customers.
Profits were also hurt by soaring administrative expenses, which grew by 67 percent to $170 million. Airbnb has been on a hiring frenzy for engineers as it overhauls its website infrastructure, according to The Information:
Airbnb’s technical foundation has remained rickety as the company has grown and added new services. In recent years, Airbnb has found it difficult to launch new products because its code base was relatively inflexible, according to current and former employees. That caused headaches for the company when it expanded its business to include selling hotel rooms and luxury travel tours, and catering to Chinese customers.
Airbnb is now spending hundreds of millions of dollars to shore up the software that underpins the rental site’s consumer website and back-end operations. The effort is expected to take at least through the end of the year and require hiring hundreds of additional engineers.
Airbnb is privately-held and doesn’t comment on its financials, but we think second-half profitability will remain strained. The company is expected to book additional expenses from its recent announcement to verify all its listings. Airbnb will use a combination of technology and additional hires to restore and boost trust after a recent rash of negative press related to Airbnb properties.
Airbnb may not be able to become profitable this year after generating $18 million in profits last year. The company said it has been profitable in the past couple of years. These near-term investments are expected to boost revenue growth, and with a reported $3 billion in cash on hand, the company may assuage investors’ concerns.
Last Friday, Airbnb announced that longtime Chief Operating Officer Belinda Johnson plans to step down March 1 to spend more time with her family. She will join its Board of Directors at that time. Johnson’s departure comes at a crucial time for the company as it gears up to go public in the upcoming months. It is unclear whether the initial public offering will happen before her departure.
