Airbnb Inc. swung to a loss for the first nine months of last year as costs rose sharply, according to people close to the company, raising questions about the valuation and timing of the home-sharing giant’s much-anticipated public-markets debut.
The multibillion-dollar startup racked up a $322 million net loss for the nine months through September, down from a $200 million profit a year earlier, one of the people said.
The slide into the red could affect Airbnb’s price tag in an initial public offering, according to investors. Airbnb’s profitability was expected to give it an edge as it wooed public investors. After the troubled debuts of Uber Technologies Inc. and Lyft Inc., investors have grown increasingly suspicious of companies with losses and no clear path to profitability.
The San Francisco-based company, which lets people list their properties for rent on its marketplace, is one of the nation’s biggest private companies. It was valued at $31 billion in its last funding round in 2017, according to Dow Jones VentureSource data. Its most recent internal valuation was sharply less however, one of the people close to the company said.
Airbnb said last year that it would go public “during 2020,” setting the stage for what would likely be the only blockbuster offering of the year.
The timing could be affected by the coronavirus, a person close to the company said. Airbnb’s business in China is currently down about 80% compared with last year, as the virus disrupts travel to the country and listings are suspended in some cities, the person said. China is an important growth market for Airbnb, and the company might wait until the impact of the virus has stabilized before going ahead with its IPO, the person said.
Any IPO this year would likely be in the third quarter or later, people close to the company said. It is expected to be several months before the company even files with the Securities and Exchange Commission the confidential documents needed to kick-start the process, some of the people said.
The company is the largest home-sharing platform in the U.S., with more than two million people on average booked every night into its listings world-wide.
Airbnb would be testing the public markets amid increased wariness of fast-growing, unprofitable startups. In addition to Uber and Lyft’s choppy starts, mattress startup Casper Sleep Inc. last week pegged its IPO price at $12, putting its worth at less than half its $1.1 billion private valuation. Its stock is currently trading more than 10% below that lowered IPO price.
WeWork parent We Co. is still reeling from its scrapped public debut.
It isn’t unusual for Silicon Valley startups to still be spilling red ink when they go public—fewer than one in four technology IPOs in the five years through 2019 were profitable, according to data from Jay Ritter, finance professor at the University of Florida.
Airbnb is in a stronger financial position than many companies that have been launched on the public markets, according to Mr. Ritter. The company has a “huge global market share, the brand name…and there’s no question they will be able to achieve profitability,” he said.
Airbnb also has the advantage of some $3 billion in cash on its balance sheet, people close to the company said, giving it the kind of healthy financial cushion that WeWork lacked.
The company, which doesn’t have to disclose financial information because it is held privately, has released little data on its revenue and profit. It said last year that in both 2017 and 2018, it was “profitable on an Ebitda basis.” Ebitda, or earnings before interest, taxes, depreciation and amortization, is a widely used performance metric that falls outside the generally accepted accounting principles.
Airbnb’s drooping profitability is causing concern within the firm, according to people close to the company. The board in recent weeks grilled executives on why expenses are outpacing revenue, the people said.
This pattern is reflected in Airbnb’s quarterly results for the three months through September. Historically, the third quarter is the most profitable period for the company because of travel patterns, according to people close to the company.
Airbnb increased its revenue to $1.65 billion in the third quarter, up almost $400 million from a year earlier, one of the people said. But costs rose faster. Net profit for the quarter was $266 million—less than the $337 million profit for the same period in 2018, and not enough to cover losses for the first six months of the year, the person added.
Costs are likely to increase further, as a result of Airbnb’s recent move to spend more on safety issues affecting its platform. The company has struggled with theft, prostitution and other crimes among its hosts and guests since its founding in 2008. After shooters tore through a house party in Orinda, Calif., in October, the company announced a series of steps to increase safety for its members, including verifying all seven million of its listings for quality and accuracy.
The company in early December announced details and additional measures, including a commitment to spend $150 million on safety initiatives.
Airbnb is also spending heavily on upgrading the technology of its platform, with costs running at more than $100 million a year, a person close to the company said.
One category of costs that has grown particularly fast is general and administrative expenses, which more than doubled year-over-year to total $175 million in the third quarter, according to another person close to the company. This category covers business overhead, such as the costs to run Airbnb’s San Francisco headquarters, and legal, accounting and human-resource functions.
Belinda Johnson, who oversees many of these areas as chief operating officer, is leaving that post on March 1 to join Airbnb’s board, the company said in November. Ms. Johnson said at the time that she wanted to spend more time with her family. Brian Chesky, Airbnb’s co-founder and chief executive, said he told Ms. Johnson she could “return to Airbnb as an executive if she ever wishes to do so.”
Write to Jean Eaglesham at jean.eaglesham@wsj.com, Maureen Farrell at maureen.farrell@wsj.com and Kirsten Grind at kirsten.grind@wsj.com