4 ms·

If they are already profitable, why raise money again?

Judgmentality 10y ago
If you can raise money on great terms, it's usually in your best interest to do so. Maybe they want to build up their war chest as they see increasing regulatory hassles, more competition, and a possible downturn in the market. I'd also guess they are expanding their scope now to more expensive endeavors, as they are building physical hotels now (and probably many other things they haven't announced yet). http://www.businessinsider.com/airbnb-builds-hotel-japan-community-samara-yoshino-2016-8 http://www.businessinsider.com/airbnb-builds-hotel-japan-com...
- ganfortran 10y ago
  Wow, that is an interesting move. If that is the route they are going after, it is more understandable.
101km 10y ago
Profitable can also mean $1.
ucaetano 10y ago
You can be profitable but still be burning cash in a few different ways. Profitable looks only at profit, not at cash flow, so it only means that "booked revenue in a year > booked costs in a year". Keep in mind that capital expenses are not costs, but are cash expenses. Also, some revenue in a given year might not be a cash transaction, because even if you booked it in that year, it might take much longer for you to actually get paid. Some of the ways to burn cash: (1) Expand operations: hiring people, hiring external services, leasing offices, leasing capacity, etc. All that happens far before any additional revenue comes in. (2) Capex: capital expenses (buying servers, equipment, etc.) require cold, hard cash (or debt, which "costs" more than equity for a startup, so it is better to do equity funding). (3) Working capital (current assets - current liabilities): some companies have positive (they receive the revenue cash before dispensing the costs cash) working capital, using their customers' money to expand the operations, others have negative working capital, requiring external funding to expand their operations. My guess is that (2) and (3) don't apply for AirBnB, they are not a capital-intensive business, and as they get paid when the booking is done but pay out when the guest arrives, their working capital might actually be positive. So they probably need it to expand operations.
- throw_away_777 10y ago
  That is a pretty strange way of defining profitable where you are losing money.
  - stale2002 10y ago
    Think of it this way. Imagine if airbnb took its 1 billion dollars and bought bars of gold, and put those bars of gold in a vault. Is airbnb losing money, because it now has 1 billion dollars less in cash, and 1 billion dollars more in gold bars? No, it is not.
    - ucaetano 10y ago
      Actually, IIRC (and correct me if I'm wrong) for accounting purposes, gold counts as "cash & cash equivalents", so if it bought $1B in gold bars, AirBnB's cash wouldn't change.
      - dudurocha 10y ago
        Gold as a commodity (bonds). Gold bars are not liquid.
        ucaetano 10y ago
        Bonds can be considered cash equivalents if they have short maturity. Gold is highly liquid, and from what I've read, it can be considered (in bullion) cash equivalents, except for banks, that due to Base 3 regulations can only consider part of their gold holdings as cash equivalent for liquidity purposes.
  - ucaetano 10y ago
    Accounting is complicated. For example, let's say you buy a box for $50, pay it right away, then sell the box and deliver it on December for $100, but the buyer only pays you in January. Then you need to publish your results for this year. How do you do it? P&L statement: Revenue: $100 Costs: $50 Profit: $50 Cash flow statement: Cash from sales: $0 Cash paid to suppliers: $50 Net cash flow: -$50 So you had a negative cash flow, but was profitable.
paulpauper 10y ago
Their business operations are cash flow positive (such as we see with Amazon) but they want to raise more money for capital investments such as to expand.

If you can raise money on great terms, it's usually in your best interest to do so. Maybe they want to build up their war chest as they see increasing regulatory hassles, more competition, and a possible downturn in the market. I'd also guess they are expanding their scope now to more expensive endeavors, as they are building physical hotels now (and probably many other things they haven't announced yet). http://www.businessinsider.com/airbnb-builds-hotel-japan-community-samara-yoshino-2016-8 http://www.businessinsider.com/airbnb-builds-hotel-japan-com...

ganfortran 10y ago
Wow, that is an interesting move. If that is the route they are going after, it is more understandable.

101km 10y ago

Profitable can also mean $1.

ucaetano 10y ago

You can be profitable but still be burning cash in a few different ways. Profitable looks only at profit, not at cash flow, so it only means that "booked revenue in a year > booked costs in a year". Keep in mind that capital expenses are not costs, but are cash expenses. Also, some revenue in a given year might not be a cash transaction, because even if you booked it in that year, it might take much longer for you to actually get paid. Some of the ways to burn cash: (1) Expand operations: hiring people, hiring external services, leasing offices, leasing capacity, etc. All that happens far before any additional revenue comes in. (2) Capex: capital expenses (buying servers, equipment, etc.) require cold, hard cash (or debt, which "costs" more than equity for a startup, so it is better to do equity funding). (3) Working capital (current assets - current liabilities): some companies have positive (they receive the revenue cash before dispensing the costs cash) working capital, using their customers' money to expand the operations, others have negative working capital, requiring external funding to expand their operations. My guess is that (2) and (3) don't apply for AirBnB, they are not a capital-intensive business, and as they get paid when the booking is done but pay out when the guest arrives, their working capital might actually be positive. So they probably need it to expand operations.

throw_away_777 10y ago
That is a pretty strange way of defining profitable where you are losing money.
- stale2002 10y ago
  Think of it this way. Imagine if airbnb took its 1 billion dollars and bought bars of gold, and put those bars of gold in a vault. Is airbnb losing money, because it now has 1 billion dollars less in cash, and 1 billion dollars more in gold bars? No, it is not.
  - ucaetano 10y ago
    Actually, IIRC (and correct me if I'm wrong) for accounting purposes, gold counts as "cash & cash equivalents", so if it bought $1B in gold bars, AirBnB's cash wouldn't change.
    - dudurocha 10y ago
      Gold as a commodity (bonds). Gold bars are not liquid.
      - ucaetano 10y ago
        Bonds can be considered cash equivalents if they have short maturity. Gold is highly liquid, and from what I've read, it can be considered (in bullion) cash equivalents, except for banks, that due to Base 3 regulations can only consider part of their gold holdings as cash equivalent for liquidity purposes.
- ucaetano 10y ago
  Accounting is complicated. For example, let's say you buy a box for $50, pay it right away, then sell the box and deliver it on December for $100, but the buyer only pays you in January. Then you need to publish your results for this year. How do you do it? P&L statement: Revenue: $100 Costs: $50 Profit: $50 Cash flow statement: Cash from sales: $0 Cash paid to suppliers: $50 Net cash flow: -$50 So you had a negative cash flow, but was profitable.

paulpauper 10y ago

Their business operations are cash flow positive (such as we see with Amazon) but they want to raise more money for capital investments such as to expand.