Airbnb, Inc. (NASDAQ:ABNB) Q3 2023 Earnings Call Transcript

Airbnb, Inc. (NASDAQ:ABNB) Q3 2023 Earnings Call Transcript November 1, 2023

Operator: Good afternoon and thank you for joining Airbnb’s Earnings Conference Call for the Third Quarter of 2023. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Airbnb’s website following this call. I will now hand the call over to Elli Mertz, VP of Finance. Please go ahead.

Ellie Mertz: Thank you. Good afternoon and welcome to Airbnb’s third quarter of 2023 earnings call. Thank you for joining us today. On the call today, we have Airbnb’s Co-Founder and CEO, Brian Chesky and our Chief Financial Officer, Dave Stephenson. Earlier today, we issued a shareholder letter with our financial results and commentary for our third quarter of 2023. These items were also posted on the Investor Relations section of Airbnb’s website. During the call, we’ll make brief opening remarks and then spend the remainder of time on Q&A. Before I turn it over to Brian, I would like to remind everyone that we’ll be making forward-looking statements on this call that involve a number of risks and uncertainties. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors.

These factors are described under forward-looking statements in our shareholder letter and in our most recent filings with the Securities and Exchange Commission. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained on this call to reflect subsequent events or circumstances. You should be aware that these statements should be considered estimates only and are not a guarantee of future performance. Also during this call, we will discuss some non-GAAP financial measures. We provided reconciliations to the most directly comparable GAAP financial measures in the shareholder letter posted to our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results.

With that, I’d like to pass the call to Brian.

Brian Chesky: All right. Well, thank you, Eli and good afternoon, everyone. Thanks for joining. I’m excited to share results with you. Q3 was another strong quarter for Airbnb. We had over 113 million Nights and Experiences Booked. Revenue of $3.4 billion grew 18% year-over-year. Net income was $4.4 billion. Now this includes a onetime income tax benefit from the release of a valuation allowance of $2.8 billion. But even excluding this tax benefit, adjusted net income was $1.6 billion, our highest ever and represented an adjusted net income margin of 47%. And free cash flow for the quarter was $1.3 billion. In fact, on a trailing 12-month basis, our free cash flow was $4.2 billion which is also our highest ever. And because of our strong cash flow and balance sheet, we repurchased over $500 million of our stock.

Now during the quarter, we saw a number of positive business highlights. First, we have added nearly 1 million active listings this year. Our supply grew 19% in Q3 compared to a year ago. We once again saw double-digit supply growth across all regions with the highest growth in regions with the highest demand. Urban and nonurban supply increased at nearly the same rate and we saw relatively similar supply growth among individual professional hosts with the majority of new listings exclusive to Airbnb. Second, Q3 was a record travel season on Airbnb. Nights and Experiences Booked grew 14% in Q3 compared to a year ago. We saw an acceleration of nights growth across all geographies and we are particularly encouraged by the growth of first-time bookers during Q3 and we saw more nights than ever booked in the Airbnb app with 53% of gross nights booked in the app compared to 48% in the same period last year.

And finally, international expansion markets are gaining momentum. Cross-border nights book increased 17% in Q3 compared to a year ago. In Asia Pacific, our business has fully recovered to pre-pandemic level. And we’re seeing significant growth in Asia Pacific markets such as Taiwan, Thailand and Indonesia, all experiencing year-over-year nights growth above 30% on an origin basis. Now we’ve been able to achieve these results by continually making progress on our 3 strategic priorities. First, we’re making hosting mainstream. We’ve been focused on making hosting as popular as traveling and our Q3 results show that our approach is working. We ended the quarter with the highest number of active listing and we saw strong active listings growth across all regions of the market types.

And hosts are benefiting. During Q3 alone, Airbnb host earned more than $19 billion. We’ll continue growing supply by raising awareness around hosting, making it easier to get started and improving the overall experience for a host. Second, we’re reflecting our core service. We’ve collected millions of pieces of feedback on how to improve Airbnb. And 2 years ago, we started doing twice a year of product releases to address this feedback. And since then, we’ve launched more than 350 new features and upgrades across our entire service. And in the past year alone, this has included things such as improved customer service, total price display and new tools to help host set more competitive prices. These upgrades are paying off for both guests and host.

For example, we redesigned our tool and we made it easier for hosts to add discounts and promotions. And now almost 2/3 the host offer weekly or monthly discount. We also added a new feature called similar listings that let hosts see listing prices in the area, so they know what to charge. And since we launched the similar-listings tool, nearly 1 million hosts have used this feature. In mid-September, we shared progress we’ve made to help lower cleaning fees, reduce prices and improved search and reliability. We have even more improvements coming as part of our November 8 winter release next Wednesday where we’ll introduce dozens of new features aimed at making Airbnb more reliable. And finally, our third strategic priority is expand Airbnb beyond their core.

Now we made significant progress in the past few years in building a strong and profitable business. And in addition to laying the foundation for new services and offerings, we’ve been focused on international expansion. We are investing in underpenetrated international markets and we’re seeing great results. Following the success, we’ve seen in recent quarters in Germany and Brazil, Korea has now become one of our fastest growing countries compared to 2019 with gross nights booked 54% higher than they were in Q3 2019 on origin basis. As international travel continues to recover, we’re building greater momentum for Airbnb in underpenetrated markets. So those are results for Q3. With that, Dave and I look forward to answering your questions.

Operator: [Operator Instructions] We’ll take our first question from Mark Mahaney at Evercore ISI.

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Q&A Session

Mark Mahaney: And I have 2 questions. You talked about some of these improvements you’ve seen in markets like Germany, Brazil and Korea. Could you just spend a little bit more time on that opportunity going forward? And is it the expectation now that Germany and Brazil are already optimized, you just keep optimizing other ones? Or is this take a while to add to monetize those? And then secondly, in terms of future services that you could offer to sellers, any update on when we could see those particularly things like sponsored listings for sellers for host, I mean.

Brian Chesky: Yes. Mark, this is Brian. I’ll take it. Let’s first talk about international expansion. So it’s a great question. And as everyone on this recall is probably aware, Airbnb is in 220 countries in the region. So on the one hand, we’re one of the most global like companies in all of travel. We’re a truly global travel network. At the same time, Mark, what we’ve seen is that our penetration in the United States is significantly higher than our penetration in many other countries. And we think there’s a huge amount of growth if we could just get Airbnb to even a fraction of the percentage of penetration that we have in the United States. So last year, we decided to roll out this updated playbook. We rolled it out in Germany and Brazil.

It’s kind of a four-pronged approach and involve some product optimization, PR, local marketing and just general optimizations on the ground in these regions. And what we’ve seen is Brazil is now double the size as it was pre-pandemic. We rolled that same playbook out to Korea. It’s now 54% higher than it was before. But what I would say is we’ve just scratched the surface of what we can do in Germany, Brazil and Korea. I think those markets are on a good trajectory. They could be significantly larger and we’re now looking at Japan and India, China, around Asia Pacific. We have some optimizations in Southeast Asia, continual growth in Mexico. There’s a number of other countries in addition to a number of areas in Europe where we think we can see a lot more growth.

So I think the next 24 months, we’re going to see a major acceleration in our penetration in a lot of these markets. There’s about a dozen, dozen half markets around the world, as you know, have large tourism opportunities and we’re really focused on that. And that’s going to be one of our biggest near-term expansion opportunities. With regards to future services to sellers, we don’t have anything to announce right now. But what we’ve been doing is we’ve been building the foundation of our systems so that we can have these new tools and services, including sponsor listings. And we also — recently, we’ve been rolling out a pilot for co-hosting. Co-hosting is a service where we match host that don’t have homes but they have extra time with homeowners to have space but they don’t have time to host.

And we’ve been doing these pilots in France. We’ve rolled that out in parts of the United States and this is turning into a popular service that we think can unlock a lot more supply. So we’re going to — over the next couple of years, I think you’re going to see a number of new services roll out for host.

Operator: We’ll go next to Eric Sheridan at Goldman Sachs.

Eric Sheridan: I just have one. Brian, in a number of interviews in the quarter, you talked about potential for product road map over the longer term, different products that could probably expand elements of the platform, car rentals, maybe even long-term apartment rentals. How do you think about product evolution that’s being offered to the consumers on the platform and thinking about investing behind those initiatives?

Brian Chesky: Eric, I mean, just to step back, the last few years, I think we’ve really, really benefited by being focused. When the pandemic occurred, we felt like we had to hunker down, get really lean, get really focused and we went from basically a breakeven company to now a company doing obviously cash flow margins of around 44% of revenue. So we’ve really benefited from this focus and really benefited from focusing on our core business. To your point, Eric, I think we are now getting ready to re-expand Airbnb beyond its core. It was always our attention to do much more than just short-term housing for travelers. We’re always intended to do more of that. So we’re working on making Airbnb more of an extensible platform. And I think, ultimately, there are actually quite literally dozens of services, guests and hosts that we could build on top of the Airbnb system.

I think a lot of it comes down to making the platform extensible so we can offer these services. I think at the end of the day, we’re really thinking about are a couple of big ideas. First, I think that we are thinking about generative AI as an opportunity to reimagine much of our product category and product catalog. So if you think about how you can sell a lot of different types of products and new offerings, generative AI could be really, really powerful. It can match you in a way you’ve never seen before. So imagine Airbnb being almost like the ultimate travel agent as an app. We think this can unlock opportunities that we’ve never seen. Additionally to that, there’s a lot of opportunities on both the guests side and the host side. And so we’re going to be thinking through a lot of this.

So you’ll see hopefully some updates in the coming years.

Operator: We’ll move to our next question from Brian Nowak at Morgan Stanley.

Brian Nowak: I have two. First one, maybe on the guide a little bit. I know there’s a lot of moving pieces between the revenue comments and the ADR comments and the take rate. Just sort of wanted to confirm, are you guys sort of looking to guide room night growth in sort of the high single, low double-digit range in 4Q? Is that the right way we should be thinking about with take rate and things? And then the second one, Brian, I know you, you have a lot of innovation, you have 350 features and upgrades, etcetera. Can you just sort of give us 1 or 2 of them that you think could be most impactful to accelerate that room night growth as we go into ’24 and ’25?

Brian Chesky: And Brian, sorry, are you referring to things we’ve already shipped or things that we’re working on that we haven’t shipped?

Brian Nowak: Well, either way you want to go. Yes, if you have one that already shipped that would be great. If you have other ones you want to tell us about next week, that would be good too.

Brian Chesky: Yes. So yes, so let me — why don’t I answer the innovation and Dave, you can talk about the guide for going forward? So maybe let me talk about some things that we’ve already done. I can give you a little bit of sense of how we’re thinking about next week and beyond. So we did over 50 upgrades last May. It was based on the idea that millions of customers have given us feedback, actually both guests and hosts on how to improve Airbnb and we’ve listened. And if I were to just call out 3 things, Brian, I would just call out 3 things would be total price display, pricing tools for host and monthly stays. So let me just go through 3 and what happened. On total price display, we rolled out total price display before taxes.

This is based on popular demand. We are now the only travel app of our kind that actually does this. Since we rolled this out, 260,000 listings have removed or reduced their cleaning fees. We now have 3 million listings that do not have a cleaning fee. So we think this is working. We also think people are now being steered towards better total value on a total price, inclusive of overall cost basis. The second are pricing tools. Since we rolled out new pricing tools, about half of new listings are now offering a monthly discount. And we also have this new tool called similar listings, where you can see where other people are charging around you. And this we find has been the best way to make sure our host have competitive prices. Because host are usually surprised to discover the listings that get most bookings around them offer a better value.

And it’s always really hard to know what your home is worth and what you charge. And so the best thing you can do is give people transparent data. Well, 1 million people have used these tools and probably the thing I’d point to is, while this time year-over-year in September data, hotel prices are up 10%. Airbnb prices globally are only up 1%. So we are definitely moving in the right direction. Now in North America, on a mix shift in FX neutral basis, our price is actually down 3% in North America, while hotels are up towards double digits, I think. So the last thing I’d say is monthly stays. We obviously announced a bunch of updates on monthly stays, including you can pay by bank, we lowered fees after 3 months, we have the whole new really cool interface and stays for 3 months or longer are now growing nearly 20% year-over-year.