Airbnb Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 16 speakers on the call.

Operator

Good afternoon, and thank you for joining Airbnb's Earnings Conference Call for the Q3 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. Open. I will now hand the call over to Ellie Mertz, VP of Finance. Please go ahead.

Speaker 1

Thank you. Good afternoon, and welcome to Airbnb's Q3 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 Stevenson. Earlier today, we issued a shareholder letter with our financial results and commentary for our Q3 of 2023.

Speaker 1

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 and 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. 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 safety information contained on this call to reflect subsequent events or circumstances.

Speaker 1

You should be aware that these statements should be considered estimates only and are not a guarantee of future performance. Posted on the call, we will discuss some non GAAP financial measures. We've 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.

Speaker 2

All right. Well, thank you, Oli, and good afternoon, everyone. Thanks for joining. I'm excited to share results with you. Q3 was another strong quarter for Airbnb.

Speaker 2

We had over 113,000,000 nights and experiences booked. Revenue of $3,400,000,000 grew 18% year over year. Net income was $4,400,000,000 Now this includes a one time income tax benefit from the release of a valuation allowance of $2,800,000,000 But even excluding this tax benefit, adjusted net income was $1,600,000,000 our highest ever, represented an adjusted net income margin of 47%. And free cash flow for the quarter was $1,300,000,000 In fact, on a trailing 12 month basis, our free cash flow was $4,200,000,000 which is also our highest ever. And because of our strong cash flow and balance sheet, we repurchased over $500,000,000 of our stock.

Speaker 2

Now during the quarter, we saw a number of positive 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 non urban supply increased at nearly the same rate and we saw relatively similar supply growth among individual and professional hosts with the majority of new listings exclusive to Airbnb. 2nd, Q3 was a record travel season on Airbnb. Nice and experiences booked grew 14% in Q3 compared to a year ago.

Speaker 2

We saw an acceleration in nice growth across all geographies And we were 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 booked increased 17% in Q3 compared to a year ago. In Asia Pacific, Our business has fully recovered to pre pandemic levels.

Speaker 2

And we're seeing significant growth in Asia Pacific markets such as Taiwan, Thailand and Indonesia, all experiencing year over year growth above 30% on an origin basis. Now being able to achieve these results by continually making progress on our 3 strategic priorities. 1st, 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 listings and we saw strong active listings growth across all regions and market types.

Speaker 2

And Hosts are benefiting. During Q3 alone Airbnb host earned more than $19,000,000,000 We'll continue growing supply by raising awareness around hosting, making it easier to get started and improving the overall experience for Host. 2nd, we're perfecting 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 product releases to address this feedback.

Speaker 2

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 guest and host. For example, we redesigned your tool and we made it easier for Host to add discounts and promotions. And now almost 2 thirds of Host offer weekly or monthly discounts.

Speaker 2

We also added a new feature called Similar Listings that lets us see listing prices in the area, so they know what to charge. And since we launched the similar listings tool, nearly 1,000,000 hosts have used this feature. And in September, We shared progress we've made to help lower cleaning fees, reduce prices and improve 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 3rd strategic priority is expanded Airbnb beyond our core.

Speaker 2

Now we've 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 an origin basis. As international travel continues to recover, we're building greater momentum for Airbnb in underpenetrated markets.

Speaker 2

So those are results for Q3. With that, Dave and I look forward to answering your questions.

Operator

If you would like to remove yourself from the queue, press star 1 again. We'll take our first question from Mark Mahaney at Evercore ISI.

Speaker 3

Thanks. Can I throw 2 questions in? You talk 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 forwards and is it the expectation now that Germany and Brazil are already optimized, you just keep optimizing other ones or does it 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.

Speaker 3

Thank you for host, I mean. Thank you.

Speaker 2

Yes. Hey, Mark. This is Brian. I'll take it. Let's first talk about international expansion.

Speaker 2

So, it's a great question. And, as everyone who calls probably aware, Airmeet 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 And that our penetration in United States is significantly higher than our penetration in many other countries.

Speaker 2

And we think there's a huge amount of growth. If we could just get us 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 full like a fully full pronged approach in about some product optimizations, PR, local marketing and just general optimizations on the ground in these regions.

Speaker 2

And what we've seen is Brazil is now double the size as it was pre pandemic. We rolled that same playbook after Korea, if not 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, 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.

Speaker 2

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 not recently, we've been rolling out a pilot for co hosting.

Speaker 2

Co hosting is a service where we match hosts 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 pilot in France. We've rolled it 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.

Speaker 4

Okay. Thank you, Brian.

Operator

Open. We'll go next to Eric Sheridan at Goldman Sachs.

Speaker 5

Thanks so much for taking the question. I just have one. Brian, in a number of interviews in the recorded. You talked about potential for product roadmap 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.

Speaker 5

Thanks.

Speaker 2

Hey, 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 hunkered down, get really lean, get really focused. 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.

Speaker 2

To your point, Eric, I think we are now getting ready to re expand Airme beyond its core. It was always our intention to do much more than just short term housing for travelers. It was always intention 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, guest and host that we could build on top of the Airbnb system.

Speaker 2

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 a couple of big ideas. First, I think that we are thinking about generative 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 that you've never seen before.

Speaker 2

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 guest 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.

Speaker 2

Thank

Speaker 6

you.

Operator

We'll move to our next question from Brian Nowak at Morgan Stanley.

Speaker 2

Great. Thanks for taking my question. I have 2. 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.

Speaker 2

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? Then the second one, Brian, I know you have a lot of innovation, you have 3 50 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 'twenty four and 'twenty five. And Brian, sorry, are you referring to things you've already shipped or things that we're working on that we haven't shipped?

Speaker 6

Well, either Either way you want

Speaker 2

to go. Yes, yes. If you have ones that

Speaker 7

have already shipped, that'd be great. If you

Speaker 6

have other ones you want to tell us about next week, that'd be good too. Where was that?

Speaker 2

Yes. So, So let me, why don't I answer the innovation and Dave you can talk about the guide for, going forward. So Maybe, yes, 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, yes, we did over 50 upgrades Last May.

Speaker 2

It was based on the idea that millions of customers have given us feedback, actually both guests and hosts on how to improve our media and we've listened. 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 Hov 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.

Speaker 2

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 3,000,000 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 all cost basis.

Speaker 2

The second are pricing tools. Since we rolled out new pricing tool, about half of new listings are now offering a monthly discount. 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 hosts have competitive prices because those 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.

Speaker 2

So the best You can do is give people transparent data. Well, 1,000,000 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.

Speaker 2

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.

Speaker 2

So those are just three things we've seen. I think what we've learned is like as we listen to customers, we adapt quickly, We can drive incremental growth. As far as what's next, obviously, we don't talk about too much before it will release. I will say though next Wednesday, We are focused on some pretty big opportunities around reliability. So this is the last thing I'll say about this.

Speaker 2

If you think about how big Airbnb is, for every person who stays in Airbnb, approximately 9 people every night stay in a hotel or about 9 bookings. The hotels are about an order of magnitude bigger. And when you ask people, why do you book a hotel and not an Airbnb? The number and reason they come up with is usually reliability that they know what they're going to get before they book. It kind of speaks to the strength and weakness of Airbnb that on the one hand it's one of a kind, on the other hand that one of a kind that offers availability that not every person wants.

Speaker 2

And so next week, we're going to have some new offerings that I think We'll make a pretty big dent in this. So that's what I can say. I think I'm pretty optimistic about what you'll see next week. And of course, we're already working on stuff for next May and next

Speaker 6

And then in terms of the guidance, Brian, for the 4th quarter. We have our revenue guidance between $2,130,000,000 $2,170,000,000 so that's revenue growth between 12% 14%. And remember that in Q3, our revenue growth excluding the impact of foreign exchange was about 14%. So and we're not anticipating the same level of FX impact reflected on the Q4. So broadly, our revenue growth is relatively comparable between Q4 and Q3.

Speaker 6

In terms of the Knights guide, We're just seeing some variability in our Knights demand here early in the quarter, and so we're just being cautious with that guide. And so we're not being specific on it, but anticipate Knights to be a 2 points below makes growth to be a few points below Q3. Thank you, both.

Operator

We'll move to our next question from Lee Horowitz at Deutsche Bank.

Speaker 8

Great. Thanks so much. Can you really help us think about how you guys are tracking towards expectations on occupancy or utilization moving forward? As you guys extend beyond the core into newer markets, do those markets come with occupancy or utilization headwinds that we should be thinking about? And Holistically, how you guys think about how occupancy or utilization may track next year.

Speaker 8

And then maybe just one high level one. Thinking beyond the current cycle, we've seen a lot of other online travel models sort of hit this low teens to high single digit growth rate and decelerate from there or not be able to reaccelerate their businesses in meaningful life. Can you maybe take a step back and Help us better understand how you think that maybe Airbnb maybe a little bit different than prior iterations that we've seen and can perhaps sustain sort of that double digit revenue cadence over a longer period of time than what we're used to in market. Thanks so much.

Speaker 2

I'll start with occupancy.

Speaker 6

Yes, yes, you start with occupancy and I'll take the second question. Great. In terms of occupancy, we've actually seen it be pretty stable in terms of kind of On a global basis, I mean, if you actually step back, you got to remember that the vast majority of our hosts on Airbnb are individual They're not looking to drive 100 percent occupancy of all their listings. And what they want to do is earn enough money to usually hit some certain amount of financial goals. So as we continue to grow our inventory, we're continuing to see Strong occupancy levels overall.

Speaker 6

Clearly, we grew our inventory at 19%, which is ahead of kind of revenue growth in the current period. But if you actually step back and look over like a 4 year period, go back all the way to 2019, The growth in our overall listings has actually been relatively similar to our overall growth in Knight. So that occupancy over an extended time period Tends to be fairly stable, while in any short term time period, it can have a little bit more volatility. But overall, again, we don't focus on occupancy as a primary driver, but we monitor it on locale by locale because what really matters is that we have great available listings in the specific market on a specific date.

Speaker 2

Hailey, I'll take your second question. Yes, I think that as I said before, I think we're only scratching the surface of how this company becomes and I absolutely think that we can get to really solid double digit revenue growth for many, many years to come. And there's 3 things that I'd point out. The first is our core business. I think our core business could be significantly larger than it is today, even if we didn't do anything new.

Speaker 2

And the reason I believe this is the following. I believe that almost every single person who stays in a hotel could stay in an Airbnb. If number 1, they knew about all the benefits of Airbnb And number 2, we made sure that our service was sufficiently reliable to be an alternative. So let me start with those 2. We've done recently a new marketing campaign that's called Airbnb it and it basically contrasts the benefits of the Airbnb versus hotel.

Speaker 2

And based on our research, one of the things we've noticed is that a lot of people stay in hotels don't understand some of the unique benefits of staying in Airbnb and why it is better for certain types of trips. And one type of trip that Airbnb is almost always better is when you're traveling with 3 or more people. If you're traveling with a family, you're traveling with a group, why do you want to stay in different rooms in different rooms separated or having to stay in the same room, you have to all go to the same time. And then the only place you can meet in these crowded lobbies where you can get a whole home all to yourself. So this is we've been running these digital campaigns.

Speaker 2

It's the highest performing digital campaign we've ever done. And this is going to be the basis for a new major new marketing campaign next year. Additional to that, as I mentioned before, if we just keep focusing on reliability, making sure that when you book, you know what you're going to get and if there's ever a problem, you have an excellent customer service that is nearly as good as the front desk or as good as the front desk, Then I think there could be in the years to come a tipping point where many people could choose Airbnb. So that's just our core business. Next is international.

Speaker 2

Even though we're in 2 20 countries and regions, there's only a couple of countries where we even have penetration that rivals the United States And those countries are Canada, Australia and France. After that, U. K. A little bit, it really starts to tip down. And so we have like massive, massive opportunity just by bringing Airbnb's playbook to these other countries.

Speaker 2

Obviously, Germany, but not just Germany, like actually the entirety of Northern Europe, Eastern Europe and even Italy and Spain, basically every country, but France and UK, there is are at a step changed lower penetration. Latin America is a completely new market for us emerging. Asia Pacific, I would argue, is a completely new market. We can be adding huge amounts of growth just by our expansion playbook. And then finally, yes, I mean, I would say just on new products and services, though we're not disclosing anything that we're doing new right now.

Speaker 2

Here's what I'd say. I think the biggest strength I have as a CEO is not driving profitability, even though we've done a really a good job. I think it is literally inventing new products and services. It's why we've hired so many great technologists, designers and I think this is going to be a sweet spot for us. We're obviously not going to talk about new things before we ship them, but twice a year, every May and every October, November, We're going to be hoping putting out going forward new ideas that I hope really increase the adjustable market for Airbnb.

Speaker 2

And I think that we can do much more than just short term housing. But again, I think short term housing is still a huge opportunity for us.

Operator

We'll go to our next question from Doug Anmuth at JPMorgan.

Speaker 9

Thanks for taking the questions. First, you've called out the greater volatility in early 4Q. Just curious if you have any view of whether that's more macro driven or geopolitical. And then, curious if you have a sense of kind of visibility and any kind of bookings into 2024 and perhaps maybe how that

Speaker 6

Yes. It's hard to completely pin down the root cause Of any kind of softness or volatility. I think it is just broadly what we're seeing is a little bit of softness in our overall kind of demand relative to Q3. We call out kind of the macroeconomic and geopolitical just because that is what's I think driving in volatility that's out there. It's early.

Speaker 6

I think I'm feeling confident about our revenue growth For Q4 being 12% to 14% growth. And the fact that, that remains stable with Q3, I think is really promising. Early visibility into 2024 is again, it's too early to tell. I think I'm feeling great about our overall playbook and plans, as kind of Brian has mentioned. I think I am most excited about The additional efforts we're making to get greater penetration in our international markets.

Speaker 6

And overall, I'm seeing solid demand for Airbnbs, like people are still prioritizing travel over buying things. So I'm very bullish in the long term.

Speaker 2

Thank you.

Operator

Next, we'll go to Jed Kelly at Oppenheimer and Company.

Speaker 10

Hey, great. Thanks for taking my question. Can you just give us further update on the regulations you talked about in the shareholder letter? And then Google announced a new vacation rentals where they're essentially letting property managers show their price. So can you talk about how you're seeing some of the changes Google is making?

Speaker 10

Thank you.

Speaker 2

Hey, Jed. I will take Regulation. So, yes, I would generally say over the last decade, we've been really, really encouraged by the general trajectory of regulation. Here are a couple of stats. Currently today 80% of our top 200 markets already have regulations on the books.

Speaker 2

And these regulations, though they vary, generally have found workable solutions for home sharing for us to continue to grow and thrive. And I'd point out like the country of France has passed national legislation That is very, very favorable and workable. We've had cities near us like Seattle or San Diego that have passed really favorable legislation. I will probably contrast that to New York City, which has completely gone a different direction. And unfortunately, I thought when we started Airbnb that we could develop model legislation in New York that we can make it in New York, we can make it anywhere and that other cities that adopt the legislation that New York adopted.

Speaker 2

It turns out that's actually not the case. In fact, New York has gone a different direction. And I think it's going to turn into a cautionary tale, Because what we're already seeing is hotel price in New York are now up 8% year over year. A 1 bedroom or a studio in New York seems to be about $500 A lot of people can't even afford to go there anymore. We are seeing more bookings in Jersey City and the perimeters around New York City.

Speaker 2

And I do anticipate more and more activity will probably go underground, which is probably not the intention that people even pass the law. So generally speaking, we're seeing the trend line to be generally really, really constructive. We built this city portal, which is a one stop shop for cities to be able to self to be able to get data and monitor the type of activity happening in their city. We have 400 cities on the city portal. And generally what we're seeing is that a lot of cities pandemic or post pandemic era have reached out to us wanting to make sure that they get they are able to benefit from economic dollars going to Citi and we paid $9,000,000,000 in hotel tax.

Speaker 2

So generally, it's gone fairly well. It is going to be notable that if you just read the news, you're always going to seem to be reading about 8 cities, something happening in New York because we're in 100,000 cities And nearly all regulations happen at the municipal level. So it's kind of a long slog to be able to work with these cities, because there's so many of them and There's not a lot of standardization, but generally speaking, notwithstanding New York, we are seeing a lot of positive developments. And then, on the Google question, Dave? Yes, I can

Speaker 6

take this. I mean, we're not going to respond directly to any kind of a specific thing that Google is doing. I think if you do step back though and remember that the vast majority of hosts on Airbnb are individual hosts, approximately 90% of them, The majority of those listings are unique to Airbnb and you can only get them here. I think that that is one of the larger kind of defensible notes that we have, which is if you want to have an amazing stay, You come directly to us and we're really not seeing the impact of the competition taking additional share from us. In fact, we continue to take or increase our relative share of listings in the market continually, and this is why we're continuing to grow at faster than the overall kind of travel market.

Speaker 6

So, don't have much more to say beyond that.

Speaker 2

Yes. Maybe the only other thing I'd say Maybe the only other thing Jed I'd say is we're just seeing a lot of strength in mobile bookings. You can think of mobile bookings essentially like direct. It's not people not going to Google. 53% of our gross nights booked in the last quarter were on native mobile apps, essentially iOS and Android.

Speaker 2

And that is up from a year earlier, which was less than 50%. And again, I'll just say 90% of our traffic is direct for unpaid. So we think that the strength of our brand, the strength of our app, the strength of people coming direct to Airbnb is key. And the reason it's direct Is because our inventory is unique. It's not commodities.

Speaker 2

The majority of hosts don't list anywhere else. We build custom tools for them. So that's our general theory to build unique inventories that allow people to come direct to Airbnb and I don't see that changing.

Operator

We'll move next to Nick Jones at JMP Securities.

Speaker 4

Great. Thanks for taking the questions. Brian, you talked about Airbnb's pricing maybe not increasing or it's down while hotels are up. I mean, how do you feel about the average prices on Airbnb today? Is there still room kind of if you get those lower and I guess as you talk about some of the marketing and advertising campaigns, do you think kind of travelers or consumers view Airbnb as a premium offering, a discount offering, is the reliability kind of the trade off.

Speaker 4

I guess can you kind of Maybe paint the picture a little bit more as to kind of what you feel consumers hesitation is to maybe book an Airbnb and how much pricing plays a role in that?

Speaker 2

Thanks. Yes. Hey, Nick. Let me start with pricing and then I'll talk about the general offering. When we started Airbnb, our original tagline was a cheap affordable alternative to a hotel.

Speaker 2

And the primary reason people chose it in the early days was Now once they used it, we used to say money is the hook, but the experience is the reason you keep coming back. Because it also turns out when you stay in Airbnbs, you're often typically in a real neighborhood, not a hotel district. You have this really cool space. You can make a meal. You have a lot more of a much more equipped home.

Speaker 2

Sometimes There's a local connection to the community if that's what you're looking for. But affordability has always been one of the most important benefits that we have on Airbnb. And I do feel like we still have opportunity for our prices to be even more competitive. There's a really interesting thing we discovered. Within reason.

Speaker 2

Generally, when hosts lower the prices, they tend to make more money. And this is typically not true of hotels, right? Because if you're running at 80% occupancy And you lower your prices per night, you typically don't have a lot more room to make up the lower prices with higher occupancy until you'll typically lose money. But many of our hosts run at low enough occupancy and they always have that if they lower the price just a bit, they can sell more nights. And so we think there's a win win where If we continue to encourage Hosts to offer more competitive pricing, it's a win for guests, but it's also a win for many of the Hosts.

Speaker 2

And I would also just point out that In addition to pricing tools, you need to have ample supply. Supply, I just want to highlight again is growing 19% year over year. This This is a huge question by the way 18 months ago, could Airbnb reaccelerate to nearly 20% supply growth? And we are approaching 20% supply growth. I think That is really, really key.

Speaker 2

So to answer your question, we made huge progress in last year, but prices are up quite significantly from pre pandemic for Airbnb and hotel. We're both up a lot. And my hope is whether or not prices come down on Airbnb further in the next year or 2, My hope is while hotels will almost undoubtedly keep increasing year over year, our prices will continue to be a little bit more, there'll be more moderated. And that goes to the next question. We actually think there's a very high correlation or relationship between ADR and Knights growth.

Speaker 2

And the higher the ADR, typically the lower the nights growth and the lower the ADR, typically the higher the nights growth. So there's a trade off there. And so We think that as we continue to be more affordable, we'll continue to stimulate more demand. Now The interesting thing about Airbnb is that we're not really one type of offering, right? Southwest is a budget brand, Louis Vuitton is a luxury brand.

Speaker 2

Apple is kind of like a luxury brand for like a lot of different people, but they do have like premium prices. Airbnb's offering really is one of the most unique and resilient models. I mean, we are one of the most popular brands for people under 30 and travel, probably the most popular brand for people under 30. We're We're also very much a family travel brand because homes accommodate families much better than typically hotels. We're not just an urban brand, we're a rural brand, a vacation rental brand.

Speaker 2

We're not just a North American brand, we're a global brand. So one of the things we highlight when we're public is that We literally have something for everyone. But as we continue to get more affordable, I think that's going to continue to drive a lot more growth for us.

Operator

And next we'll go to Ron Josey at Citi.

Speaker 11

Great. Thanks for taking the question. Brian, I wanted to ask a little bit about your comments on first time bookers. I'm Just trying to understand a little bit more as you're expanding the pie and getting more supply, how users are coming to the site, point number 1. And second question just on projects with experiences,

Speaker 2

Yes, I mean, David, you can feel free to jump in on this, but at the highest level, We generally are seeing that the vast majority of first time bookers still come direct to Airbnb. So I'll just kind of step back. The number one way reason people come to Airbnb is because a friend or a family member told them that Airbnb. And so we primarily grow through word-of-mouth. After that, then we have a lot of earned media.

Speaker 2

We have some 500,000, 600,000 press articles a year. I mean, the share of voice of Airbnb compared to most travel companies is overwhelming. We have a greater share of voice than almost all the other major travel brands combined. We also have a huge amount of presence on social media. You might have heard a few months ago about the Barbie house rent in Airbnb or the Shrek house.

Speaker 2

So we get a lot of earned media. And then beyond that, we do these pretty big brand campaign. And the vast majority of our marketing spend that we do spend on advertising is not performance marketing, it's brand marketing, it's really marketing education around our unique product offering. So, we do performance marketing, but we think unlike other travel companies, it's not necessarily a way to buy customers. It's literally more like a laser that we use to hone in on balancing supply demand and we really can use it to optimize certain markets.

Speaker 2

So A lot of it remains direct. Again, 90% of our traffic is direct or unpaid. I think that's been pretty consistent. On experiences, Again, I don't have anything new to share now. I'll just say the following.

Speaker 2

We are actively working on updates to this product. As much as people love homes, I think 84% of people who book Airbnb and leave a review, leave a 5 star. We We even have a higher customer satisfaction experience as 94% of people leave 5 star reviews. So we haven't updated this product yet because we've just had our hands full really trying to focused on the most perishable opportunities, which was recovering from the pandemic, improving our core service and addressing the needs of customers. But we should have some updates coming in the coming obviously coming next year and beyond on this product.

Speaker 2

And so you'll see we're continually investing in this product.

Operator

We'll go next to Kevin Kopelman at TD Cowen.

Speaker 12

Thanks a lot. Could you touch on your vision for building more of a travel community on Airbnb and maybe the timeline you expect for rolling out some of the New community features that you've talked about a little bit. Thanks.

Speaker 2

Hey, Kevin. Yes, I think Let me just explain what I even mean by a travel community. I think one of the biggest visions that we have as a company isn't just to be a marketplace to book home, But to build literally quite literally a global travel community, where you can get homes and experiences and a variety of other services all in one place. So we can provide a lot of offerings for guests and And that we can use some emerging technologies like generative AI, like take the GP204 model, where the Airbnb app to be like the ultimate travel agent. So to do this, there's a number of things that we've been investing in.

Speaker 2

The first thing is identity and account structure. So on most travel companies, you can book as a guest and they don't even have account information. And you can sign up with an account, But you can also check out as a guest and they don't have the same robust account information that we do. On Airbnb, 100% of the bookers and 100% of the host Have to have a verified ID on associated to their account. They have robust profiles.

Speaker 2

About 70% of people on the guest and host side leave reviews to the other people. So this really does demonstrate how Hermes is a little bit of a different community. We think that if we continue to invest in the profile and we can continue to invest in our system of trust, then as we learn more about guest and host, We can then match them for more types of offerings on Airbnb. And so this is I think really what we're starting to see. And the reason that AI is so powerful is I'll just cover 2 opportunities.

Speaker 2

Number 1, I think that AI is going to affect, This is an obvious statement, I think, digital businesses more than brick and mortar businesses. So Airbnb and OTAs are probably going to benefit more quickly from AI than say a hotel will just because Airbnb and OTRs are more digital. And so the transformation will happen at the digital surface sooner. One of the areas that we're specifically going to benefit is customer Right now, customer service is really, really hard, especially compared to hotels. The problem is imagine you have a Japanese host booking hosting a German guest and there's a problem and you have these 2 people speaking different languages calling customer service.

Speaker 2

There's a myriad of issues. There's no front desk. We can't go on premise. We don't understand the inventory and we need to try to adjudicate an issue based on 70 different policies that can be up to 100 pages long. AI can literally start to solve these problems where agents can supervise a model that can in seconds come up with a better resolution to provide front desk level support in nearly every community in the world.

Speaker 2

But probably more importantly, Kevin, is what we can do by reimagining the search experience. Travel search has not really changed much in 25 years since really Expedia, Hotels dotcom. It's pretty much the same as it's been. In Airbnb, we fit that paradigm. There's a search box, you enter a date location, you refine your results And you booked something and it really hasn't changed much for a couple of decades.

Speaker 2

I think now with AI, there can be entirely different booking models. And I think this is like a Cambrian moment for like the Internet or mobile for travel, where suddenly an app could actually learn more about you. It could ask you questions And it could offer you a significantly greater personalized service. Before the Internet, there were travel agents and they actually used to learn and value. And then travel got unbundled, It became self-service and it became all about price.

Speaker 2

But we do think that there's a way that travel could change And AI could lead the way with that. So these are some of the things we're thinking about and I think it's really, really exciting and we're just the beginning for this.

Operator

We'll move next to Justin Post at Bank of America. Great.

Speaker 7

Thanks for taking my question. Supplies up 19%, How do you think about that as a leading indicator for room night growth? And how do you maybe accelerate night growth to capture that? And then second question is on ADRs. Is that supply coming in higher, lower, similar ADRs?

Speaker 7

And I I don't know, Dave, if you can give us any thoughts on positive and negative drivers for ADRs next year. Thank you.

Speaker 6

Sure. Yes, I'll start with ADR and then I'll go back to growth. I mean, on the ADR side, it varies a little bit by market. We have seen, depending on the market, the ADRs and new listings coming in a little bit higher than they were in the average current ones. But what actually ends up happening is people are booking lower ADR places.

Speaker 6

And so that's kind of the offset is that it depends on what's available and versus what's booked. And it does vary a little bit by region between North America and Europe on what the prices are. In North America, we're seeing more of the prices come down, and I think that's been a good an indicator of strength for us going forward. And in Europe, the ADRs have been a little bit more elevated, and we're hoping that with some more of the work that we've done to improve host tools and give greater visibility to host and how they're pricing, we will continue to be able to kind of moderate ABRs in Europe going forward too. So that's on the leading indicator.

Speaker 6

I do think that the strength of 19% Listings growth is a great leading indicator of what we're capable of growing over time. As I said earlier, the overall growth Of Airbnb since 2019, Knight's growth has been actually relatively in line with the total growth of supply. And I'm really bullish We can get more supply coming on, which will have more quality supply coming in, which will also can drive down actually the prices because the more Supply that comes on board, maybe back to your first question, then the more likelihood that we can actually bring prices down in the market or at least Moderate them, so they don't grow as fast as competing supply. So, I'm really bullish on our overall growth. It's been great to see the strength

Speaker 2

And maybe Justin, I'll just say that like this is my intuition having done this for almost 16 years of my life. I think that supply is even more important than it seems on the surface. Ultimately, When you're tiny and no one ever hears about you, one of the big levers is awareness. But once you're a brand like Airbnb that's known as really a number of used all over the world. So supply growth becomes a very important like long term leading indicator.

Speaker 2

And So long as we make sure we have healthy supply growth and then we continue to improve reliability and promote Airbnb globally around the world, And that is a very, very healthy long term indicator and we'd love for that number to be higher.

Operator

We'll go next to James Lee at Mizuho.

Speaker 13

Two questions here, Dave. I remember at the beginning of the year, when you were guiding ADR down about mid single digits. You were talking about leverage and like variable expenses like payments and cloud. Just wondering where you are in that process? How much you ought to unlock going forward?

Speaker 13

And secondarily, on sales and marketing, looks like supply is growing demand right now. Is it fair to assume we're shifting more demand side advertising going forward? And can you talk about the implications there? Thanks.

Speaker 14

Yes. I'll start with sales

Speaker 6

and marketing. We're not actually shifting more over to demand side marketing. I think what we're seeing is exactly the success That Brian talked about earlier on the call, we the vast majority of our traffic is direct or unpaid. The first reason why people come to Airbnb is that they're referred to us by referred to us by family and friends. They come directly to us.

Speaker 6

The brand marketing certainly kind of helps talk about all the features and benefits of Airbnb, and we use our search engine marketing as kind of a laser to focus on areas where maybe we have less demand than we have supply on specific areas, specific countries where we want to focus and kind of grow, the overall kind of pie for So it is not the primary driver of it, but this overall strategy of leading with brand and then following with Surgical on our search engine marketing continues to work really well for us. And then in terms of the ADR, I think that The unlock of the variable expense improvements we've been making has just continued to enable us to drive profitable growth, right. We have our fixed cost growth discipline has been excellent and probably grow our fixed headcount this year approximately 4%. So we're growing our headcount And fixed expenses less than revenue. We continue to make great strides and improvement in our operations and support.

Speaker 6

And Brian talked about a lot of We have going forward in customer service and then we're continue to make good strides in cost of payments, our infrastructure costs, etcetera. That's not our primary driver. Like our primary focus is still on growth, growth of the business, making hosting mainstream, perfecting the core service and expanding down the core. And the fact that I can do all of those things And do it while still doing it profitably and actually expanding our overall margins this year is something that I'm just very proud of.

Operator

And we'll move to our next question from Lloyd Walmsley at UBS.

Speaker 12

Thanks. My question, you guys have been talking a lot about innovating on the search experience, like working on GenAI, The community side, things like co hosting. Do you see a path where some of these features over the longer term, like community and search drive enough differentiation that you could bring on more traditional supply things like boutique hotels In such a way that you kind of expand your addressable market and revenue per user, while still sort of preserving enough that's unique about Airbnb. Is that sort of makes sense, or is that just too far out there?

Speaker 2

No, Lloyd, that absolutely makes sense. And I think that's inevitability. Just to back up for a second. We are very much supportive of having hotel inventory on Airbnb and we acquired HotelTonight before the pandemic because we believe so much in this. Over the last few years, we had to make some decisions, especially when our business initially contracted.

Speaker 2

And we made some decisions. We said, well, we have to really just get focused on our core. And our core, we're individual people renting homes, sharing homes. That is the most differentiated thing. It's inventory you It's a thing that is most defensible.

Speaker 2

It's a thing that attracts all the direct traffic. That being said, I mean, let's just take New York for example. We still have a lot of traffic of people searching for New York and we now have a lot less inventory than we used to have. So there's a real opportunity for us to supplement what used to be homes with boutique hotels that are already on HotelTonight and others and we can certainly put those in New York. And I generally think for sure As Airbnb becomes a little more of a so called like AI travel agent, which is what I think all travel apps will trend towards To some extent, I think there's opportunities for us to do things in a differentiated way, even with slightly less differentiated inventory.

Speaker 2

I think our bread and butter for accommodations are always going to be homes. I think that's where our heart and soul is. I also think that's where the biggest growth opportunity is. But you should not think of our total supply adjustable market of supply as only homes. We've had hotels.

Speaker 2

We've just been prioritizing homes because we've wanted to be really focused.

Operator

Next, we'll move to Kevin Boroski at Wells Fargo.

Speaker 14

Hi. Thank you so much. Appreciate it. Two questions, if I may. First, I want to go back to supply.

Speaker 14

I know you've talked a lot about it. The room nights up 19% with double digit growth in all territories. Yet Every week we read about new STR regulations. At least in North America, could you help us reconcile this kind of This contrast for the financial markets, like what are we missing as investors here? Where is that Supply growth really happening, especially in the kind of Western markets.

Speaker 14

And then my second question, to be a bit more specific, I know you talked you called out the volatility in room nights and on the demand side in 4Q. Are there any specific regions that you would call out or is it more broad based? And Just on a timing standpoint, did this start in October or did you see some of this volatility start in 3Q? Thank you.

Speaker 6

Yes, maybe

Speaker 2

I'll go

Speaker 6

for it, Tate. Well, I'll just start with the volatility in room nights. There's not a specific region where we're seeing it. I think maybe the biggest thing we've seen is that it's more broad based on a global basis right now, which is why we've kind of called out the macroeconomic and potential geopolitical issues as a potential driver to it. We saw maybe some of it just late September and it's kind of been early October.

Speaker 6

And again, it's just a little too early to tell How much volatility we see going into the rest of the quarter. That's why we continue to highlight the revenue growth that we're still expecting this year between 12% 14% growth overall. And then on the regulation side, I mean, I think it's a lot of what Brian said earlier that 80% of our top total markets already have regulation. I think the headlines, they tend to make good headlines when people are highlighting kind of issues in short term regulation. But in many ways, outside of New York City.

Speaker 6

I've never been felt better about our overall regulatory landscape on a global basis. We have really good partnerships with many cities around the world And things like our city portal, lot of things, has made us continue to collaborate extremely well with the vast majority of cities. So I think those are outliers, but Brian?

Speaker 2

Yes. And I'd just say like again, we're in like 100,000 cities around the world and For every headline you read, there are cities that actually have very workable solutions, there's not a lot of activity. We're actually seeing growth in supply across all types of markets, not just big cities where you see in headlines. And I think vacation rental destinations, in fact, there's a U. S.

Speaker 2

Census report that we looked at, I think said that 2 thirds of markets where Airbnb exists, there aren't even hotel. So if you just think about that way, there's a lot of markets where there aren't even hotels, especially the vacation rental in the non urban areas. So the way I'd reconcile it is just to

Operator

open. We'll take our next question from Conor Cunningham at Melius Research.

Speaker 15

Hi, everyone. Thank you. Just on the The 2 thirds of the host that are using the pricing tools today. As you add new supply, You mentioned that ADRs of new supplies at a higher rate, but are those people more likely to use the discounting tools You've kind of mentioned that after they've listed before. And then maybe on the implications for take rate when you move into international markets.

Speaker 15

You're tracking towards Over 50% of your rooms are going to be there. Is take rate going to eventually just kind of bleed lower as that Just curious on your thinking about that overall. Thank you.

Speaker 2

Yes, I can take the first one Connor. On tools, generally new hosts adopt new tools at a higher rate than existing hosts. And the reason why is like When you sign up, like we have this really great onboarding and you're immediately presented tool that every new host as far as they're concerned, every tool is like is exactly how you're supposed to use Airbnb, whereas In older host, there's an adoption where you have to get them onto the new tools and they're used to hosting a certain way. So we're generally seeing that new hosts would probably adopt new tools at a faster rate than existing hosts. That being said, the ADR related new host might also be related to the mix shift.

Speaker 2

We're getting a lot of inventory in non urban areas. There are larger homes. So there's a lot of different reasons I could explain that. Dave, I can hand over to you.

Speaker 6

Yes. And give me the second question again. It was Take create an international host?

Speaker 15

Yes. Just as you expand internationally, is there going to be a natural reduction in take rate overall As that kind of tracks on our 50% of your overall rooms at some point. Thank you.

Speaker 6

No, I mean, actually, I think over time, the way we think about our take rate is that it's been very stable. We've actually made no underlying kind of recent changes to our absolute take rate. And what we want to be able to do is, as we add more Services and capabilities, that would be the way to further kind of monetize Airbnb. So, what have we done? Things like adding Guest travel insurance has been a nice add for kind of incremental monetization.

Speaker 6

It's small, but it's growing nicely. And then as Brian said, there as we kind of expand Yum! Pour and add more services for hosts and guests that would be the way to kind of increase it. So

Speaker 2

And you could theoretically, you could argue the inverse, which is to say that as they expand in new markets, they might be more interested for the new services that we can offer because hosting is newer to them. So as we expand in new markets and as we expand to new host services,

Operator

And there are no further questions at this time. I would like to turn the conference back to Brian Chesky for closing remarks.

Speaker 2

All right. Well, thanks everyone for joining today. Just to recap, revenue was $3,400,000,000 18% higher than a year ago. Net income and adjusted EBITDA were both Q3 record and our 12 the last thing I just want to highlight is our trailing 12 months free cash flow with $4,200,000,000 and this represents a free cash flow margin of 44%. And so I just want to call out the real incredible hard work that team's done over the last 3 years.

Speaker 2

We've been really, really disciplined to try to make this business a cash generating machine and to be really focused. And I think the team has made some great progress. Next week, we're going to take a leap forward in making Airbnb more reliable with some big updates as part of our 2023 window release. So I hope you can tune in. Is next Wednesday, November 8 to learn more and I'll see you then.

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Earnings Conference Call
Airbnb Q3 2023
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