Airbnb, Inc. (NASDAQ:ABNB) Q1 2024 Earnings Call Transcript

Airbnb, Inc. (NASDAQ:ABNB) Q1 2024 Earnings Call Transcript May 8, 2024

Airbnb, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and thank you for joining Airbnb’s Earnings Conference Call for the First Quarter of 2024. 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 Angela Yang, Director of Investor Relations. Please go ahead.

Angela Yang: Good afternoon, and welcome to Airbnb’s first quarter of 2024 earnings call. Thank you for joining us today. On the call today, we have Airbnb Co-Founder and CEO, Brian Chesky and our Chief Financial Officer, Ellie Mertz. Earlier today, we issued a shareholder letter with our financial results and commentary for our first quarter of 2024. 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 will 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 provide a reconciliation 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 will pass the call to Brian.

Brian Chesky: All right. Good afternoon, everyone, and thanks for joining. Airbnb had a strong start to 2024. We had 133 million nights and experiences booked in Q1, marking our highest first quarter ever. Revenue of $2.1 billion grew 18% year-over-year, primarily driven by continued strength in travel demand and the timing of Easter. Net income was $264 million, representing a net income margin of 12%. For Q1, our free cash flow was $1.9 billion, our highest ever. And for the trailing 12 months, our free cash flow was $4.2 billion, representing a free cash flow margin of 41%. Our strong cash flow allowed us to repurchase $750 million of our shares in the quarter. And at the end of Q1, we had $6 billion remaining on our repurchase authorization.

Now, during Q1, we made significant progress across our three strategic initiatives, which are making hosting mainstream, perfecting our core service, and expanding beyond the core. First, we’re making hosting mainstream. We remain focused on making hosting just as popular as traveling in Airbnb. And to do this, we’re raising awareness around the benefits of hosting, providing better tools, and helping hosts deliver high-quality stays. As we grow, we’re also taking action to rapidly improve the quality of stays on Airbnb. In Q1, we removed thousands of listings that failed to meet our guest expectations. And excluding these removals, active listings for accommodations grew 17% year-over-year. And we also saw sustained double-digit supply growth across all regions.

This year, we’ll continue to raise awareness around hosting and improve the overall host experience. Second, we are perfecting our core service. Over the past few years, we’ve rolled out more than 430 new features and upgrades to improve our service. In November, we took another huge step forward on reliability with the launch of Guest Favorites, a collection of the top homes on Airbnb based on ratings, reviews, and reliability. Now, since launching Guest Favorites, there have been more than 100 million nights booked at these listings. And we will continue to make it easier for guests to find high-quality and affordable stays. Finally, we’re expanding beyond our core. During the quarter, we continued investing in less mature markets to unlock more growth.

And in Q1, growth nights booked in our expansion markets grew twice as fast as our core markets. And we’re also focused on expanding beyond our core business. Now, this will be a multi-year journey, and we’ve already begun laying the foundation. Last week, we introduced Icons, a new category of extraordinary experiences by the greatest names in music, film, sports, and more. Icons mark an important next step in helping people understand that Airbnb offers more than just travel accommodations. Now, before I share a few business highlights, I just want to provide some context on why we actually introduced Icons, because they deliver on three key objectives. First, Icons keeps Airbnb’s brand relevant and top of mind. With new Icons launching throughout the year, we can introduce more people to Airbnb and highlight what makes us unique.

Second, while Airbnb’s brand is already recognized around the world, there are specific segments where we want to accelerate growth. And with a broad range of Icons spanning various geographies, demographics, and fan bases, we’ll be able to reach key segments in a more targeted way. And third, Icons helped change the way people think about Airbnb and what we offer. And this is going to be critical as we expand beyond accommodations in the coming years. Now, it’s still early, but we’re really excited about the response we’ve seen to Icons so far. In just one week, the Icons launch has generated over 8,100 pieces of global media coverage and 371 million social media impressions. And the coverage has been overwhelmingly positive. Now, just to put this into perspective, Icons has already generated more for us than our IPO.

It’s clear Icons are resonating with people. Now, looking back to Q1, we saw a number of positive business highlights. First, mobile downloads are accelerating. So, to quickly zoom out, nights and experiences booked in Q1 increased 9.5% year-over-year, despite a hard conference this time last year. And we were particularly encouraged by the growth of app downloads. In the U.S., app downloads increased 60% in Q1 compared to a year ago. And global nights booked in our app increased 21% year-over-year. And they now represent 54% of nights booked during the quarter. And this time last year, mobile bookings represented only 49%. So, it went from 49% to 54%. So, we’re seeing some really, really good traction. Second, Airbnb is uniquely positioned for special events.

Special events is really how we started Airbnb. We really started it to provide housing for conferences and events. And in April, we had over 500,000 guests stay on Airbnb during the solar eclipse in North America. And interestingly, we saw more than twice as many nights stayed on Airbnb along the direct path of the eclipse compared to the year prior, with many of these locations in areas that don’t even have hotels. Nights booked in Paris during the summer’s Olympics are five times higher than this time a year ago. And Germany is also seeing a similar trend for the Euro Cup this summer, with nights booked nearly double compared to a year ago. Now, supplies also increased to meet the higher demand, including nearly 40% more active listings in Paris in Q1 compared to a year ago.

These events highlight that Airbnb’s unique ability to disperse travel and spread economic benefits by allowing people to stay in local neighborhoods where there are no hotels. And finally, supply growth remains strong. Now, as mentioned earlier, in Q1, we removed thousands of listings that failed to meet our guest expectations. And excluding these removals, active listings for accommodations grew 17% year-over-year. We continue to see double-digit supply growth across all regions, with the highest growth in regions with the highest demand. Urban and non-urban supply increased at about the same rate, and we saw relatively similar supply growth among individual and professional hosts, with the majority of new listings exclusive to Airbnb. We’re really proud of our strong Q1 results, and we’re looking forward to another record summer travel season.

So with that, Ellie and I look forward to answering your questions.

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Q&A Session

Operator: [Operator Instructions] Our first question will come from the line of Mark Mahaney with Evercore ISI. Please go ahead.

Mark Mahaney: Thanks. You talk about these kind of leaning into these kind of less mature markets and this doubling of growth rate in some of those expansion markets versus your core markets. Could you give a little more color on which countries and which markets that is? Which countries, I think in the past, you may have mentioned Brazil, but which ones you’re leaning into this year? And then secondly, that U.S. app downloads increase of 60% year-over-year. That’s an extremely high number for what you would think would be a reasonably well-known app and brand. So what drove that? Do you have any whys behind that? Thank you very much.

Brian Chesky: Yes. Hey, Mark. Why don’t I start? So leaning into less mature markets. So if you think about Airbnb, we’re obviously in 220 countries and regions. We’re one of the most global brands in the world. But our markets with the highest penetration would be U.S., Canada, Australia, France, and U.K. So those five. So the next markets that are the biggest potential TAM would be like Mexico, and Brazil, and Latin America. In Europe, it would be Germany. It would be Italy. It would be Spain. We’re also starting to see some traction like Switzerland and Netherlands. And in Asia, it would be Japan. It would be Korea. It would be China. And eventually, a little bit longer game would be India. So these are, and there’s a few others in Latin America.

So I could kind of keep going. But those are kind of some of the really, really big travel TAMs. And Mark, maybe just one other thing I’ll just say. I think a really good thing to look at is our penetration for each country. And while U.S., Canada, Australia are really, really similar, there’s a really, really big drop off in a lot of these other markets that are huge travel TAMs, I mean, especially in Asia. And one of the things that we’ve learned is that Airbnb pretty much resonates pretty equally everywhere once there’s the awareness. In fact, I could argue that Airbnb might resonate better in Asia because there’s a younger travel population that’s not predisposed to hotels and they’re on social media. And we are disproportionately on social media versus our competitors.

So I’m very, very bullish about that. Now, on U.S. staff downloads, you’re right. I mean, it’s grown 60% last year. It went from 49% of bookings to 54% of bookings. So at the highest level mark, what drove that was just focused on a roadmap. We have a brand that most everybody, at least in the United States has heard of. And a lot of people download our app, but we’ve never really focused on optimizing our app from a download perspective. And just to be clear, these numbers were driven organically, not by paid advertising. So it was really just a lot of optimization, different touch points, encouraging people at the right moment to download our app, not being intrusive. We had pushed a lot of people to just, we just pushed them to our mobile website.

Our mobile website does not convert nearly at the rate of our app download. And so maybe the highest level point I’ll just make is, I think what we’ve been able to prove in the last three years is when we focus on something, we can drive the numbers. Two years ago, supply wasn’t growing, we focused on it. It’s now growing 70% net quality. A year ago, we felt like app downloads weren’t where they needed to be. We put a team on it, they focused. So I think we’re developing a good track record to really be able to move metrics when we focus on them.

Mark Mahaney: Thank you, Brian.

Ellie Mertz: Brian, if I could just add, I think the app download effort is really just part of our broader priority around perfecting the core and optimizing the core business. We identified that not as many of our guests were using the app as they should. And we know that the app is a much better user experience than MoWeb. So it’s again, part of a broader suite of roadmap items that are intended to improve and perfect the core experience.

Mark Mahaney: Thank you, Ellie.

Brian Chesky: Thanks, Mark.

Operator: Your next question will come from the line of Richard Clark with Bernstein. Please go ahead.

Richard Clarke: Hi, good afternoon. Thanks for my questions. Just on, you mentioned on the prepared remarks and you mentioned that Q4, that Q1 would have quite a tough comp. And there’s calendar effects in there as well. But you’re guiding the Q2, it’s going to be flat on room night growth. So is there anything you call out in Q2 that’s maybe holding that back and how we should think about the rest of the year? And maybe just a similar question on margin, the Q2 guide, I guess a little bit softer than consensus had some calendar in there. Is that including any of the growth investments you talk about or are those things that may come in more the second half of the year?

Ellie Mertz: Yes, thanks, Richard. Let me just talk a little bit about the trends that we’ve seen here today to help answer your question. So first, as you point out, as we were heading into 2024, we were widely aware that last January was particularly strong. And so the guide that we’ve provided back in February included a step down in growth from Q4 to Q1 that was reflective of that hard comp from a year ago. We did experience it. And then since then, we’ve seen relatively stable growth, which I see as frankly, a really strong statement in terms of both the stability and resilience of leisure travel demand so far this year. I think, something that we’ve seen this year that is contrasting to last year there was a lot of volatility in terms of the timing of when people booked relative to their check-ins.

And so far this year, it’s been, frankly, much more stable. Lead times on our platform have been, frankly, generally in line with a year ago, and it just hasn’t been at the same level of volatility, again, that we saw a year ago. And so heading into Q2, our guidance reflects this continued stability of booking. Obviously, we’d like to deliver higher growth and stable growth, but our outlook obviously reflects the trends that we have seen quarter to date. To your question on Q2 margins, obviously, we guided, the Q1 results reflect a pretty meaningful year-over-year margin expansion. A big portion of that is due to the timing of Easter. So Easter is not only a benefit to revenue growth in Q1, but it’s obviously also a benefit to margin expansion.

Those two factors reverse in Q2. It is a headwind to revenue growth, and it is a headwind to overall margins. Two other components in terms of what’s putting pressure on margins in Q2. One is just some one-time credits that we had in payment processing a year ago that will not recur this year. And then third, we shifted slightly the timing of our marketing spend, a little bit heavier in Q2 than in Q1, and that will be reflected in terms of marketing as a percent of revenue growing in the quarter on a year-over-year basis.

Richard Clarke: Very helpful. Thank you.

Operator: Your next question will come from the line of Jed Kelly with Oppenheimer. Please go ahead.

Jed Kelly: Hey, great. Thanks for taking my question. Just one on ADRs. They seem to be relatively sticky, and I think a couple quarters ago, you talked about driving value to the consumer. So can you just give us an update on where you are in sort of some of your value initiatives? And then on supply, great supply growth again. Can you talk about how we should think about supply and nights eventually converging to similar growth rates? Thank you.

Brian Chesky: Yes. Hey, Jed. Why don’t I take the first one on value initiatives, and I’ll let Ellie take the second one. So on providing value, when we started Airbnb, our original tagline was a cheap, affordable alternative to a hotel. And the majority of the primary reason people came to us is because it was a better value than a hotel. And we still think that’s a core value proposition that we have to offer. Now, a year and a half ago, we noticed that, there was a lot of concern about Airbnb prices increasing. And so we created a whole team to identify a series of initiatives to modulate our prices, and they’re working. And I’ll go down the list. One is total price display. So as you know, in travel, especially online travel, there’s a lot of progressive fee disclosures.

And we decided to have a toggle right on the homepage that you can turn on to show the total price display. Since we’ve done that, not only do consumers — not only are consumers going toward the best total value, but it’s begun to change behavior in our host community because 300,000 or 300,000 listeners, say, have removed or lowered their cleaning fee as a result. So that was the first thing we did. The next thing we did is we started offering monthly and weekly discounts and much more robust tools for that. Now, this is important because, nearly half of our nights booked are for stays of a week or longer. And now more than two-thirds of our hosts offer a monthly or weekly discount. We also noticed that a lot of hosts that weren’t getting booked weren’t getting booked because their prices were too high.

And they just didn’t have really good concepts. So we created a tool called the Compare Listing Tool where people can see how much other people are charging the neighborhood. And they can actually see people who are getting booked, not getting booked. And no surprise, the people getting booked generally have lower prices. We have nearly 2 million hosts that now use the Compare Listing Tool. So those are just a few of the initiatives we’ve done. We actually have many others as well. The net of all of it is that hotel prices are up year-over-year and Airbnb listings on a like-for-like basis are down. So today the value of Airbnb versus a hotel is better than it was a year ago. And I think that trend line is going to continue given all of our efforts.

And maybe the only other thing I’ll just say on this is, as we know, loss of supply and demand, as supply grows faster and demand prices go down a little bit. And supply is growing faster in demand. I think that’s also relieving some pressure. Ellie, over to you.