Airbnb, Inc. (NASDAQ:ABNB) Q4 2022 Earnings Call Transcript

Airbnb, Inc. (NASDAQ:ABNB) Q4 2022 Earnings Call Transcript February 14, 2023

Operator: Good afternoon, and thank you for joining Airbnb’s earnings conference call. for the fourth quarter of 2022. 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 Ellie Mertz, VP of Finance. Please go ahead.

Ellie Mertz: Thank you. Good afternoon, and welcome to Airbnb’s Fourth Quarter of 2022 Earnings Call. Thank you for joining us today. On the call today, we have Arrium’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 fourth quarter of 2022. 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 provided reconciliations to the most directly comparable GAAP financial measures in the shareholder letter posted to our IR website. These non-GAAP measures are not intended to be a substitute for our GAAP results.

And with that, I will pass the call to Brian.

Brian Chesky: All right. Well, thank you very much, Elie, and good afternoon, everyone. Thanks for joining. Before I share our results, I want to tell a quick personal story. As you may have seen, I’ve started hosting again. Last November, I listed my guest room on Airbnb. My listing is called Beyond the Airbed. And the run guests is a histologically themed around the early years of Airbnb. There’s memorabilia in the walls. From the receipt for the original airbed to old photos and me hacking boxes of Obama Os and Cat McCain breakfast cereal. When guests arrive, I have welcome basket waiting for them. And the first night we make dinner together, followed by desert. We bake Chip, chocolate chip cookies from my cherished family recipe that I got off Google.

The next day, we tour the airbnb office with my golden retriever, Seltenova, and I tell the story of building Airbnb. Now why am I doing this? Well, because I love hosting. Joe and I were the first host on Airbnb 15 years ago. And having guests staying at your home with you is the original idea behind Airbnb. It’s been an amazing way to connect with people. But I also believe that companies that makes the best products make products for themselves. And Airbnb will only be as successful as our host. And the best way to understand our host is to be one. Since I’ve resumed hosting, I’ve got new first-hand insights that have informed some of the new products we’ll be releasing, including some exciting updates this May as part of our 2023 summer release.

Now before we get into our quarterly results, I want to recap the full year of 2022. While we’re 3 years out from the start of pandemic, we are still living with this impact. We’ve also seen high inflation, recessionary fears and the war in Ukraine, all of which we’re still dealing with in 2023. And yet, through all this, people continue to travel, and 2022 was a record year for Airbnb. Revenue of $8.4 billion grew 40% year-over-year. And when you exclude foreign exchange, our revenue increased by 46% year-over-year. Net income was $1.9 billion, which marks 2022 as our first profitable year — full year on a GAAP basis. And finally, free cash flow was $3.4 billion. And this $3.4 billion of free cash flow represented a free cash flow margin of over 40%.

And because of our strong balance sheet, we are able to begin buying back stock last year, and we repurchased $1.5 billion in shares in just the past 5 months. Now during the height of the pandemic, we made some very difficult choices to reduce our spending making us a leaner and more focused company, and we’ve kept this discipline ever since. In over each of the past 2 years, we’ve only modestly increased our headcount. In fact, compared to 2019, our headcount is actually down 5%, while our revenue is up 75%. In every single quarter in 2022 outperformed past comparable periods. In Q4, net income was $319 million. Now this is $264 million higher than a year ago. Adjusted EBITDA was $506 million, which is 52% higher than Q4 of 2021. And we generated $455 million of free cash flow, and this is 20% higher than Q4 2021.

Photo by Karsten Winegeart on Unsplash

During the quarter, we saw a number of positive business trends. First, guest demand at Airbnb remains strong. Nights and experiences booked increased 20% in Q4. We had our highest number of active bookers ever in Q4, demonstrating guest excitement of travel on Airbnb despite evolving economic uncertainties. During the quarter, we also continued to see guest booking trips further advance supporting a strong backlog for Q1. Second, guests are increasingly returning to cities and crossing border. And this is the bread-and-butter before the pandemic. Now both segments continue to accelerate while non-urban and domestic travel remains strong. Cross-border growth nights booked increased 49% compared to last year. High density urban nights grew 22%.

And globally, we saw cross-border travel to all regions increased despite continued foreign currency volatility. Third, the guests continue to book longer stays on Airbnb. During Q4, long-term stays remained stable from a year ago at 21% of total gross nights booked in Airbnb. And finally, we saw tremendous growth in our supply on Airbnb. We ended 2022 with 6.6 million active listings. Now excluding all the Mainland China listings we removed in July, we grew supply by 900,000 listings, or 16% compared to a year ago, representing an acceleration in growth in listings relative to Q3. Now why are listings accelerating in growth? We believe there’s probably 2 factors that drove this growth. First, demand to drive supply. Post or attracted the supplemental income that they can earn an Airbnb, which is often critical during tough times.

Second, our product improvements are working. Over the past 2 years, we’ve made it more attractive and easier to become a host. Just this past November, we introduced Airbnb set up where prospective host can connect with Super Host for free one-to-one guidance all the way through their first reservation. The number of new active hosts recruited with the help of our super House increased by more than 20% compared to prelaunch. But we are not stopping there. In 2023, we’re focused on 3 strategic priorities. First, we want to make posting mainstream. If you’re listening to this call, you’ve likely travel on Airbnb or you know someone who have. We want hosting on Airbnb to be just as popular and to achieve this, we’ll continue to raise awareness around hosting, make it easier to get started and provide even better tools for hosts.

Second, we are perfecting our core service. We want people who love our service. And that means obsessing over every single detail, and we’ve listened to our hosting guests and based on their feedback, we’re making a large number of upgrades to our service this year, including improving customer service, making it easier to find the right home and delivering greater value and much, much more. And you’ll see more of this in the forthcoming in the coming months, especially our release. And finally, third, we’re expanding beyond the core. We have some pretty big ideas for where to take Airbnb next. And this year, we’re going to build the foundation for future products and services that will provide incremental growth for many years to come. So with that, Dave and I look forward to answering your questions.

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Q&A Session

Operator: . Your first question today comes from the line of Jed Kelly with Oppenheimer.

Jed Kelly: Great. Great quarter and great execution. Just 2, if I may. Just one, can you talk about how your urban supply is trending and sort of some of the initiatives you’re doing around apartments? And then, Brian, you did mention headcount. In Silicon Valley, there’s obviously a lot of layoffs. You’re one of the companies that are growing, having expanding margins. So can you talk about like your ability to attract top tech talent to execute on some of the initiatives you just talked about?

Brian Chesky: Yes, absolutely. Yes. So let’s start with the first one, urban supply growth. Let me kind of first start, Jed, by just talking a little bit more about how we think about supply. The great thing about our supply is that the vast majority of hosts that come to Airbnb come organically, and that’s because of our global network. In fact, the #1 source of host are prior guests. And in Q4, 36% of our hosts were prior guests. And one of the other things we see is the fastest-growing market where we have supply is also the fastest-growing market we have demand. And I think what’s happening is a lot of our hosts are regular people. And as they get more bookings, they tend to tell their friends. And so this network is something that has a kind of self-growing effect to it.

Now in addition to that, we’ve been doing a number of initiatives. Number one, we’ve been focused to make hosting easier with Airbnb set up. And between that and a new campaign we’ve been running Jed called Airbnb, which is basically this idea that if you have a space, you have an Airbnb. Between these 2 initiatives, we’ve seen twice the amount of traffic to our host landing page, the landing page to learn about hosting. And then we also have made big improvements to making hosting easier. Now in addition, you might have seen that last November, we announced a new initiative called Airbnb from the apartment. Airbnb from the apartments, I think can unlock a large amount of inventory in multifamily homes in urban areas, and we worked with Greystar and a number of the other largest real estate developers in the United States.

We have 175 buildings in Phoenix, in Jacksonville, in Houston and other cities. And the response from landlords have been very, very positive. So we are seeing a lot of traction on urban supply. I don’t know, Dave, if you want to add anything before I talk of headcount.

David Stephenson: You covered really well because this has been a historic strength of ours has been kind of the urban part of the business, it’s taken longer for that to kind of recover. It’s now well above 2019 rates, and it’s actually part of the areas that accelerated our growth in Q4. So we’re very happy with where we’re at with Urban. And as Brian said, the early days of Airbnb friendly apartments has been very well adopted, and we’re excited about the potential in that part of the business.

Brian Chesky: And just on your question, Jed, on headcount, something was really interesting happened. So obviously, in 2020, we had to make some really difficult decisions — and we became a much smaller and more focused company. And the obvious result of that is that we got more efficient and more profitable. But there was a less obvious result. What ended up happening is we have fewer people in meetings and people can move a lot faster. And we concentrate all of our very best people and put them on only a few problems. And I think that’s been an explanation for why the company has grown really quickly. But also, I think it’s made us a much more attractive place to work because it’s much easier to get work done. And we have a general philosophy that we want the very best people in every field to come to Airbnb in every function.

We’re functionally organized. And I think that we’re one of the few tech companies that isn’t doing layoffs. We’re not cutting. We’re not freezing. We’re actually stepping on the gas. But in our mind, stepping on the gas doesn’t mean adding a huge amount of people, we’re going to continue to stay really lean, but we’re really focused on just really hiring in key positions. And we — and again, I kind of use this analogy that we’re not building like a giant Navy, it’s more like the special forces that’s what we’re focused on. So we’ve had a lot of success with talent. And of course, we’re getting a lot of inbound.

David Stephenson: Add to a couple of things. One is our headcount is actually still 5% below where it was in 2019. We have a revenue is 75% higher. So we’re nearly twice as big as we were previously with fewer people. And I’d say the other is our Live and Work Anywhere approach, our approach to being very intentional about how we gather in person. We believe that actually working together in person is very important, just need to do it in a very coordinated way. So actually having people being back in the office on random days of the week is not very effective, but being — doing it in a very controlled and planful way is respectful of employees’ time and is more efficient for the company, and our employees love it. And I think that’s also enabling us to attract great talent.

Operator: Your next question comes from the line of Richard Clarke with Sanford C. Bernstein.

Richard Clarke: Two, if I may. The first one, just around, I guess, some of the changes that might come over the coming years with regard to the distribution landscape. One of your rivals is going to wrap their vacation rental business into a loyalty program, lots of talk around conversational AI and what that can do to the distribution landscape. So just any comments to whether Airbnb needs to do anything further on the distribution platform? And then second one, a little bit more preset, but obviously, it looks like Q4 was a very good quarter for take rate. Have you done anything in particular there on take rate to achieve that result?

Brian Chesky: Dave, do you want to start with take rate and I’ll end with distribution after.

David Stephenson: Yes. With take rate, there’s nothing in particular that we’ve done with take rate there. Absolutely, on a time-adjusted basis, the amount that we take from each night’s day has been very stable. And so any variation in take rate of revenue over gross booking value is just variation quarter-to-quarter. So nothing on take rate.

Brian Chesky: And maybe, Richard, just if — can you just clarify what you mean by distribution landscape? Do you mean like the competitive environment or how?

Richard Clarke: The competitive landscape, competitive environment with regard to distribution, whether you see any threat or increased threats from loyalty program wrapping around your competitors and maybe the conversational AI that’s coming into various other search platforms at the moment.

Brian Chesky: No. I mean, like, I think there’s just 2 things. On the competitive front, I mean, we have a lot of competitors and a lot of different categories. But I think Airbnb kind of stands in a class of its own. I mean we’re now in over used all over the world. We’re not just the U.S. business. We’re not just the European business. We’re a global business. We’re not just vacation rentals. We’re also urban and and off the grid. We’re known as an affordable way to travel, but we also have a lots of offering and everything in between. So I think we have a pretty unique offering. And I think ultimately, 90% of our traffic comes direct. And that’s because we have something that’s unique. The vast majority of our homes don’t exist anywhere else.

And what we’re really just focused on doing is we’re obsessing over providing the very best experience for guests. And if we do that and we perfect that experience and then we do really great marketing, I think we’ll do quite well. The only thing I’ll say, Richard, on the distribution front is we have some unique assets that most other travel brands don’t have. Let’s take PR. There were 600,000 articles written about Airbnb last year. Airbnb is on social media a lot and a lot of people are talking about Airbnb on social media. So we generally have a slightly different approach to distribution, where we think just continually innovating on our product is great. The best loyalty program is building a product people love so much they want to come back and you have to pay them to come back.

And we just take a full funnel approach to marketing around PR, and we think of our general advertising as really educating people on new products. Now as far as the changing landscape for technology, I’m actually very excited about the possibilities of AI. I think Airbnb will uniquely benefit from this. And the reason why it’s because Airbnb is a fairly difficult product challenge, which is unlike hotels, we don’t have SKUs. There’s no representative inventory. Every single 1 of our 6.6 million listings are unique guests left more than 100 million reviews last year. And to parse through all these reviews is very glorious. And I think that AI is going to really benefit our long tail of data. And the fact that our search problem isn’t really a search problem, so much as a matching problem.

— right? If there’s like 50,000 homes in a city, what’s the right 1 for you, that’s less of a search problem than a matching problem. And I think that AI is going to be a really good opportunity for us. And just stay tuned for some developments there.

Operator: Your next question comes from the line of Ron Josey with Citi.