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

Airbnb, Inc. (NASDAQ:ABNB) Q4 2023 Earnings Call Transcript February 13, 2024

Airbnb, Inc. beats earnings expectations. Reported EPS is $0.76, expectations were $0.67. 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 Fourth Quarter of 2023. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Airbnb’s website following this call. I will now hand the call over to Angela Yang, Director of Investor Relations. Please go ahead.

Angela Yang: Good afternoon, and welcome to Airbnb’s fourth quarter of 2023 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, Dave Stephenson. Earlier today, we issued a shareholder letter with our financial results and commentary for our fourth quarter of 2023. These items were also posted on the Investor Relations section of Airbnb’s website. During the call, we’ll make brief opening remarks and then spend the remainder of time on Q&A. Before I turn it over to Brian, I would like to remind everyone that we 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. Thank you, and good afternoon, everyone. Thanks for joining. I am excited to share our results with you. We wrapped 2023 with another strong quarter. We had 99 million Nights and Experiences Booked in Q4, marking our highest fourth quarter ever. Revenue of $2.2 billion grew 70% year-over-year. Net loss was $249 million. But when excluding nonrecurring tax items, adjusted net income was $489 million, representing an adjusted net income margin of 22%. For the full year, our free cash flow was $3.8 billion, our highest ever. Because of our strong cash flow and balance sheet, we repurchased $2.25 billion of our shares during 2023. And I’m excited to announce that today, our Board of Directors approved a new share repurchase authorization of up to $6 billion of our Class A common stock.

Our strong results in 2023 were driven by our focus on 3 strategic priorities, making hosting mainstream, perfecting our first service and expanding beyond the core. First, we’re making hosting mainstream. We’ve been focused on making hosting just as popular as traveling in Airbnb. Our results show that our approach is working. In Q4, our host community grew to 5 million hosts around the globe. Active listings exceeded $7.7 million by the end of 2023, increasing 18% year-over-year. And we also saw sustained double-digit supply growth across all regions. All in all, in 2023, host earned more than $57 billion. This year, we are going to continue to raise awareness from hosting and improve the overall host experience. Second, we’re perfecting our core service.

Over the past 3 years, we’ve launched more than 430 new features and upgrades to our core service. We’ve made significant improvements to make Airbnb a more affordable and reliable option, and we are already seeing a positive impact. For example, post cancellations have decreased by 36% in Q4 of 2023, and this is compared to the same period a year ago. And now two thirds of our host offer a weekly or monthly discount. We will never stop perfecting our core service. In the year ahead, we’ll remain focused on improving the quality and reliability of stays. Finally, we are expanding beyond the core. Airbnb is at an inflection point. We spent the last 3 years perfecting our core service, and we are now ready to embark on our next chapter. We’re focused on unlocking more growth opportunities by investing in underpenetrated international markets, and we’re seeing some great results.

Following the success that we’ve seen in recent quarters in Germany, Brazil and Korea, we’re now rolling out our playbook in other countries, including Switzerland, Belgium and Netherlands. But this is only one piece of a much bigger strategy because we’ve always believed that Airbnb was destined to offer more than just a place to stay. And now is the time for us to expand beyond our core business and reinvent Airbnb. And there are a few reasons why. I mean, first, we want people to love our core service before offering them something new. And with hundreds of improvements we made over the past 3 years, the Airbnb service is now better than it’s ever been. Second, we’ve been able to attract some of the best talent in the world, and we now have the capabilities to do so much more.

And third, there is a new platform shift with AI, and it will allow us to do things we never could have imagined. While we’ve been using AI across our service for years, we believe we can become a leader in developing some of the most innovative and personalized AI interfaces in the world. In November, we accelerated our efforts with the acquisition of GamePlanner.AI, a stealth AI company led by the Co-Founder and original developer of Siri. With these critical pieces in place, we’re now ready to expand beyond our core business. Now this will be a multiyear journey, and we will share more with you towards the end of this year. Now looking back on Q4, we also saw a number of very positive business highlights. First, we surpassed 5 million hosts in the platform and saw meaningful supply growth across all regions.

We added nearly 1.2 million listings in 2023, ending the year with over 7.7 million active listings. Q4 supply growth grew 18% year-over-year. Now this is a real highlight. And we saw the highest growth in regions with the highest demand. So obviously, there’s a real strong network effect happening here. We also continue to see relatively similar supply growth among individual and professional hosts with the majority of these listings exclusive to Airbnb. Now second, we continue to see strong demand on Airbnb. Now this is especially true amongst first-time bookers, which is particularly encouraging. Nights and Experiences Booked grew 12% compared to a year ago and following some volatile in October, Nights Booked actually accelerated throughout the remainder of the quarter, and Q4 also marked the highest quarterly growth rate of the year for first-time bookers.

And additionally, we also gained momentum in app downloads and app bookings. 55% of gross Nights Booked were on our app. This is up from 50% a year ago. And finally, we’re driving affordability for guests. Throughout 2023, we introduced several features to make Airbnb every more affordable from new pricing tools for hosts to increased pricing transparency for guests. Since launching these features, we’ve seen 1.4 million hosts use similar listings, which lets host compare to price or listing to others in the area. Nearly 300,000 listings have removed or lowered their cleaning fee. And by year-end, nearly 40% of our active listings didn’t charge a cleaning fee at all. So our work around affordability is paying off. In December, the average nightly price of a 1-bedroom listing on Airbnb was $114 [ph] a night.

This is down 2% from the same period last year, while hotel prices rose 7% to $149 over the same period. Now before I turn to Q&A, I want to share the latest on two executive updates we announced at the end of last year. To start, Dave Stephenson is now Airbnb’s first Chief Business Officer. Over the past 5 years, Dave has done an incredible job as CFO, and our business is stronger than ever. One of the qualities that is so remarkable about Dave is that he’s not just a world-class finance leader. He’s also a world class operator. And whenever I need someone to quickly drive a complicated series of operations together to clear outcome that doesn’t compromise our values, I turn to Dave. As we expand beyond our core, it will be paramount to have an executive dedicated to our long-term growth plans, and there is nobody better than Dave to do this.

Dave will continue to drive growth across existing and new businesses, and this includes driving international expansion, growing global host supply and leading all business and corporate development activities at Airbnb. Now as Dave takes on this position, I am thrilled that Ellie Mertz will be our CFO. You see Ellie has been my right hand for 11 years, and many of you already know here and are well aware of impressive track record at Airbnb. She led our IPO during one of the most pivotal moments in our company’s history. And for the past several years, Ellie has overseen Strategic Finance and Analysis, Corporate Development and Investor Relations. And under her leadership, our company grew from adolescent to adulthood with revenue growing over 100x.

I am thrilled that she’s stepping into this role. Dave has already started as Chief Business Officer; and Ellie will officially transition to CFO on March 1. So next call, you will hear from Ellie. Before we go to questions, I’d just love to hand over to David to share a few thoughts. Dave?

David Stephenson: Thanks, Brian. I’m really excited about my new role as Chief Business Officer. In this role, I’m focused on driving Airbnb’s growth by concentrating in three specific areas. First, continuing to grow our high-quality supply of stays and experiences around the world; second, leading our global expansion efforts in underpenetrated countries; and third, developing and launching new businesses as we expand beyond the core. As Brian has said, this is a transformational year for Airbnb. I look forward to Ellie becoming our CFO next month. I couldn’t think of a better person to lead us into the next phase of growth. And so with that, let’s open up the call for Q&A.

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Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Ron Josey from Citi. Your line is open.

Ron Josey: Great. Thanks for taking the question, Dave. Congrats on the role and Ellie to you as well. Brian, I wanted to ask a little bit more on just expanding beyond the core. I think you said now is the time to do it and stay tuned towards the end of the year. But then you also talked about being a leader in personalized AI. Can you just give us a little more insight on how you’re thinking about AI given the acquisition of GamePlanner? And then as we think about these newer underpenetrated markets, Switzerland, Belgium, Netherlands, talk to us about just lessons learned from, call it, Germany, Korea, Brazil that you can apply to these newer markets? Thank you.

David Stephenson: Yes, absolutely, Ron. Thanks for asking the question. So let me start with AI. So I think to talk about AI, it would be good to zoom out, just lay out the landscape. One way to think about AI is let’s use a real-world metaphor. I mentioned we’re building a city. And in that city, we have infrastructure like roads and bridges. And then on top of those roads to bridges, we have applications like cars. So Airbnb is not an infrastructure company. Infrastructure would be a large language model or obviously, GPUs. So we’re not going to be investing in infrastructure. So we’re not going to be building a large language model. We’ll be relying on, obviously, open AI. Google makes a great model, meta great models. So those are really infrastructure.

They’re really developing infrastructure. But where we can excel is on the application layer. And I believe that we can build one of the leading and most innovative AI interfaces ever created. And maybe one way to make this real is if you were to open, say, ChatGPT or Google, though the models are very powerful, the interface is really not an AI interface. It’s the same interface as the 2000s in the sense or 2010s. It’s a typical classical web interface. So we feel like the models in a sense, are probably underutilized. Here’s another way of saying it. Take your phone and look all the icons on your phone. Most of those apps have not fundamentally changed since the advent of generative AI. So what I think AI represents is the ultimate platform shift.

We had the Internet. We had mobile, Airbnb really rose during the rise of mobile. And the thing about a platform shift, as you know, there is also a shift in power. It’s a shift to behavior. And so I think this is a zero, zero ballgame, where Airbnb, we have a platform that was built for one vertical, short-term space. And I think with AI, generative AI and developing a leading AI interface to provide experience that’s so much more personalized than anything you’ve ever seen before. Imagine an app that you feel like knows you. It’s like the ultimate concierge, an interface that is adaptive and evolving and changing in real time, unlike no interface you’ve ever seen before. That would allow us to go from a single vertical company to a cross-vertical company because one of the things that we’ve noticed is the largest tech companies aren’t a single vertical.

And we studied Amazon in the late ’90s, early 2000s when they went from books to everything, or Apple when they launched the App Store. And these really large technology companies are horizontal platforms. And I think with AI and the work we’re doing around AI interfaces, I think that’s what you should expect us. We’re not going to talk specifically on this call about the specific products and services we’re going to be offering, but you will see some very big announcements later this year. And as you know, we did an acquisition of GamePlanner.AI. It was from the creator Siri. And that was just accelerating the efforts we are already endeavoring on.

Operator: Your next question…

Ron Josey: And then…

David Stephenson: Sorry…

Ron Josey: My question was…

Brian Chesky: Yeah, more on the underpenetrated markets. So is one of the few things. First, we just need to make sure that we have great supply and great supply in specific nights. So even the subtleties of local holidays and ensuring that we’re there, that we have it at all price points. Different countries have different expectations on what the supply growth looks like. And then just make sure we have the right product. Things like we’ve done include installment payments in Brazil and Latin America, Naver Login in Korea. Just making sure that we’re showing up locally in the ways that they’re expecting. And then the third is just to make sure we have a full funnel marketing approach. In some of these countries, we’re now big enough where we can have a small team do a very targeted social marketing, PR, communications, use influencers, search engine marketing, but build that on top of brand marketing to have that all work together in one full funnel approach.

Approximately 90% of our traffic remains direct or unpaid because the majority of Airbnb stays are unique to us. And that continues to drive the flywheel. But having this full funnel approach is very effective when we implement it on the ground in these countries.

Operator: Your next question comes from the line of Eric Sheridan from Goldman Sachs. Your line is open.

Eric Sheridan: Thanks so much for taking the question. I was curious how the building blocks of sort of the way you’re thinking about the macro environment and the idiosyncratic growth the company sort of is looking at for Q1, driven by elements of both supply and demand? And what do you see as sort of the exit dynamics from 2023? Thanks so much.

Brian Chesky: So again, what we saw exiting 2023 was interesting, right? When we were on this call a quarter ago, we’ve seen some softness in demand in October. And then what we – and so we guided to that kind of expectation. And then what we saw is accelerating demand in November and December. And then as we come into – from that strength, 17% kind of revenue growth and 12% nights growth in the fourth quarter, we’re seeing really stable demand coming at the start of the year. You have to actually rewind the tapes and remind yourself that we were just exiting kind of Omicron and there’s a lot of pent up demand in January of last year, which makes for some harder comps in Q1, but against those harder comps, we continue to see strong demand for travel.

I think that we continue to see a very robust demand for people staying on Airbnbs versus just necessarily kind of buying other things. So the experiences over things continues to be a big trend. And we’re excited to see the growth that we’re continuing to see in our established businesses in North America and Europe and even greater growth in Latin America and Asia Pacific. So as we do things, as I said on the last question about doubling down and making sure that we invest in these expansion countries where we’re underpenetrated, I think that’s going to continue to drive growth for us for the rest of the year.

Operator: Your next question comes from the line of Justin Patterson from KeyBanc. Your line is open.

Justin Patterson: Hi. Thank you very much. There’s been a lot of investor interest around the cross-currency fee. How should we think about that phasing in over the course of the year and the potential financial impact from that? And then further, could you talk about just why you viewed now is the right time to pull that lever? So maybe this is a sign that you’ll take pricing actions where there’s a value disconnect more regularly than in the past? Thanks.

Brian Chesky: Yes. To be clear, when we announced this recently, we updated our terms of service. And what it did is it gives us the ability to implement across currency fee. So we needed to update the terms of service just to allow us to do it. Now the fee only applies when the currency of the guest uses to pay differs from the currency that the host set for their listening. So we don’t anticipate this fee to affect the majority of our guests because the cross currency transactions are only approximately 20% of our gross booking value. It’s different than our cross-border, which is closer to 40%. And we anticipate the majority of the fee changes to be closer to 1%. So we’re going to test and evaluate and just see what the results are, and that testing will begin in April.

Why now? There’s just a point where we understand that the size and complexity of our business ensures that we should be making sure we’re providing great value to our guests and our host. We do things like last year, we had a change to our long-term stay fees for beyond 3 months. That was an opportunity where we saw that maybe the fees were too high relative to the benefit we’re giving. I think there’s just a fundamental principle where we want to make sure that we’re giving more value to our guests and our hosts than we take in our take rate over time, and we’re going to continue to be more nuanced in how we make those choices going forward.

Operator: Our next question comes from the line of Brian Nowak from Morgan Stanley. Your line is open.

Brian Nowak: Great. Thanks for taking my questions. I have two. One big picture and one sort of accounting. So big picture one, you guys have made a lot of interesting changes to the U.S. around I’m flexible [ph] and new tools for host, et cetera. Brian, can you just sort of talk to us about areas of progress you’ve made on improving conversion or getting host to lower prices in the U.S.? And sort of what are the existing hurdles you have to overcome to kind of get power host and host to kind of lower prices more in the U.S.? And the second one, on Dave or Ellie. There’s a lot of moving pieces around this 1Q guide. If we’re sort of thinking through gross bookings versus revenue, and we’re getting to room night growth in sort of the mid to high to single digits, is that right? Or are there sort of other moving pieces that we’re missing around the room night growth calculation? Thanks.

Brian Chesky: Yes. Why don’t I start, Brian? So you could think of probably like 3 really big buckets of work that are going to drive conversion of Airbnb. One is our work on affordability. The next is really product optimization. And the third is really quality and reliability. So let me talk about all 3, and I’ll start with affordability. A couple of years ago, we noticed that there was quite a lot of, call it, a feedback we’re getting from our guests that Airbnb was getting more expensive. And so last year, we really hunkered down and rolled out a suite of tools for guests and host to make Airbnb more affordable. Starting with total price display, where you now can turn on a toggle and see the total price upfront, including taxes and cleaning fees and services.

Now this tool is really important because now we are pushing more demand to listings at better prices. We’ve also seen some really positive knock-on effects. For example, 300,000 listings have now reduced or eliminated their cleaning fee and 40% of listing go [ph] we don’t even have a cleaning fee. The next thing we did is we encourage more hosting to provide discounts for weekly or monthly stays. As you know, 19% of our month – of our nights are monthly stays and more than 40% are weekly. Well, now two out of three hosts have a monthly or a weekly discount. So this has been a huge, huge improvement. And we also launched a product called Compare listings. One of the things we noticed is that hosts are more likely to have a competitive price if they see what other similar listings are charging in their neighborhood and then they can see whether they’re getting booked or not.

Well, since we rolled out that tool, 1.4 million hosts have turned the tool on, and this means they’ll provide more competitive listing. The result of which, Brian, is that our prices year-over-year for one bedroom apartment globally are down 2% where hotels are up 7%. That’s a 9% swing. The next is product optimization. Here’s a simple way to think about it. We did $9.9 billion of revenue last year. So let’s round that to $10 billion for really simple numbers. All we have to do is increase our nights booked by 100 basis points, and that’s $100 million of revenue. And if we can increase $100 million of revenue, it’d be $100 million of very like high-margin revenue because we’re converting presumably traffic we already have on the website. And so there’s a number of things we’re doing on product compensation to increase conversion rate.

One of the big things, as you noticed, is I’m flexible, here’s a simple way to think about it. We are never close to sold out in Airbnb. If we can just point demand where we have supply by getting people to be more flexible off their dates or a little more flexible off their radius or the location, that’d be massive. We also made some optimization to get more people to download our app. And now we are very typically a top 50 application in the United States and now 55% of our bookings are now on a native application. So those are some of things that non-profit [ph] product limitation. The last thing I’ll talk about is reliability. We launched Guest Favorites. Guest Favorites, the reason we launched this is for every person who stays in a hotel, 9 people stay in an Airbnb – sorry, for every person who stays in Airbnb, 9 people stay in a hotel.

What if we could get just one of those people who stays in a hotel to stay in an Airbnb? We would quite literally double the size of our business. So when you ask people book hotels, why they don’t book Airbnbs, there’s two reasons. One, well, it’s habitual. They’ve always booked hotels. And the other is they are comforted by the reliability, the consistency of the hotel experience. And we asked, what if we had a product that was as consistent as a hotel from a quality standpoint, but had all the unique advantage of the Airbnb? It was more affordable, it was more unique with more character, and it was better equipped. And that’s exactly what Guest Favorites are. They’re 2 million of the best listings on Airbnb based on rating, review and reliability data on 500 million trips in Airbnb.