Airbnb, Inc. Q4 FY2020 Earnings Call

Good afternoon and thank you for joining Airbnb’s Earnings Conference Call for the Fourth Quarter of Fiscal 2020. 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 Ian Lee, Airbnb’s Head of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to Airbnb’s fourth quarter of fiscal 2020 earnings call. On the call today, we have Airbnb’s Co-Founder and CEO, Brian Chesky; and our Chief Financial Officer, Dave Stephenson. Earlier today, we issued a shareholder letter with our financial results and commentary for our fourth quarter of fiscal 2020. 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 remaining time on Q&A. Before I turn it over to Brian, I’d like to remind everyone that we’ll be making forward-looking statements on this call that involve a number of risks and uncertainties. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described in the forward-looking statements in our shareholder letter and our perspectives filed with the SEC on December 11, 2020. 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 reconciliation for 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. And with that, I’ll pass the call to Brian.

Thank you very much, Ian, and thank you all for joining today. I am excited to share our results for the first time as a public company. I want to start by acknowledging that we are still in a pandemic and a lot of people are hurting. So, we know how lucky we are to be in the position we’re in. Now, before I go into a result, I want to share a theme that we’ll run through each of our earnings calls. When we started Airbnb, it was about more than just travel. In 2007, my roommate, Joe, and I, played three airbeds one weekend and turned our apartment into an airbed and breakfast. We hosted three guests that weekend, Michael, Kate, and Amol. And in doing so, we became the first host. Our guests arrived as strangers, but they left as our friends. The connections we made that weekend made us realize maybe there’s a bigger idea here. Since then, we’ve grown from two hosts in San Francisco to 4 million hosts all around the world. The idea of Airbnb is only possible because of hosts. Without hosts, you’re an outsider in the place that you visit. Without hosts, you have nowhere to stay, but crowded tourist districts or resorts. A great host does more than share their space; they provide a deeper connection to the places you visit, the people who live there, and they set the stage for you to be able to spend meaningful time with those who travel. So, this is why 14 years later, hosting is still at the center of Airbnb. As the world continues to change, people’s fundamental need for connection and belonging will not. This is what we will remain focused on day-in and day-out, quarter-after-quarter. With that, let me talk about our results. 2020 was a year when nearly everything changed: the way we live, the way we work, and the way we travel. Airbnb changed as well. We started 2020 by preparing for IPO, only to have to put that on hold once the world went into lockdown. But then, in the face of the biggest crisis in the travel industry we have ever seen, our business proved to be resilient, and our model was able to adapt. Through the crisis, we also sharpened our focus. We made many difficult decisions while staying true to our core principles, and we became a stronger company as a result. We succeeded in going public, after all. Now, despite a difficult year, we are encouraged by our resilient business performance. At the depths of the pandemic, we had forecasted that revenue in 2020 could be less than half of 2019 levels. Yes, we delivered $3.4 billion in full-year revenue in 2020, down only 30% compared to the year earlier. In Q4, our revenue of $859 million was down only 22% year-over-year, despite the second wave of COVID cases and widespread lockdowns. In addition to this top-line resilience, we also demonstrated focus and discipline to protect our profitability. Our adjusted EBITDA in 2020 was slightly better than 2019, despite revenue being down $1.4 billion. Our adjusted EBITDA in Q4 2020 was nearly $250 million better than Q4 2019. This was despite revenue in Q4 2020 being $250 million lower than a year earlier. So, we were able to achieve these results because of the adaptability of our business model, and because of our focus and financial discipline. We believe these two factors set us up well for the coming travel rebound. Travel is coming back; nearly a year after the lockdowns began, we believe people are yearning for what has been taken away from them: travel and human connection. When travel returns, it will be about connection. People will want to spend meaningful time with their families and friends, and because of this, as restrictions lift and borders begin to open, we expect there will be a significant travel rebound. So in 2021, our single priority is to prepare for the coming travel rebound. To do this, what we’re going to do is perfect the entire end-to-end experience of our core service. First, we’re going to educate the world about what makes Airbnb different: hosting. Through our marketing and communications, we will educate guests that being hosted is a better way to travel. In addition, we will inspire more people to become hosts. Next, we will recruit more hosts and set them up for success. Once you’ve educated people about hosting, we’ll simplify the onboarding process, so it’s easier for hosts to get started. We are improving our tools and support to help them succeed. Third, to make it easier for guests to find the perfect stay, we are simplifying every part of the guest experience as well as improving our search functionality to support more flexible travel patterns. Finally, whenever our hosts or guests need us, we need to deliver world-class service. So, we are actively fixing product issues that drive community contacts, scaling our operations to meet the demand, and continually enhancing our service. So that is our plan for 2021: educate the world about hosting, recruit more hosts and set them up for success, simplify the guest experience, and deliver world-class service. I want to end by highlighting two things that we launched this week that I’m really proud of. On Monday, we launched our first large-scale marketing campaign in five years, made possible by hosts. Even though the Airbnb brand is mainstream, the idea of hosting is not yet. Our goal with this campaign is to make a long-term investment in educating the world about our hosts. This campaign will help our guests to understand the benefits of being hosted and how this is unique to Airbnb. It will create more awareness around the idea of becoming a host, making it more mainstream and aspirational. By using real photos of real guests on real Airbnb trips, this campaign shows what the real experience of being hosted is like. I think it speaks directly to the need for connection that people all over the world are feeling after nearly a year of isolation. So that is made possible by hosts. Secondly, on Tuesday, we launched a new feature that we call flexible dates. Currently, more people are working from home and that demands more flexibility about when and where they travel. Because of this, we’re seeing a shift in how people search on Airbnb. In 2021 to date, almost 40% of people searching on Airbnb have been flexible in terms of their date or their location of their stay. This is a huge change in the search paradigm of travel. Flexible dates allow guests to search for homes in a new way. Instead of having to select the exact dates for a trip, guests can now do broader searches. Now, you can search for a weekend getaway, a weeklong vacation, or even a month-long stay sometimes in the next few months. This allows our guests to browse more options while being flexible on the exact dates of their trip, and we think this will be a very popular feature coming this travel season. So, that’s our plan for this year: to prepare for the coming travel rebound. We’re excited about the year ahead, and with that, I look forward to answering your questions today.

And your first question comes from Brian Nowak with Morgan Stanley.

Thanks for taking my questions. I have two. The first one, Brian, I think you brought on quite a few new users to the platform throughout 2020. I'm curious, are you seeing anything different from a retention perspective or any differences in user behavior of those people as the 2021 booking season has started? And the second one, I think in the letter, you talk about 1Q 2021 bookings being above 1Q 2020. Are there any more details on sort of which regions are driving that or is it pretty broad-based with people looking forward to travel in the back half around the globe? Thanks.

Yes. Thank you for asking the questions and I’ll start, and Dave, you can feel free to elaborate. I’ll just – I’ll start with the second question. We are seeing a lot of resiliency in certain geographies, especially in North America and Europe. What we’ve generally found is that domestic travel globally is pretty strong, and that the primary challenge is cross-border travel in addition, of course, to business travel, but we’re not as affected by business travel reductions. So, countries with really strong domestic travel are seeing more resilience than countries that are not as – that are not as affected by the cross-border travel. So, that’s the first thing that we’re seeing, and I’m very encouraged by it. Now, as far as retention of users that we got last year, we are seeing continued strong retention. There are no major changes. I think the retention of our user base has historically been strong and it was very strong last year. I’ll just highlight a couple of things. One of the reasons I think our retention is strong is that people are finding many new use cases to use Airbnb in addition to all the old ways that they used it. So, even though borders were closed and international travel was reduced, many people found longer-term stays in Airbnb because they were working from home. They were flexible. Many people wanted to get in cars and travel nearby, staying in a local community. And so we’re able to see that demand as well. So, there are a number of areas that I think provide a lot of resiliency for our model. I think it’s inherently adaptable, and as our model adapts, that means retention increases because there are more uses for our guests.

Great. Thanks, Brian.

And your next question comes from Heath Terry with Goldman Sachs.

Great, thanks. Brian, as we do look out to the recovery later this year and beyond, I’d be interested in what you’re seeing so far in terms of a more flexible workforce using Airbnb for both sides of their travel, meaning they use Airbnb to monetize their home in one location to fund a longer-term stay somewhere else and how you see the size of that opportunity as more mobility becomes possible for a workforce that’s got the taste for it.

Yes, that’s a really good question. I want to really underscore this point: the way – let me say this, travel will come back, but we believe it’s going to look different than before. We don’t think we’re ever going back to the world of travel in 2019; it’s going to change and it’s going to be different. And probably, the biggest difference we’ve seen is flexibility. A world of Zoom is a world where more people can work from home, and more people have the flexibility of working from home. We’re seeing more people say they can work from anywhere on Airbnb. So, we’ve seen a number of new use cases. People are living more nomadically. Some people are taking longer-term stays, one or two months at a time in our Airbnb. People are taking extended three to four-day weekends, so like many weekends in a row, because they don’t have to be in the physical office. Many people are snowboarding; they’re essentially living in somewhere cold and they want to go somewhere warm. They have the flexibility to do that. The other thing you’ve mentioned is new people hosting. One of the things we found is that many people like to start hosting at the beginning of a life change. Maybe somebody has kids and the kids move out of the house, or they got some extra bedrooms. Maybe they were recently unemployed, recently lost their job, or they’re now living more remotely and their home is more available. So, one of the things that we’re really excited about is as we see more flexibility and more week or month-long stays, there are more empty homes people are leaving behind. Our largest source of hosts in 2019 were prior guests; 23% of our hosts in 2019 were guests first. As we think, there are big opportunities for us to continue to convert our guests to become hosts, and this new world of flexibility means more empty homes that can be shared.

Thank you very much, Brian.

And your next question comes from Lloyd Walmsley with Deutsche Bank.

Well, thanks for taking the question. Two, if I can. First, Brian, you guys talked about made possible by hosts. Can you just talk a little bit more broadly about the supply acquisition strategy and what you’re doing kind of near-term to build up supply in markets close to cities, as well as longer-term to continue to sustain your growth? And is there an opportunity to get more productivity out of existing suppliers or will most of the long-term growth come from new supply? And then the second question as you guys prepare for the rebound and travel, how are you approaching performance marketing differently in terms of maybe scale and expected ROIs in 2021 versus, say, 2019 and 2020 that the shareholder letter talks about materially increasing marketing efficiency? So, if you could explain that a little bit more, that would be great. Thanks.

Yes, these are two really good questions. Thank you for them. I’ll start with supply, then I’ll go to performance marketing. On supply, let’s just start framing this. We have about four million hosts on Airbnb. Ninety percent of our hosts are individual hosts. These are everyday people, typically school teachers, healthcare workers, and students. Fifty-five percent of them are women, and the vast majority of them come directly to Airbnb. Most of our hosts, we don’t have to acquire per se; they come organically, often because they’ve heard of Airbnb and their friends have recommended it to them, who are also hosts. As I mentioned before, 23% of our hosts in 2019 were prior guests. The second point I’d make is our model is pretty adaptable. We have hosts in 100,000 communities. One of the things we’re seeing is a change of travel patterns right now in the pandemic. People aren’t just looking to go to the same 20 or 30 cities; they now want to get in cars and travel to local communities nearby. That means that travel is being redistributed to thousands of communities. This helps us smooth out any supply-demand gaps we might have, but we do have a number of levers to add supply. Let me start by saying yes, our existing hosts rent their homes only occasionally, so we see huge opportunities for productivity. The average host on Airbnb makes under $10,000 a year, and they do that by renting out just occasionally. So, we think there’s a huge opportunity to increase productivity of the hosts that we already have. That being said, we also think now is the time that people are interested in hosting more than ever before. I mean, we started Airbnb in a recession, and during the recession of 2008, people were losing their jobs, losing their homes, and many people turned to Airbnb for income. We think now hosting is as appealing as ever before, given the economic circumstances happening in this country and around the world. So, we’re doing a few things: made possible by hosts is a global campaign; it’s our first global campaign in five years, and we think if this campaign is successful, this can absolutely mainstream hosting and bring a lot of people to our platform. In addition, we’re doing a companion campaign called made possible by hosting. That’s going to talk about all the benefits of hosting, and we’re going to really target people that are going through a life transition. As I said, people that just renovated their home, bought a new house, lost their job. Maybe, they’re retired, or their kids moved out of the house. So, we think this is a really great way to target and recruit more hosts. Once they come to Airbnb, we want to make it easier to increase the conversion rate of people coming to Airbnb and then listing an active listing on Airbnb. Conversion rates are the name of the game; one of the things we’ve learned about conversion rate is easier to get someone onboarded. The more support you offer to somebody, the more likely they’re going to get through the conversion funnel. So, we’re reducing the steps; we’re going to allow you to become a host in less than ten minutes. If you need help, you can call customer service, or we’re going to match you with existing hosts to support you along this journey. If we do these things, I think we’ll be able to add a significant number of more hosts because the average person around the world that they knew that they could make some extra money by meeting interesting people. A lot more people would do it. Now, the next question is about performance marketing. Let me just take a step back and talk a little bit more about our marketing strategy because I think this is very important to the corporate story. In 2019, we had elevated spending on performance marketing, and then 2020 occurred; our business dropped by 80% in eight weeks, and we pulled back all marketing, including performance marketing. But something remarkable happened; even before we started resuming our marketing spend, our traffic levels returned to 95% of the traffic levels of 2019 without any marketing spend. This revealed that our brand is inherently strong. It’s a noun and verb in pop culture. So, we don’t intend to ever spend the amount of money as a percentage of revenue on marketing in the future as we did in 2019. In Q4, more than 90% of our traffic was direct or unpaid, and we think that will continue in the future. Our marketing plan; therefore, our strategy is following a full-funnel marketing approach. The top of the funnel is actually PR. We got more than half a million articles in last year, in 2020, and we had as much share of voice as most major travel companies combined, and that’s how we really built the brand of Airbnb more than anything, probably with PR. The second is brand marketing; we think of brand marketing as education and investment, and so made possible by hosting is an investment in hosting. Then performance marketing; we don’t treat performance marketing like other travel companies. We think of it as a laser. It’s not a way to arbitrage users; it’s a way to laser in on where we want to acquire guests or hosts in key markets, where we have a supply-demand mismatch, but make no mistake, our efficiencies we’re going to hold to a lot higher level than 2019 or years prior. I don’t know if Dave, you want to share anything else about that?

Yes, I think you’ve covered that really well. I’ll just round it out by saying that we’ll continue to use performance marketing where it makes economic sense to do so. It’s absolutely important and we’ll absolutely continue to do it. We’re just going to have a higher rate of return expectation on the performance marketing spend, and we won’t return to the levels that we saw in 2019. Our sales and marketing expenses as a percentage of revenue in 2021 will be below that of 2019. The absolute dollars in 2021 will be below that of 2019. And I’ll round this out by saying that because of the marketing campaign that made possible by hosts, which is launching now and in advance of the summer travel season, you’re going to see sales and marketing as a percentage of revenue higher in the first half of this year than you will in the second half.

All right. Very helpful. Thank you.

And your next question comes from Justin Post with Bank of America.

Great, thank you. A couple of questions; obviously, a lot of cost discipline this year to get too close to breakeven by Q4, which is pretty remarkable. How are you thinking about balancing that? And do you have any margin targets in mind as we think about modeling 2021? And then secondly, very interesting and I’m sure you have a lot of incentives to get more hosts. Do you think there’s a lot of latent host offerings that will come online once people get through the health issues? I guess another way of asking, do you think a lot of hosts have pulled their listings and will be back as soon as they feel more comfortable? Thank you.

Thank you very much, Justin. Why don’t I start and then I’ll let Dave elaborate? Let me just start at a high level about cost discipline. We would have, of course, like everyone else, never asked for last year’s crisis, but I do think that crisis made us a much better company, because the first thing that happened is we got more disciplined. When our business was precipitously falling, we knew we couldn’t focus on everything. So, we focused on what was most special about Airbnb; that was our individual hosts. We scaled back numerous investments, but something else, Justin, we found was as we focused, what it really meant was we were taking our very best people and putting them on the most important problem. As we did that, we not only saved money, but actually drove more growth. I think that in addition to the inherent adaptability of our model does explain why we’re able to see a fairly strong recovery in the back half of last year. I’ll let Dave talk a little bit more about margin targets, but I’ll just also get to the host and I’ll hand over to Dave. On latent host offerings and/or this question of did hosts pull back and do they intend to host again? What we know is this: in any given day, we have a certain number of hosts active and live on the platform. We know that when hosts deactivate, it’s often not permanent; it’s because they’re taking a break from hosting, and we know many hosts are intending to host once again. One of the things we’re doing is I did a Q&A town hall with thousands of hosts, and I basically said to them together, we have to be ready and we want to be prepared for this travel season. Our goal is to collectively with our hosts to be ready before the rebound happens. We’d rather be early than late. So, we do expect a lot of hosts to be ready. One of the dynamics we found is one of the nice things about our business is that as a host gets more booked up, they either either expand by adding a listing or more likely, they’ll tell their friends, who also become hosts. So, with occupancy rising, it does have a nice benefit, where word gets out that people are making money. If we can fulfill that with a couple of minutes out with our brand campaign, I think it could yield quite a few gains. Dave, do you want to cover either of these?

Yes. I’ll just round it out by saying that the overall number of active listings to experiences was relatively stable in Q4 relative to Q3 at about 5.6 million. So we actually haven’t seen a substantial amount of deactivations; it’s been very stable. For all the reasons that Brian said earlier, we’re optimistic that we’ll continue to be adding new hosts in the future just given all of the tailwinds and the kind of macroeconomic factors that we have going around the world. As far as margin targets, one of the things we’re really proud of is the progress we’ve made on our profitability efficiency over 2020, right. We’ve made substantial reductions in our fixed costs. We will not be having to add back fixed costs to support a business that will again approach 2019 levels and beyond. Our fixed cost discipline is great and we’ll continue. We saw really great improvement in our variable cost efficiency across the P&L. When you actually remove in Q4 the one-time impacts of stock-based compensation relative to the IPO, our costs are down in every category across our P&L. It’s that discipline at very low expenses in areas like cost of payments, community support expenses, infrastructure expenses, all the way down that we’re proud of. What we would like to expect to achieve over time is 30% EBITDA margins or greater, and this has just accelerated our path towards those long-term margin targets. I’d love to give you specific targets for 2021, but it’s just too hard to know what our revenue is going to be. So, therefore, kind of a flow through to profitability. We’re seeing that our revenue rates in Q1 will be better than the revenue growth rates in Q4, but we just don’t have a lot of visibility in the back half of the year to give you a lot of guidance on profitability right now.

Great. Thank you.

And your next question comes from Jed Kelly with Oppenheimer.

Great, thanks for taking my question. Two if I may. Just one, can you provide any color on how your bookings for summer travel are trending relative to this time last year? And then, Brian, what do you think the Olympics could do just to get people’s confidence in traveling, especially around international travel? Thank you.

Thank you for the question. Dave, maybe you can take summer travel, and I’ll take the Olympics.

Sure. Yes. I don’t have a lot of color that I can give you on summer travel bookings. One thing I can say is that people are booking in shorter windows. The greatest growth we’re seeing in the business right now comes from booking windows in less than 30 days, and typically pre-COVID, we’d be seeing much more of the bookings now ahead for the summer travel season, and that is delayed relative to historic patterns. We’re seeing some bright spots in the UK that are driving some summer travel bookings here in Q1, but I really don’t have much color that I can give you on summer expectations. We just know that we want to be ready for the travel rebound when it occurs, we just don’t know exactly when it will occur.

And then, on the question of the Olympics, we are a sponsor of the Olympics, and if the Olympics has fans, I think it would be a great boon to travel. But I don’t think it’s clear this year in Tokyo that we’ll have fans. So, we’ll have to see how that goes. I can just comment more broadly about what we’re seeing with travel demand. We did a survey recently of American travelers, and we found a couple of things. The first thing we found is that people miss traveling. That’s not surprising, but we also found that people missed traveling more than any other out-of-home activity. People missed traveling more in America than going to a restaurant, going to sports, live music, or other activities. But they don’t miss all kinds of traveling. Generally, people don’t miss traveling for business as much, and they generally don’t miss mass tourism. They’re not missing standing in a line with selfie sticks in front of a landmark, for example, or going to a crowded lobby. The kind of travel that people miss is spending meaningful time with the people they care about: their friends and families. So, we found that the majority of people we surveyed said they do plan to travel this year. They will do it as soon as they feel safe to do so. Obviously, that’s going to be pegged a little bit to the health crisis, but we see a lot of enthusiasm. The kind of travel that we offer allows people to connect with their friends and families because our home is a great way to gather and spend meaningful quality time, and that is very much what we’re focused on. We think this is a huge window of opportunity; this travel rebound is, I think it’s going to be disproportionately focused on less cross-border travel. It’s also not going to be business travel. People want to get in cars; they’re going to travel to smaller communities, and they’re also going to be staying in homes. So, we are prepared, or we’re going to be prepared for that.

Thank you.

And your next question comes from Brent Thill with Jefferies.

Thanks, Brian. Just if you could comment on the experiences business and what you’re seeing there and how important that is to the overall strategy right now. And also, as we come back through this recovery, can you just talk to the other element of the stay, which could be the hotel, and I know you’ve invested there. How important will that be as we go back to the upswing of this travel cycle?

Yes. Thanks for the question, Brent. So, yes, I’ll talk about experiences and hotels. With experiences, this is a very important product for us. Experiences are one of the purest manifestations of hosting and connection that we have. In a sense, that is the entire product. You have an experience with a host when you connect with other guests. This is really important to us. We found that guests on Airbnb actually like experiences statistically more than homes. For example, more guests leave a five-star review after their experience than they do after a home, as a percentage of reservations. So, we thought last year was going to be a breakout year for experiences, but the opposite happened: we had to put the product on hold with social distancing. We quickly pivoted the product to create online experiences because people couldn’t gather in person. We created one-hour activities that you could do from your computer. These were different from Instagram videos or YouTube videos; these are actually interactive, so you can actually connect with a host and meet other guests. People are using these, because they’re feeling more isolated and they want to meet other people. I think as the world opens back up, we’re very bullish on experiences over the coming years, because when people travel, they’re going to want to do something interesting. I don’t think they’re all going to desire to go back to getting on double-decker buses and waiting in line in crowded lobbies or landmarks; they’re going to want to do really interesting activities, and I think that’s what our hosts have to offer. For people in their own city, I think you can only sit at home and watch so many shows on Netflix. People will want to get out of their homes, and if they want an alternative to a restaurant, I think experiences are a great thing to do in their own city. In short, we’re very focused on it. We had to take a bit of a pause last year, but they’re coming back, and we’re going to be focused on it, because it’s just another way of hosting, and this is one of many ways that we’re going to continue to allow hosts to share the world with others. Now, with regards to hotels, this is a little bit of a different story. We made an acquisition of HotelTonight; I’m very proud of the acquisition. I’m very glad we made it. It’s a great team, a great app. It’s one of the most loved hotel booking apps in the world, and we were investing quite heavily in this product. Now, when the crisis happened, we had to scale back certain investments, and one of the investments we scaled back was our investment in hotels, but we didn’t scale back entirely. We still are investing in hotels, just not as much as before. The way we think of hotels is similar to property managers on Airbnb. Airbnb is a community of 4 million hosts; 90% are individuals, and they are whom we prioritize, that’s where our guests speak. Our guests want something that’s one of a kind, and this is typically offered by our individual hosts. But that being said, we never want Airbnb guests to come to Airbnb and not be able to find something they’re looking for. We think that hotels, in addition to property managers, are really important for our strategy in filling our network. Again, we don’t want anyone to come to Airbnb and leave because they couldn’t find a place to stay. So, hotels are important. Most hotels around the world are below 50% occupancy, so we know they’re in need of demand and Airbnb certainly can provide that demand for them. That’s what we’re doing with experiences and hotels; both are part of our strategy for the future.

Thank you.

And your next question comes from Colin Sebastian with Baird.

Great, thanks, and good afternoon. A couple of questions from me, really follow-ups. But given some of the expense rationalization last year, how confident are you at this point that you have the team and the infrastructure in place to handle a more rapid rebound in travel if that does transpire over the course of the year? And then I know this may be a little bit difficult to answer at this point. You addressed it a little bit earlier, but some of the newer use cases, such as long-term stays and shorter trips, do you have a view into whether those can be sustainable or incremental over what were normal use cases pre-pandemic? Thank you.

Yes. Really good question. Let me start with being able to handle the rebound in the wake of reductions, and then I’ll go to new use cases, and Dave will fill in as needed. Regarding the reductions, a lot of the reductions have just made us significantly more efficient, and able to handle the rebound. One of the big changes we made was to get much more focused. This means we scaled back a lot of new investment areas and put our very best people on only a few problems, especially our core of hosting. The other thing we did is because of that, we shifted from a divisional business unit structure to a functional organization. This reduced lots of people working in cases with the function; instead of having multiple marketing departments, multiple product departments, and multiple operations groups, we now have one technology group, one marketing group, one operations group, and this made us not only more efficient but also able to turn on a dime much more quickly. We are preparing for this next rebound. I think that we are much more efficient; those reductions will be able to sustain. The one group that’s going to scale a little more linearly is customer service. We are scaling that ahead of demand, but make no mistake, even that is going to be significantly more efficient. We hired a woman who’s running our operations name Tara Bunch, she ran all customer service at Apple for many years, and she has built a great team, including new leaders for trust and community support. We are focused on improving efficiency by reducing contact rates. We are very, very focused on reducing the need for people to call us or message us because they have a problem. If they do have to call us or message us, we are going to focus on making our agents significantly more efficient. So, that’s a really big focus area on the reductions. Regarding the new use cases, the short answer is yes, we do believe these new use cases are sustainable. Though we can’t predict the future, we do know a few things to be true. Many of the reasons why people are using Airbnb for new use cases are because technology has digitized so much of the world that we can now do things remotely that we couldn’t do before. What this means is, because more people can work from home on a laptop, they can work out of any home. We think that in the future, fewer people are going to be tethered to a permanent destination, and even people who are going to take more three-day weekends might be more likely to go away for the summer. We think that in addition to the kind of short-term stay, these medium-length stays of a couple of weeks or even a couple of months are going to be a really big part of the story. The headline is this: people aren’t just traveling on Airbnb; they’re now living on Airbnb, and I think that’s here to stay.

Yes. I’ll round it off by saying that I’m very happy with the underlying progress we’ve made in our operations support area in terms of improving efficiency there. We are making some investments in it in 2021 that are going to mask some of the underlying progress that we get to see internally. And the other thing that’s happening, as Brian said, we’re making sure that we’re ready for the rebound when it occurs, which means that we are going to be investing slightly more earlier in the year to ensure that we have all the support ready for a return to travel and being optimistic that it will return soon. With relatively more revenue in the first half than the second half, our operations support expenses as a percentage of revenue will be a little bit higher in the first half than in the second half.

Great, thank you.

And your next question comes from Michael Graham with Canaccord Genuity. Your line is open; please go ahead.

Oh, sorry. I was on mute. Pardon me. Two quick questions; one, on pricing: you mentioned that your average daily rate was up in the shareholder letter because of mix shift towards North America partially, but as demand is really robust in some of these areas, can you just talk about how hosts are reacting in terms of setting price and are you seeing them get more opportunistic? And then the other one I wanted to ask was, you talked a little bit about the steps you’re taking to simplify host onboarding. Can you just talk about the steps you’re also taking to simplify that guest experience?

Thank you, Michael. I’ll start with simplifying the guest experience, and Dave, I can hand it over to you for pricing. So, yes. As we said, to prepare for this travel rebound this summer, we’re doing four things. We’re going to educate the world and Airbnb about what makes us different, that’s hosting. We’re going to simplify – we’re going to recruit more hosts. We’re going to simplify the guest experience. So, we’re going to deliver world-class service. Let’s talk about your question: simplifying the guest experience. One thing we know is that as we make something easier, the conversion rate goes up. Our goal is to make it even easier to be able to book on Airbnb. We’re going to significantly reduce the steps to be able to log in, sign on, get verified, and go through the key steps you need to find a place on Airbnb. We’re looking at the entire end-to-end experience, and we’re doing a redesign of it over the coming months. I think this is going to be great for the next travel season. The other thing we’re doing, and I want to highlight this, because this is something I highlighted in the very beginning is we’re also changing how Airbnb works because the whole paradigm of how people search for travel has now changed. This year, thus far 40% of people coming to Airbnb either no longer know where they’re going or when they’re going; in other words, they’re flexible. This is a major change because every travel company has a search box, because people know where they’re going. So they ask, where are you going? They have a date and say, check in on this date, check out on that date. This whole new world, that’s much more flexible means that when people are more open-minded, we can direct demand to where we have supply. We can elevate not just destination but unique homes that can become the destination. We think this is going to change how people search because it also means that people wouldn’t be more likely to look for something that’s unique and special. This really sets Airbnb up nicely. So that’s what we’re going to do to simplify the guest experience. Dave, I’ll hand it over to you.

In regards to ADR, we did see elevated rates; average daily rate in Q4 was up 13% year-over-year. We’re seeing almost all of that is just from a mix; it’s a mix towards North America, which has higher ADR, entire homes, and less urban areas, which each have higher average daily rates. We’re actually not seeing new hosts increasing the rate of inflation of the same property year-over-year. I’m sure some are doing it, but we’re not seeing it at a material level overall.

Thank you.

And your next question comes from Jason Bazinet with Citi.

Maybe, my numbers are wrong, but when I look back over the last five years, it seems you’ve actually widened the gap between yourself and your competitors in the alternative segment. I just wonder, now that it’s sort of dawned on everyone, as you say that travel is going to change permanently. Have you seen or do you anticipate sort of heightened competitive intensity relative to what the historical financials would suggest? Thanks.

Thank you very much for the question, Jason. I’ll just yes, I’ll start by saying a couple of things. Number one, travel is one of the largest industries in the world and makes up a significant amount of global GDP; I believe one in ten new jobs was created in the travel industry before the pandemic. So, the first thing I want to say is, this is such a large market. It’s multiples larger than the advertising industry, just to give you a point of reference, and so we think there’s room for a lot of companies. Now, with regards to more competition in our space, I mean, we’ve really been seeing this competition for like the last five years actually. I don’t think it’s really that different. What I have found, though, is this: I think that fundamentally, at Airbnb, we’re in a bit of a different space than our competitors because we are primarily focused on individual hosts. They can price 90% of our 4 million hosts, and OTAs are primarily focused on professional hosts. We have professional hosts as well, and we think professional hosts will probably list on any site that provides a great experience and gives them high-quality guests. We’ll do that, of course, but we think individual hosts are less likely to want to list on multiple platforms. We’re the only platform that has a custom-built platform designed specifically for individual hosts. We solved a lot of the hard problems that individual hosts need, like the system of trust. Individual hosts want to know the quality, for example, of their guests. Seventy percent of hosts leave a review of guests after the stay, and that means, for example, a lot of guests actually have reviews. That’s just one of many examples of the kind of custom-built platform we’ve made for individual hosts. I don’t think competition is anything different, but I also think we’re a bit of a category of one in the sense that we are really focused on the individual host as our primary opportunity area.

That’s super-interesting. Thank you.

And your next question comes from Justin Patterson with KeyBanc.

Great. Thank you very much. We’ve spoken a lot on discovery and how travel is changing. I’m curious to hear how you’re thinking of helping individual hosts improve their level of service just to make sure that special trips keep happening on Airbnb. And mine is a quick follow-up; it’s got a great asset with your payments platform. I’d love to hear about how you see that investment evolving and where you see more opportunity to provide value either to hosts or guests? Thank you.

Great questions. So, I’ll start with hosts and then we’re going to payments and I’ll let Dave elaborate on payments. One of the things we’re gaining is, in addition to recruiting more hosts this year, we want to ensure our hosts are set up to succeed. To be able to set up for success, they have to provide great experiences because they’re reviewed after the stay, obviously. We’re working on a number of tools. We’re going to develop a bit more host education to be able to educate hosts. We have a Host Advisory Board with 17 hosts coming from 14 countries advising us on features that we build to help our hosts be successful. We have a number of tools we’re investing in, pricing tools to help them price their listing better, and improving our calendar tools to provide them with more tips to create better experiences. We’re going to update the way we collect information and reviews to give more helpful feedback to hosts. At a more fundamental level, the person managing our host organization is a woman named Catherine Powell. She’s an executive from Disney, who managed the Disney cast members, and they created a Disney University, where they did a lot of education. We want to bring a lot of those learnings to educating our hosts. We don’t think we’re just a distribution platform for our hosts; we’re an enablement platform, and we want to ensure we build all the tools and services, and educational materials that they need to be successful. The last thing I’ll say with our hosts is we’re also going to provide elevated levels of customer service to our hosts, and we think we can do this well even while becoming more efficient on the cost of customer service. That is what we’re doing for hosts. Now, on payments, I’ll start and hand it over to Dave. Just to give a point of reference: in 2019, we processed approximately $70 billion of guest and host transactions, and this was across over 40 tenancies in 220 countries and regions. We think this is a unique capability that we have. The reason we even built a payments platform in the first place is because we started with individual hosts. Individual people couldn’t receive money easily, and we were global and in nearly every country in the world. We had to have a really custom-built payment platform to facilitate transactions between these countries. It’s very strategic to this company, and I think it’s one of the best-kept secrets of Airbnb—our payments capability. Dave, do you want to elaborate on it?

Yes. I mean, we process 100% of the guests' payments on Airbnb, and it’s super-powerful. Individual hosts would not be able to host without us processing those payments for them. Look at competitors that have substantially lower penetration of payments; it is a definite pain point for individuals because it’s not like they can do it on their own. We also get the benefit of that; as we add more payment methods, as Brian said, in 140 countries across the globe, we keep working on ways to localize these payment methods in all different countries. The payment methods and customs in Brazil are different than those of Russia; they’re different than those in France, and different than those in the United States. We really want to localize payment methods. We get a double benefit from that: we often decrease our costs by being more local and the second is we can often increase conversion. So, those are all great benefits.

Great. Thank you.

And your next question comes from Stephen Ju with Credit Suisse.

Okay, thank you. Brian, what do you think is a gap in awareness of Airbnb between your more well-established markets like the U.S. and some of your emerging territories and why do you think the corresponding difference in activity that you see between the developed versus emerging territories that you can look to close? And I guess secondarily, this is probably not the best question to ask while your hosts are still struggling with request demand. But the fees that you are charging seem to be fairly minimal, especially through the individual hosts. So, is there a greater desire to start shifting that takeaway burden away from the consumer perhaps gradually over time, or do you feel like you want to continue on this current path as there’s probably so much more supply out there that you might want to consolidate and have the lock onto Airbnb? Thanks.

Thank you for the question, Steven. I’ll answer the first question, and I’ll let Dave answer the second. With regards to the gap of awareness between mature markets and our new markets, yes, our brand is extremely strong in countries all over the world, particularly in the United States, France, UK, Australia, and Canada, as well as English-speaking countries. In France, I think in particular, it’s a non-English speaking country, but it’s got an extremely strong culture of using Airbnb over many years. There is absolutely a gap between those and new emerging markets, but this is an exciting opportunity because the biggest gap is awareness. What we’ve found is nearly every country in the world, once awareness normalizes, the growth rates and volume of business gets to be approximately similar. So, the major thing we need to do is just increase awareness for Airbnb in our emerging markets. We’re starting this year by investing more in brand marketing. We’re going to be doing digital advertising all over the world, and I expect in the coming years we’re going to be targeting key countries that are emerging opportunities for us. We’ve had a lot of success in Japan over the last few years. We’ve been on a long journey to build that business. We had great success in Mexico, Brazil, and numerous countries all over the world. I do think we are this near by far the most global network in all travel; there are very few corners in the world where Airbnb doesn’t have a strong community, but I think we have a very big opportunity to grow in other countries. I think in particular, once cross-border travel reemerges it, and it will in the coming year, there’s going to be a huge opportunity for us. Dave, I’ll hand you for the second question.

Great. On fees, it’s just important that we charge a really fair price for stays on Airbnb, and we continue to have a great value. We believe that we do have a great value. You can have a whole home for the price of a typical hotel. As we look at our fees, we want to ensure those fees are great value for both guests and for hosts, and we do have a mix of those fees. In some cases, we have a mix of a low host fee and a higher guest fee. For some of our professional hosts, we’ll have a host-only fee, and it’s all on the host side. We’ll see a mix; the mix could change over time. We continue to test and evolve to see what works best for our guests, our hosts, and we’ll continue to evolve and iterate to provide the best value to the overall community. Overall, the philosophy is as we give more back to the community in terms of services and capabilities, we could see opportunities for further increases in the take rate, but we would always want to give more back to the community before we would increase that take rate.

Thank you.

And your next question comes from Mario Lu with Barclays.

Thanks for taking the questions. Regarding the guest profile in 2020, I'd like to know if the recent trends in travel, including domestic, non-urban areas, and whole homes, resulted in a larger mix of new guests in 2020 compared to 2019. Could this potentially lead to additional growth in the coming years? Additionally, you mentioned that occupancy was around 17% before COVID. What do you believe are the main factors that could help increase that rate over time? Thank you.

On the mix of new guests, it has been a great opportunity to introduce Airbnb to new audiences, driving 50 miles down the road. I would say that the rebound of our business has still been skewed moderately back towards existing guests that know all about Airbnb and all the benefits that we have. We think it’s been a great opportunity to expose it. But I wouldn’t say it’s disproportionately been new guests coming into Airbnb now. At the same time, I think we’re just becoming more of a mainstream opportunity for people; it’s no longer the alternative. We really are the default. On occupancy rates, occupancy is, as Brian mentioned earlier, is just an area that can flux over time. We can also drive up the occupancy of existing property. So, we don’t need to increase the number of listings to drive incremental nights, but it’s an opportunity that as we get more nights, we can also bring in people that are more flexible in the times; if they’re traveling for a week, maybe, they only use their home for that week. Occupancy is probably not the best measure of performance on Airbnb because if you’re an individual host, you don’t want to constantly drive up the use of your existing home; you just want to make sure that home is available some part of the time during the year.

Right. That makes sense.

And your next question comes from Kevin Kopelman with Cowen.

Great, thanks so much. So during the pandemic, you’ve seen kind of these suburban properties do really as well. As we’ve started to see some pickup here in booking activity with the COVID cases falling, especially for the summer, can you talk about what you’re seeing in some of the urban areas that have been hardest hit by the pandemic and also maybe the kind of big picture outlook for those urban properties as we emerge?

Yes. Urban is still a really important part of our business. We have over 40% of our nights still in urban areas, and it’s just the non-urban and low-density urban areas that are experiencing greater growth right now. Urban is still a really important part of our business. As travel returns, we’re going to find that a number of hotels actually aren’t going to come back online anytime soon. Brian also talked about the redistribution of travel. People are going to go to some smaller communities that may not have hotels. As this mix changes over time, as urban comes back, that will be another tailwind for us.

Thanks so much.

And that is all the time we have for questions. I will now turn the call back over to the company for closing remarks.

Thank you, everyone, for joining us today for our first earnings call as a public company. Before I end today, I just want to thank all of you, our shareholders; to our early shareholders, thank you for sticking with us, and to all of our new shareholders. Thanks for joining us on this journey; it’s just beginning. We look forward to sharing our progress this year with you. Thank you.

This does conclude today’s conference call. You may now disconnect.