Airbnb, Inc. Q1 FY2021 Earnings Call

Good afternoon and thank you for joining Airbnb's Earnings Conference Call for the First Quarter of 2021. 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.

Good afternoon and welcome to Airbnb's First Quarter of 2021 Earnings Call. Thank you for joining us today. On the call today, we have Airbnb's Co-founder and CEO, Brian Chesky; and our Chief Financial Officer, Dave Stephenson. Earlier today, we issued a shareholder letter with our financial results and commentary for our first quarter of 2021. These items are 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 the 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 under Forward-looking Statements in our shareholder letter and in our Form 10-K filed with the SEC on February 26, 2021. 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 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.

All right. Thank you very much, Ian. And thank you, everyone, for joining us today. I want to start by acknowledging the state of the pandemic. COVID-19 cases continue to surge in parts of the world such as India. And our thoughts go out to our hosts, guests, and employees in India during this difficult time. There is much more work to do to limit the spread of the pandemic, and many people are still hurting. And we know how lucky we are to be in the position we're in today. 2020 was a year that none of us will ever forget. It was also a year when travel fundamentally changed forever. Airbnb changed as well. We sharpened our focus on our core business of hosting. And we got back to our roots, back to what is truly special about Airbnb: the everyday people who host their homes and offer experiences. And we emerged as a stronger and more efficient company. Our business rebounded faster than anyone expected, and it showed that as the world changes, we are able to adapt. Now turning to our Q1 results. Our business dramatically improved with the rollout of vaccines and the easing of some travel restrictions. While conditions aren't yet normal, they are improving. People's desire to travel, combined with our tightly managed expenses, drove a return to our positive top line growth and materially improved adjusted EBITDA. In Q1, our revenue was $887 million. This was an increase of 5% year-over-year, and it exceeded Q1 2019 levels as well. But here is the most important fact: Our business improved without the recovery of two of our strongest historical segments: urban travel and cross-border travel. We expect the return of urban and cross-border travel to be significant tailwinds over the coming quarters. Now as our top line recovers, we are maintaining our focus and our financial discipline to improve our profitability. Our adjusted EBITDA loss was $59 million. This was approximately $190 million better than the same period in 2019, and it was $275 million better than a year ago on essentially the same revenue. Now these results show that we are improving our variable costs, we're being disciplined with our marketing and our fixed costs. Our strong performance also indicates the beginning of the travel rebound. Just a few hours ago, the Director of the Centers for Disease Control said, 'If you are fully vaccinated, you can start doing the things that you had stopped doing because of the pandemic.' What we think this means is that more people will be comfortable traveling. And it further strengthens our view that we are going to see a significant travel rebound. In fact, we expect this rebound to be unlike anything that we have ever seen before, and we expect travel to be very different than before. People are discovering that they don't have to be tethered to one location to live and work. And what this means is that people are more flexible about where and when they travel. People can now travel any time. People are also traveling everywhere. They're not just going to the same 20 or 30 cities. They're visiting smaller cities, towns, and rural communities. And when people do travel, they're staying longer. 24% of our nights booked in Q1 were for stays of 28 nights or longer. People are not just traveling in Airbnb, they're now living on Airbnb. And these trends are not going away. The world is never going back to the way it was, and that means that travel is never going back to the way it was either. So let me tell you about what we're doing to prepare for what's ahead. Our single priority in 2021 is to prepare for the coming travel rebound. To do this, we're enhancing the end-to-end experience of our core service. This includes educating the world about hosting, recruiting more hosts, simplifying the guest experience, and delivering world-class service. Now I'm going to briefly share how we're executing against each of these areas. First, we are educating the world about what makes Airbnb different: hosting. In late February, we launched our first large-scale marketing campaign in five years, 'Made Possible by Hosts.' We're educating guests about the benefits of being hosted, and we're inspiring more people to become hosts. Now while it's still early, the campaign is being well-received. In markets where we're running the campaign, overall traffic is up, first-time bookers are up, traffic from prospective hosts is up, and our brand favorability is up. Second, we are recruiting more hosts, and we are setting them up for success. To build on the momentum of our marketing campaign, we launched an accompanying digital campaign that's focused on recruiting new hosts. And we've completely redesigned the end-to-end experience of being a host on Airbnb. We're making it easier for anyone to start hosting. Third, we are simplifying every part in the guest experience. In February, we launched a Flexible Dates feature. It allows guests to browse options while being flexible on the exact dates of their trip. Now since the feature launched, there have been more than 90 million Flexible Dates searches on Airbnb, 90 million searches since just February with Flexible Dates, this new feature we created. And guests who used this feature have converted at a higher rate than guests who do not. Now this is just one of many improvements that we are making to the guest experience. And finally, whenever our guests or hosts need us, we must deliver world-class service. So to prepare for the travel rebound, we're improving our community support products, enhancing our safety protocols, and we're scaling our operation by ramping our third-party support. Now I want to wrap by highlighting a major announcement that we have coming up in less than two weeks. On May 24, we will announce the most comprehensive update to the Airbnb service in 12 years. As part of this special announcement, we're going to share insights on how travel is fundamentally changing, along with updates we've made to prepare for what's ahead. We're going to unveil a simpler and more inspiring guest experience. And we are going to show you upgrades that make it even easier to be a host on Airbnb. So watch the announcement on airbnb.com on Monday, May 24. So to summarize, we're pleased with the strong Q1 results. We are encouraged by the trends that we're seeing driving these results, and we are executing against our 2021 plan to prepare for the travel rebound. And we think this travel rebound will be unlike anything we've seen before. We think this is the travel rebound of the century. So travel is coming back, and Airbnb is ready. And with that, Dave and I look forward to answering your questions.

Your first question comes from Justin Post with Bank of America.

I want to focus on behavior change that could benefit the company, first hosts and also guests. In the letter, it mentioned that post listings were stable compared to Q4, but it seems you are really encouraged by what you’re observing. Can you elaborate on what is encouraging regarding hosts and whether you anticipate many new listings will enter the market over the next year? Additionally, how do you think this pandemic will increase the willingness to use alternative accommodations on the guest side? Are you noticing some positive signs there?

Thank you very much, Justin. So why don't I start? And Dave, feel free to add in after I go. So let's start with hosts, and then we'll go to guests. So Justin, let's just start with we have 4 million hosts on Airbnb. And I think if you asked people a year ago, would we have had such a stable host community? They probably wouldn't have expected that. But what we have today are hosts that offer 5.6 million listings. And these 5.6 million listings are about 1 million more than we had this time in 2019, and what we've actually seen is a large growth in non-urban listings. So we actually have a 30% growth in non-urban and vacation rental listings as well. Now it's important to note that 90% of our hosts, our everyday people, they're individuals. And the reason why is as we've made hosting on Airbnb easier, more and more hosts are coming to Airbnb as well. Now specific to what we're doing, we launched our first global campaign in five years, 'Made Possible by Hosts.' As I said, we also have an accompanying host campaign. Both of these campaigns, we are seeing significantly larger traffic of prospective hosts to the platform. The next thing we're doing is we're making it even easier to become a host by reducing the number of steps to become a host. And as we reduce the number of steps, conversion rate for hosts gets even easier. We now are allowing hosts to be paired with other super hosts to help them get started, and we have webinars as well. And then finally, we have new tools and services that's going to make it even easier for hosts to list and be successful. I'll just end this by saying on May 24 we will unveil a number of new tools and services that I think are going to make it much easier for hosts to get started. And I want to point out that new hosts that join Airbnb, 50% of them get a booking within four days of activation. And I think hosting is something at the perfect time for many people in the world. Because Airbnb, we started actually after the Great Recession in 2008. And at that time, there were many hosts, many people that were looking at Airbnb as a financial lifeline. I think if you think about the number of hosts on Airbnb, the top occupations of our hosts are healthcare workers, educators, and people in food and hospitality. These are industries that have been hit really, really hard. So our job is to tell the story of hosting, the fact that on Airbnb you can make $8,000 on average if you have one listing, which is 5x what an average American got in the stimulus check. So these are some of the things we're getting going, and we are just getting started ramping. And I expect us to get millions of more hosts in the coming years on Airbnb. Now as far as trends for guests, Justin, I'll also cover this as well. As I said before, I think two things are true. Number one, this travel rebound that is starting is unlike anything we've ever seen before. And I think the Q1 results kind of demonstrate this. But the other thing that we're seeing is that travel is going to be very different than before. Probably the biggest changes are the following: number one, I don't think business travel is ever coming back the way it was before the pandemic. It's at least not going to look like it did. I do think a new kind of business travel may emerge. Many employees are working remotely. They're going to need to go back to headquarters occasionally. You're going to see longer stays going in cities. And so we're seeing elevated bookings in urban markets for stays of longer than 28 days. But the bigger trend is going to be flexibility. I think that all of us working around the world, most of us, if we're privileged enough to say this, are more flexible than we were before the pandemic. Because of the world of Zoom, it means a world where we can work anywhere, it's a world where many people are also choosing to live anywhere. And this has created three travel trends. Number one, people can travel anytime. This is why we have a Flexible Dates feature where instead of saying, 'I want to travel from July 5 to July 10,' you can say, 'I want to go somewhere for a weekend, a week, or a month anytime this summer.' We've had over 90 million people use this feature. And as more people use this feature, the conversion rate goes up. The second thing we're seeing is length of stay is increasing. In 2019 at this period of time, 14% of our nights were longer than 28 days. Now 24% of our nights are longer than 28 days. What that basically means is 1/4 of our business isn't travel; it's living. After 28 days, you're probably not traveling. And I think what this is a trend of is that traveling and living are going to begin to blur together. So this is the second trend we're seeing. And the third is people are now traveling everywhere. If you look at the concentration of our revenue, it is much more distributed than it was a couple of years ago. And this is because people aren't just going to the same 20 or 30 cities; they are getting in cars and they're traveling to small towns and rural communities, many of which don't even have a hotel. So again, the big trend is flexibility. People are traveling anytime, anywhere, and they're staying longer. We think all these trends are here to stay. And I'll just end by giving one more thought. I think there is a mass shift from mass travel to meaningful travel because people missed traveling. In fact, in my surveys, people say the thing they miss the most that was taken away from the pandemic, at least from outdoor activities, was travel. But they don't miss business travel. They don't miss standing in line in front of a museum or a landmark getting a selfie with a selfie stick. What they really miss is spending time with the people they care about. And we call this meaningful travel. We have friends and families. We think Airbnb is really a great way to do that. So those are the trends that we're seeing. The two trends I do think are going to inverse are we are going to see a recovery of urban travel and the recovery of cross-border. This has been our bread and butter before the pandemic, and I think those are significant tailwinds for us.

And your next question comes from Mario Lu with Barclays.

The first one's on listings count. So you said you have similar levels to last quarter around 5.6 million. But with this hosting campaign that you guys are running, is there like a timeline that we should expect to drive that number up? Or you mentioned in the past that 1/4 of guests eventually become hosts. When should we expect that number to increase?

Yes. Dave, why don't I give you this question? And it's a great question, Mario. And I'll also say that in Q1, 28% of our hosts were now prior guests as well. So that number is increasing. But Dave, I'll hand it over to you.

Yes, to clarify the statistic, about 25% of our guests, or roughly 24%, were previously guests who have now become new hosts. It's early, but we're seeing a strong and stable listing count of 5.6 million. One impressive aspect during this period is that our host churn in the first quarter of 2021 is actually lower than it was in the same period in 2019. In fact, our churn in 2020 was even lower than in 2019. This demonstrates the resiliency and stability of our supply. We are optimistic that as we continue to rebound and educate more people about the benefits of hosting, along with the favorable conditions that Brian just mentioned, we will see continued strong growth in our host numbers moving forward.

Great, and then just one follow-up on domestic versus international. So I'm not sure if you can see this in your data yet, but just curious to hear if you're seeing some substitution in terms of domestic bookings versus international as the vaccine rates increase? And do you think the domestic rates will remain above 2019 levels even after borders open up?

Yes. Dave, do you want to take this one as well?

Yes, I'm not entirely certain how things will ultimately balance out between domestic and international travel. Currently, 80% of our nights booked in the first quarter were for domestic stays, which shows that domestic travel has remained steady, with overall strength observed globally. Traditionally, our focus has been on urban areas and cross-border travel. Before the pandemic, cross-border stays represented about 50% of our total nights. With that type of travel being limited now, we anticipate some travelers will choose to stay domestically instead of taking international trips. That said, urban cross-border travel has always been one of our strong points. We believe that many trips will eventually return and contribute to the overall growth when travel resumes more normally. There is still some reluctance to travel at the moment, particularly among those who aren't vaccinated or due to some restrictions at border crossings. However, we do expect that many trips will come back and add to our current figures.

And your next question comes from Colin Sebastian with Baird.

I have a couple of questions on investments and spending. I guess first off, what gives you the confidence that you can moderate sales and marketing spend in the second half without impacting bookings or listing levels? Is that still the plan? And then in terms of product development, obviously, Brian, you'll be making some announcements soon. But how are you thinking about the pace of R&D or product development spend, now that business appears to be returning to normal, or whatever normal means now? Is it perhaps time to look at reaccelerating hiring? Or what are your thoughts on that?

Thank you, Colin. Let me address this at a high level, starting with our marketing strategy before answering your specific question about second-half marketing. We approach sales and marketing differently from our competitors, employing a fully integrated approach that encompasses PR, brand marketing, and performance marketing. Over the past decade, PR and word of mouth have significantly contributed to building our brand, making Airbnb a common term across the globe. Currently, 90% of our traffic comes from unpaid or direct channels, even as recently as the first quarter. This past quarter, despite increased marketing efforts, we maintained traffic levels similar to 2019, while spending 50% less on marketing. We believe that a unique product means marketing should focus on educating customers rather than simply acquiring them. Recently, we launched our first global brand marketing campaign in five years, titled 'Made Possible by Hosts,' which showcases authentic photos from guests on their trips, emphasizing the unique element of our platform—our hosts. Although results are still emerging, we have already observed increased traffic. Regarding the comparison of spending in the first and second halves of the year, we chose to concentrate our spending upfront in the first half to maximize demand during the anticipated travel rebound. Early indications suggest that this was a wise decision. Now, on to product development, we transitioned from a divisional structure to a more focused functional organization, reducing the number of product development groups. This streamlining has significantly increased our efficiency and allowed us to move quickly. I hope you'll see on May 24 that even with a smaller team, we've accelerated the pace of development, and I think people will be impressed with our upcoming deliverables. Dave, would you like to add anything regarding the numbers?

Yes. I mean our product development spend will increase at a lower rate than revenue. We're not going to have to add back significant number of fixed resources in order to accommodate the business that's back to the size of 2019 and beyond. So we're just going to be very disciplined in any additions to our expenses. And then as Brian said, we're just seeing great success with our marketing strategy, which we actually started modifying prior to COVID, solidified during COVID, and are continuing to see strength here in Q1. So marketing as a percentage of revenue will be higher early this first half of the year than it will be in the second half of the year, but we're very encouraged by the results.

And your next question comes from Naved Khan with Truist Securities.

Brian, maybe give us your thoughts about the reopening of urban travel in terms of timing. How are you thinking about it? Is that something that you think might happen in the back half of this year? Or do you think that's further out?

Thank you, Naved, for your question. I want to start by being cautious about making predictions, as last year taught us the unpredictability of the situation. However, I can say that regardless of what happens with travel, our model has proven to be adaptable. We have a wealth of data that can provide some insights, although pinning down specifics is challenging. We're noticing that as travel restrictions ease and cross-border travel resumes, more people are visiting cities. Additionally, the nature of this travel is evolving; for instance, there is an increase in longer-term stays in urban areas. Typically, the longer one stays, the more likely they are to choose home accommodations. As countries lift restrictions and vaccination rates rise, we anticipate these developments will serve as a significant boost to both urban and cross-border travel. We're optimistic about this outlook. Although it’s difficult to quantify precisely, positive remarks from health officials and the easing of restrictions in Europe are encouraging indicators that urban and cross-border travel may experience substantial growth.

Yes, our urban travel growth rate has increased every month this year and continues to do so through April and early May. So we're just seeing continued positive momentum.

That's very helpful. And maybe a quick follow-up, if I may. So Brian, you talked about business travel maybe becoming a little different where people might just travel to headquarters and maybe rent an Airbnb.

Yes.

Do you see a good opportunity to capture market share in that segment compared to the previous focus on business travelers traveling to cities?

Yes. I mean in New York City and in Los Angeles, a number of these cities, we almost have as many nights booked for stays longer than 28 days as we do stays under 28 days. In New York City, actually, the majority is over 28 days now. So I think that there's a huge opportunity. If you think about where business travel is going in the future, it seems completely intuitive to me that as companies offer more flexibility, more people are going to live around the world, but they're not all going to want to live remote. They're going to have to come back to visit. And so I think you're going to start to see longer stays. I think in addition to longer stays, you may also see business travelers traveling together. So let's say three different employees work in three different cities, and they have to come back to headquarters. They may not all get three different hotel rooms at Airbnb. They might get one house. They can split the cost. They can eat around the dinner table in the morning. So I think the things that benefit Airbnb at business travel is group travel and longer-stay travel. Those two things, I think, are disproportionately beneficial to doing home, and these are general tailwinds for business travel. Now I want to be clear. I mean people will, of course, travel for business again. I just think the bar to get on a plane to go to a meeting will be higher than before.

And your next question comes from James Lee with Mizuho.

A couple of questions regarding the supply side. And can you guys talk about maybe supply and demand balance by region a little bit here? Where do you see surpluses? Where do you see deficits? And are you also looking to increase your supply by tapping into professional hosts? I know 90% are individual, or even hotel supply? And also secondly, what are the key frictions that you're seeing right now for your hosts signing up and that you're looking to address with these new tools you're about to introduce?

Yes. Dave, do you want to take supply and demand? I can probably take the increase in pro hosts and key friction?

Sure, what we're observing in terms of supply and demand is that cross-border and urban travel have not completely recovered. The areas where we're noticing imbalances, whether it's a surplus or deficit in demand, tend to be urban markets. However, we anticipate tighter conditions, especially in non-urban markets in the U.S. during the summer peak, which will be the most limited of our markets. We are actively addressing these issues. On the supply side, we're focused on recruiting hosts and increasing available supply during peak periods in those constrained markets. Additionally, we are leveraging our marketing efforts, particularly through targeted search engine marketing in markets where we might have excess supply but not enough demand. Each market is unique, and we plan to apply different strategies to manage that balance over time.

Yes. And James, why don't I jump in and say this. One of the things that Dave just said, I want to underline: Before the pandemic, most people came to Airbnb and they knew exactly where they were going and they knew when they were going. So we asked the question in the search bar, 'Where are you going?' And we asked, 'When are you going?' You put in the date. The holy grail for matching supply and demand is to be able to also control where you can point demand. But we can't point demand to where we have supply if guests aren't flexible, if they're predisposed to where they want to travel. Now that guests are telling us that they're much more flexible about where they travel, we can point demand to where we have supply. This is probably one of the most important things we have. And it explains why, when 90 million searches were used with the Flexible Dates feature, conversion rates went up. So that is just another thing I want to underline. Now regarding your next two questions, let's talk about pro hosts and hotels. Obviously, Airbnb created a new category in travel because we created tools that allowed everyday people and individuals to become hosts. And yes, out of 4 million hosts, 3.5 million are individuals. That being said, we welcome all hospitality providers on Airbnb. And we have hundreds of thousands of professional hosts and professional hospitality providers. The way we think about it is when a guest comes to Airbnb, they're looking for a place to stay. And so we don't want them to leave without having found something they want. Typically, they come to look for individual hosts; that's what we're known for. But we want to make sure that we have professional hosts and hotels to serve those customers and to fill in our network gaps. So we're continuing to develop new tools and services over the coming years to continue to welcome these providers onto our platform. And I think they're going to obviously benefit from all the demand that we have. Now as far as key friction to becoming a host, one of the things we've seen, probably the main learning we've had, is as we make it easier, more people do it. That's the name of the game: make it easier and more people do it. Before Airbnb, it was really hard to rent your home on the Internet. People did it, which was hard, and we made it easier. And on May 24, we're going to show a number of tools, a number of offerings and innovations that we have that are going to make hosting even easier. We're reducing the number of steps to become hosts. We're making it even easier by providing more tools and support. And we're going to offer some better tools and services for hosts once they become hosts. And so I think all these things will reduce the number of frictions as well.

If I can ask a follow-up question also on the hosts side, too, are you seeing increased competition for acquiring hosts and maybe potentially pressure on your take rate?

Dave, do you want to take this one?

Sure. Right now what we're seeing is that we have 4 million hosts around the world, with the vast majority being individual hosts—3.5 million of them, to be exact. This situation is quite different from what we observe with competitive platforms. So, considering our 4 million hosts, could you please repeat the last part of the question? I seem to have lost my train of thought.

Yes, increased competition for hosts and maybe potentially pressure on take rates?

Yes, no, pressure on the take rates. Right now, we're not seeing the pressure in take rates. We think that we have a really great value to the take rates that we give. We charge rates that give good value to both our guests and our hosts. And what we see on the take rate side is making sure that when we give value back to our hosts, that then we are able to take kind of appropriate revenue from that. So we're not really seeing any pressure at that driving for increasing or decreasing the number of hosts that we have on Airbnb.

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

I have two. The first one is on the 2020 new users that you added. It was a great year to sort of add a lot of new users to the platform. I'd be curious to hear about what you're seeing from those new users from a retention or booking perspective now as you're into 2021, and how that compares to what you've seen in the user cohorts in the past? Then the second one, to go a little bit more into the monetization of the take rate, can you just talk to us about any of the tests or experiments you've been doing around insurance or ancillary service sales or tiered take rates or sponsored listings, and ways we can think about that take rate potentially adjusting over time for more services to your hosts or guests?

Yes. So what we're seeing for new users, it's early, but all of the early data for the new users that we've acquired here during 2020 is that the retention is very consistent with what we had for users in 2019 and before. So I think one of the benefits that we've seen in 2020 is just we've actually lowered the barrier for entry for new guests to kind of come to Airbnb and try us out for the first time. You don't have to hop on a plane. You don't have to go across the border. As we said, over 50% of our nights historically have been cross-border. You don't have to do that to try Airbnb. Now you can kind of drive just a couple of hours down the road and go check us out. And what we're seeing from the early results is that the retention rates are very consistent with what we've seen in the past.

Brian, regarding your question about monetization and take rate, we definitely see numerous opportunities to enhance our monetization and take rate for both guests and hosts. For instance, many of the tools and services we've provided over the last five years have been incremental and offered for free. Unlike our competitors, we provide complimentary protection of $1 million against theft, property damage, and personal liability in various countries worldwide. As we introduced these services, we did not implement any additional charges. Our general principle is to provide more value than we take, but we believe there are opportunities to offer additional tools and services to increase our take rate. That said, focus is vital, and we are concentrating on the most urgent opportunity. Currently, that is capturing as much travel demand as possible and preparing ahead of others for the travel rebound. We are ensuring we have enough hosts for this upcoming travel season, simplifying the guest experience, and providing world-class support. This is our primary focus for this year, but we recognize many opportunities lie ahead in the coming years.

Our next question comes from Mark Mahaney with ISI.

I'll stick with one question. Can you address whether increasing local restrictions is impacting your supply, particularly in larger cities? I understand that travel has not fully recovered there, but how much are new local regulations on rentals affecting your ability to expand supply?

Yes, I can take this at a high level. Dave, again, feel free to jump in as well. Mark, thanks for the question. What we saw with COVID was actually a positive reset in our relationship with cities all over the world. Now first, let me just start by saying we now collect/remit taxes in 30,000 jurisdictions. We collected and remitted to date $2.6 billion of transient occupancy taxes. What happened with COVID is two things: Number one, travel went from being concentrated in very few top cities to distributing everywhere, thousand cities around the world. Though we do see an urban recovery, we don't see that trend completely reversing. Because I think, in a sense, you could say the genie's out of the bottle, a number of people have realized that there are all these really cool small towns, rural communities, and small cities, many of which don't even have hotels. And so they're really important destinations. The other thing that we've noticed, though, is that a lot of cities have been hit really hard by the devastating economic effects of the pandemic. So you'll see major cities have had major tourism shortfalls, major tax shortfalls. And because of this, what we're actually seeing is a lot of cities reaching out to us. In fact, we struck over 100 partnerships over the course of just the pandemic with destination marketing organizations, which, as you know, are basically tourism bureaus and tourism arms. From Scotland to Portland, we've been doing partnerships with cities all over the world. And to scale our partnerships to thousands of cities, we launched last year the City Portal as well. So this is what we're seeing. I don't know, Dave, if you want to add anything to that.

I think that's key. We also added this new capability last year of the City Portal, which is another tool to enable cities to understand what goes on with our business in each of their communities. And we think that's been another positive tool for cities to feel like they can work with Airbnb to help their economies rebound.

And your next question comes from Jed Kelly with Oppenheimer.

I guess, Brian, going back to business travel, I guess it's kind of like a two-part question. I guess number one would be, where are you in terms of talking to companies, talking to businesses sort of making the ability to work from anywhere through Airbnb and benefit? And then as, like, a follow-up, you mentioned work from anywhere. Your company is, of course, based in San Francisco. So how do you see basically potentially using the work-from-anywhere trend to sort of save costs to make your business more efficient if you can have more employees working outside the Bay Area?

Yes, those are two great questions. Let me begin with the first one. As you mentioned, a significant trend over the past year has been the increasing flexibility allowing people to work from home, often through Airbnb. We are actively working on making it easier for guests to search globally. On May 24, we will unveil new tools designed to enhance the search experience on Airbnb, particularly in terms of flexibility. We are focusing on longer stays, open booking times, and the ability to travel to various locations instead of just popular destinations. Innovation in this area remains a priority for us. I would also like to highlight that in 2019, only 14% of our nights booked were for more than 28 days, and that number has now risen to 24%. We view this as a significant growth area, with a quarter of our business not centered around traditional travel, presenting ample opportunities for innovation. As a design-led company, we believe this will yield many interesting prospects. Regarding our employee base in San Francisco, I recently shared two guiding principles with our employees. First, we aim to embody the live-anywhere lifestyle, which means providing our employees with more flexibility. I informed them that they are not required to return to the office until next September, and even after that, they will have significantly more flexibility than in the past. We do not expect employees to return to the office full-time. We believe that most modern workplaces will not operate that way. However, we acknowledge the importance of in-person collaboration, and we strive to strike a balance between embracing the live-anywhere lifestyle and fostering in-person creative collaboration. We are committed to getting this right and will take our time during the upcoming year to ensure we do so.

And your next question comes from Justin Patterson with KeyBanc.

Brian, just expanding on the prior question, it does sound like this platform experience update is really designed around inspiration and discovery. Without spoiling your announcement on the 24th, I'm curious about how you think about the opportunity to broaden the funnel on Airbnb, provide inspiration for travelers as they think about places they can stay and things to do such that Airbnb really starts to drive natural inspiration for the much broader spectrum of the customer base than before.

Thank you, Justin. It was a little difficult for me to hear you, but I believe the question was about what we are doing to enhance inspiration and discovery on Airbnb, particularly in terms of where you can go and what you can do, right? I just want to confirm that I missed the end of your last question. Okay, I'll address that. Yes, inspiration is a significant focus for us. If you visit airbnb.com right now, you'll notice a large piece of artwork at the top of our homepage that says, 'the greatest outdoors.' We've just launched wish lists curated by Airbnb. If you click on Get Inspired, you’ll see several wish lists. This is just the start of various initiatives we are implementing to encourage more travel. Below that on the homepage, you will find that we are now highlighting nearby destinations. With wish lists, nearby travel, and some updates we have coming on May 24, I believe this will continuously motivate more inspiration. On May 24, we will showcase exciting new features that I think will inspire people regarding flexibility. We have noticed that being flexible about travel destinations and timing often shifts the focus from where you go to the type of home you choose to stay in. This is how we are approaching it, and hopefully, you can tune in so we can share some of the initiatives we are working on.

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

Two questions, if I can. First, can you talk about how you think about occupancy rates or kind of room nights per active listing over the medium term? It seems like it's been pretty stable over the past few years. But wondering if this notion of blending of travel and living is kind of increasing shoulder season demand in a way where you can grow room nights in excess of listings, or getting more out of your existing listings? And then the second one, the average booking value per night looked really high in 1Q. If you peel back the onion and look within the same region, the same property type, are you seeing pricing up? Or is most of this just mix shift? And how do you think about this as maybe as travel normalizes a bit? How would that impact ADRs going forward?

Thank you, Lloyd. I'll address the first question regarding occupancy rates. Dave can handle the second question. The answer is yes, we expect occupancy rates to increase globally as we improve our ability to match supply with demand. In traditional travel, many people tend to visit the same destinations at the same time, which explains the long lines at landmarks in places like Paris during the summer. To boost occupancy rates, we can either increase the number of hosts in popular areas or redirect demand to less crowded locations. As people stay longer and shift their travel focus from multiple cities to a broader range of communities, along with increased flexibility in travel plans, we can present them with better options. For instance, we can suggest that traveling to a destination like France in September could save them money due to fewer tourists, or we can guide them to visit Brittany instead of Paris. This gives us numerous chances to direct demand towards available supply, which will help us consistently raise occupancy without needing to proportionally increase supply with revenue. We can achieve more productivity from our existing supply. Dave, would you like to discuss the average daily rates next?

Yes. And our ADRs in Q1 were up 35% year-over-year. That was after being up 13% year-over-year in Q4. The significant majority driver of the ADR increase is driven by mix. The rebound has been earlier in the U.S., which has a higher average daily rate. It's been in non-urban whole homes and even larger homes, and each one of those is just, on average, a higher ADR. So the majority of the ADR that we're seeing is from mix. When you actually look at some highly constrained markets in a highly constrained time period, we're seeing some pricing pressure within there that will drive ADR rates up. So the vast majority of it is just driven by mix.

I want to mention that as demand for Airbnb increases, it can lead to a corresponding increase in supply. In our S-1 filing, we noted that in 2019, 23% of our new hosts were previously guests, and this rose to 28% in 2020. We believe there is a compelling flywheel effect where we can direct demand to areas where we have supply. We are equipped to continue bringing on new hosts, and we can also convert guests into hosts, which will further enhance our growth.

And your next question comes from Brent Thill with Jefferies.

Dave, can you provide any insight regarding the upcoming unlock of nearly 500 million shares next week? I understand not all of these shares are eligible, but there seems to be some concerns surrounding this event. Any information you could share would be appreciated.

Yes. Dave, you want to take that?

Sure. So clearly, our unlock comes on Monday. And the key thing that we're doing to try to make sure that we're ready for that unlock is to do what we've been doing, which is deliver outstanding results, deliver outsized kind of gross booking value revenue and driving for profitability. So there's not a lot more color I can give you on the unlock on Monday beyond that.

And your next question comes from Brian Fitzgerald with Wells Fargo.

We wanted to ask if you could tell us what you're seeing with respect to experiences, supply dynamics there, online versus offline, linkages to travel conversion rates there, anything with experiences?

Yes. Thank you very much for the question. So here's what I'd say about experiences. When we came back in the beginning of 2020, I really thought experiences would be a breakout year last year. It turns out a pandemic was a very difficult year for experiences. We had to put products on hold. We remain very, very bullish about experiences over the long term. One of the reasons we remain bullish is because the percent of guests leaving a five-star review with experiences is higher and remains higher than the percent of guests who leave a five-star review for homes. But the pandemic was a difficult time for experiences. So we launched online experiences, which is the way to have an experience without leaving your living room. And I am thinking that in the coming years, experiences will be successful because there are fewer alternatives. There's fewer mass tour operators, bars, lounges, and restaurants that are going to be operating at full capacity. So we do think there's a window, and we're playing the long game on this one.

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

Okay. So Brian, I asked the same question to one of your competitors last week. So I'd be interested in your opinion what is probably more of a macro consideration. So the consumer savings rate, at least in the United States, is probably at the highest level it's been since World War II. It will take some time for all of this to widen down to, I guess, normalized levels, which brings up the scenario of consumer spend probably accelerating for the next several years. And hopefully, one of the likely destinations for all of these dollars is going to be in travel. So I know it's early days of the recovery, but what are you seeing in terms of, I guess, greater willingness to maybe, say, upgrade to the more expensive Airbnb, or just in general stepping up in the frequency as we recover here?

Very good question, Stephen. Let me tell you what we're seeing so far. One of the things is we did travel surveys in the beginning of the year. And we surveyed people in the United States. We also surveyed people around the world. And in our surveys, what we found is that the out-of-home activity people missed the most, more than restaurants, more than bars, more than sporting events, more than concerts, was travel. The kind of travel people missed was not business travel. It was not mass travel, going to crowded destinations. It was really just spending time with people that they've not been able to see during the pandemic. I think that we generally just yearn for what was taken away from us. And travel and spending time with people was something that was taken away from us. Now with regard to your question about are we seeing people upgrading? We have seen, as we mentioned, a material increase in the average daily rate in the United States. And this does give us a sense of consumer willingness to spend. Maybe another way of saying it is maybe before the pandemic, people were booking studio apartments in cities. Now what we're seeing is a pretty big expansion of people booking entire homes, typically even more bedrooms; the number of guests per reservation has increased considerably. And so correspondingly, people are spending more money. I think that trend, of course, will get normalized over some period of time when other geographies recover and urban recovers. But I do think that we are going to see sustained confidence, there's no question.

And your next question comes from Deepak Mathivanan with Wolfe Research.

Just a couple of quick ones. So first, can you talk about the implications of booking window trends on second quarter and second half? There's a lot of summer bookings happening right now already in markets like Europe and even in North America. Is that earlier than usual? Or does that mean that the recovery is being pulled forward by some capacity? Just wondering if you can now provide some insights on that, and then second question, not sure if this was asked already. How are you thinking about the ROI on the targeted digital marketing programs in the hosts? Are these on performance channels? Any color that you can add there would be great.

Sure. So regarding the booking window, we're seeing the booking window obviously, in 2020, shrank dramatically, right? People were hesitant to travel. They only started booking when they had high confidence that they were going to travel. What we've seen here early in Q1 of '21 is the booking windows have expanded. And in March, we actually saw booking windows consistent with those from March of 2019. And so the windows are expanding. I think that what you're seeing is still even more confidence in the U.S. So that the willingness of travel and the booking window in the U.S. has expanded further than it has in Europe. But we're starting to see some greater acceleration of our European business. We're seeing the European nights increasing the rate of year-over-year growth every month of the year since the beginning of the year, including through April and May. And we're seeing that as things like the lockdowns in France are removed. And after the U.K. Prime Minister announced plans to exit lockdown in February, we started seeing more acceleration in Europe. So the booking window trends are positive and give us encouragement for what we're going to see in the back half of the year. But we'll just have to see what the lockdowns and other kind of travel restrictions look like for Europe for the back half. And then regarding the ROI and targeted digital marketing for hosts, this is one of the levers that we have. When we do target digital marketing for hosts, it would be in specific areas that we know are more supply-constrained and where we want to focus on it. We established a return on that investment for value of the hosts that we acquire through that channel. And it is one channel, but it's not the only one, and it's not the primary one. Again, the most important thing is to kind of step back and educate people about the benefits of hosting, and then make it easier for them to host once they start considering it.

And your next question comes from Kevin Kopelman with Cowen.

A quick one, could you give us an update on cancellation rate trends this year compared to 2019 with I think the average listing being a little bit more flexible than it was in the past?

Sure. So the cancellation rates obviously were substantially elevated in 2020 versus 2019. They've begun to moderate so that they are sequentially below where they were in 2020, but they're still moderately elevated versus the 2019 rate. So we're seeing a bit more returns than normal, but it's not quite to historical level rates.

And your next question comes from Tom White with D.A. Davidson.

Just one from me to follow up on ADRs and specifically your expectations for the second half. I know there's some color in the letter, but can you maybe unpack your thoughts on kind of all the different moving pieces there between the recovery and some of the kind of structurally lower ADR markets, recovery in urban and cross-border? Just curious to hear your thoughts on how it all kind of nets out, you think, in the back half?

Thank you, Tom. I believe it's best to refer to the guidance figures we provided during the earnings call, where we are quite confident about the upcoming rebound, despite the challenges in predicting the second half of the year. Early signs indicate that a rebound is on the way, but accurately forecasting Q3 and Q4 remains difficult. We did share some expectations for Q2, expecting our gross booking value to exceed Q2 of 2019, our revenue rate to be on par with 2019, and our adjusted EBITDA to be around breakeven or slightly positive for Q2 this year. These points are important to note. As you mentioned, the return of rebalance will influence the pace of recovery in different regions, which will in turn affect the mix of average daily rates (ADRs). While we anticipate a moderation in ADRs, pinpointing the exact details of that mix is challenging.

I will now turn the call back over to the management team for closing remarks.

All right. Well, thank you, everyone, for joining us today. I just want to recap. We are really proud of our strong Q1 results. We believe they're a testament to our focus and the adaptability of our model. And we've shown over the past year that as the world changes, Airbnb can adapt. I think we're now well positioned for the travel rebound ahead. As travel returns, Airbnb will be ready, and our hosts will be ready as well. So I hope you'll join us on May 24, where we'll share insights on how travel is fundamentally changing and announce the most comprehensive update to Airbnb service in 12 years. Thank you, and we'll see you then.

This concludes today's conference call. You may now disconnect.