Good afternoon, and thank you for joining Airbnb's Earnings Conference Call for the First Quarter of 2022. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Airbnb's website following this call. I'll now hand over to Ellie Mertz, VP of finance. Please go ahead.

Good afternoon, and welcome to Airbnb's first quarter of 2022 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 2022. These items were also posted on the Investor Relations section of Airbnb's website. During the call, we'll make brief opening remarks and then spend the remainder of time on Q&A. Before I turn it over to Brian, I would like to remind everyone that we'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 most recent filings with the Securities and Exchange Commission. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained on this call to reflect subsequent events or circumstances. You should be aware that these statements should be considered estimates only and are not a guarantee of future performance. Also, during this call, we will discuss some non-GAAP financial measures. We've 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, Ellie, and good afternoon, everyone. Thanks for joining. I'm excited to share our Q1 results with you. Now, despite the pandemic, the war in Ukraine and macroeconomic headwinds, Q1 was another incredible quarter. We exceeded 100 million Nights and Experiences Booked for the first time ever. GBV was $17 billion, which was 73% above Q1 2019. Revenue was $1.5 billion, exceeding Q1 2019 by 80%. Net loss was $19 million. Now this is a significant improvement in the same periods from 2018 and 2021. Adjusted EBITDA was $229 million. Now, this is our first positive adjusted EBITDA Q1, and this represented adjusted EBITDA margin of a positive 15%. Now this is compared to a negative 7% a year ago, and a negative 30% in Q1 2019. And finally, we generated $1.2 billion of free cash flow in the quarter. This was also an all-time high. And what these results show is that two years into the pandemic, Airbnb is stronger than ever before. Now, why is this? Well, millions of people are now more flexible about where they live and work. And as a result, they're spreading out to thousands of towns and cities. And they're staying for weeks, months, or even entire seasons at a time. That's through our adaptability innovation, we've been able to quickly respond to this changing world of travel. And these incredible results were driven by a number of positive business trends. First, guests are booking more than ever before. In Q1 gross nights booked grew 32% compared to Q1 2019. And this is despite the pandemic, the war in Ukraine, and macroeconomic headwinds. People are also more confident booking travel further in advance. And we're seeing strong demand for summer bookings and beyond. Second, guests are returning to cities and they’re crossing borders. So our guests continue to travel domestically and continue to go to rural destinations at Airbnb. We are also seeing guests return to cities and cross borders at or even above pre-pandemic rates. Third, guests are also staying longer, even living on Airbnb. Now, while short-term stays rebounded strongly in Q1 2022, stays of a month or longer continue to be our fastest-growing category by tripling compared to 2019. In nearly half of our nights booked in Q1 were for stays of a week or longer and one in five nights booked were for stays of a month or longer. So the world is clearly becoming more flexible about where people can work. And getting ahead of this trend, last week, we announced that Airbnb employees can live and work anywhere. And we've designed a way for them to live and work around the world, while collaborating in a highly collaborative way and experiencing the in-person connection that makes Airbnb special. Now fourth, our innovations are inspiring guests to discover thousands of new places. In 2021, we delivered more than 150 upgrades across every aspect of our service. And among these upgrades was the innovative 'I’m Flexible' feature. Now 'I’m Flexible' feature has now been used more than 2 billion times, 2 billion. And guests who use 'I’m Flexible' are more likely to book homes in less popular locations. This is really important, because this allows us to point demand to where we have supply, and it helps distribute guests more widely in communities all around the world. But we're not stopping there. On May 11, next Wednesday, we will be announcing the Airbnb 2022 summer release. This is a new Airbnb for a new world of travel. With a completely new way to search, guests will be able to discover millions of unique homes in Airbnb they never thought to search for. And when they book, guests will have the confidence knowing that Airbnb has their back each step of the way. And so you can watch this announcement right on our homepage next Wednesday at 9 AM Eastern Standard Time, next Wednesday, right on our homepage. I hope you can tune in because I'm really excited about what we have to share. And then finally, our community - our host community continues to expand. We see destinations with the strongest demand showing this most supply growth with non-urban active listings actually growing 15% globally. And we're also showing an increase in total urban supply as demand returns to cities. And we believe that the upgrades we announced last year, including our new host onboarding flow and AirCover, are supporting this growth and enabling success for new hosts. So to recap, we had our best Q1 ever. Nights and Experiences Booked and GBV were the highest ever. Revenue and adjusted EBITDA were records for Q1, and we generated more than $1 billion in free cash flow in the quarter. With these results, Airbnb is stronger than ever before. Now, before I go to questions, I just want to talk for a minute about our efforts in Ukraine. Because over the past few months, millions of lives have been devastated by the war. And when the crisis broke out, we knew that our platform could help refugees fleeing the crisis. Within four days of the invasion, we announced that airbnb.org would provide free housing for up to 100,000 refugees fleeing from Ukraine, and over 30,000 hosts have already signed up to open their homes to refugees for free or for a discount. But then, something even more remarkable happened. People started booking homes from hosts in Ukraine, hosts they never intended to stay with just to provide relief aid. Soon, over 170,000 people joined in, and they booked approximately 600,000 nights booked in Ukraine. Because we waived our fees, $20 million went directly to hosts in Ukraine. I think this speaks to the power of our community, and they are a reminder that in a world of darkness and destruction, kindness still exists. So I'm really proud of our business results this quarter. I'm also proud of how helpful we've been able to be to thousands of people in need. And with all that, Dave and I look forward to answering your questions.

The first question comes from Colin Sebastian with Baird. Please proceed.

Thanks. Good afternoon, and congrats on the strong quarter. A couple of questions for me. I guess first off, Brian, drilling down a bit on some of the broader use cases that emerged through the pandemic. At a high level, the trends clearly sound very good. I'm hoping you could unpack that a little bit more in terms of the sustainability of longer stays and other use cases in markets that are furthest along in the recovery, where offices are reopening and lives are sort of getting back to normal, if you could break that down a bit more. And then secondly, on the plans for advertising and marketing, you're keeping that looks like fixed as a percentage of revenues, so a little bit higher spend on marketing and advertising. Can you talk about that? Is that with all the product updates, the rebound in travel, maybe the competitive landscape? If you could talk about the strategy with respect to the advertising and marketing? Thank you.

Yes, excellent. Thanks, Colin. So why don't I answer these at a high level? And Dave, feel free to jump in with some more specifics. So let's start with the question of Colin, some of the broader use cases you talked about. And let's back up. So when we started Airbnb, it was really just a way for people to book a home for just a few days at a time. But even before the pandemic, actually long-term stays, stays of a month or longer were our fastest-growing category or segment of trip by trip length, some of those were already growing very quickly before the pandemic. I think what the pandemic did is I think it accelerated the adoption of longer-term stays in Airbnb by a few years. It's hard to say exactly how many years, but certainly by years. It's important to understand why this is happening. For millions of people, they don’t need to go back to an office five days a week. The vast majority of companies are not requiring employees to come back to an office. Many have moved to a hybrid or entirely remote model. I think that what we're going to see going forward is continued flexibility. Companies ultimately want to attract the very best people, and the best people are going to be everywhere. So long as we believe that people don't need to go back to an office five days a week, then we believe in a world of more flexibility. What we're continuing to see, we think, over the coming years is continued and sustained growth for stays of longer than a month and stays of longer than a week. I don't think this is a temporary phenomenon; I think that the genie is out of the bottle, and flexibility is here to stay. Flexibility will probably be one of the most important benefits that an employer can offer. Just to give you a small anecdote, last week, we announced that Airbnb employees can live and work anywhere in the world. The response internally was great, but even more impressive was the response externally. Our career page was visited 800,000 times after that announcement, and I think that just speaks to the durability of this use case. Now, with regards to advertising, it's just important that I share a little bit of a recap of how we think about marketing and Dave, feel free to talk a little more detail. We have a somewhat different approach to marketing and advertising than our peers. We take a full funnel approach to marketing that combines PR, brand marketing, and performance marketing. We're not really focused on buying customers; we're focused primarily on investing in our brand and educating the world about what makes Airbnb unique. We think of marketing primarily as education. This explains why 90% of our traffic or more is direct or unpaid. Airbnb is a noun and verb used all over the world, and it was not advertising, but PR and word-of-mouth that built our brand. Since the pandemic started, there have been more than 1 million articles written about Airbnb, and 55% of articles that used to have the word travel in it also have the word Airbnb in it. So advertising is really a form of supplemental education for us. It's not the core driver of growth. We think the core driver of growth, Airbnb, is innovation. It's about building a product that people love. The role of marketing isn't to buy customers. The role of marketing for us is to educate people about our new features and our new offerings. Dave, do you want to go into a little more detail about advertising?

Brian, I think you've covered it incredibly well. I mean, we're very proud of the approach to marketing. This full funnel approach is working well for us. As you said, we are actually increasing our marketing dollars. We're just keeping the marketing expenses as a percentage of revenue relatively consistent to the level we had in 2021, and we think it's being really effective for us.

Thank you. The next question comes from Bernie McTernan with Needham & Company.

Great. Thank you so much for taking the questions. I guess first just want to get any insights on how supply and demand are growing relative to each other versus what was happening before the pandemic. So maybe even just utilization, how it's trending, how it was trending before the pandemic and how it's trending now. And then secondly, on capital allocation with over a $1 billion of free cash flow in the quarter, $9 billion of cash on the balance sheet. Can you remind us and just your thoughts on if there's any sort of capital allocation, whether it's returning to shareholders, M&A, and continuing to invest in the product? We'd love to hear your thoughts there.

Great, Bernie. So why don't I do this? Let me just talk at a high level about the first question. And then Dave, why don't you take both questions at a more specific level. So let me just say at a high level around supply and demand, number one, I think we're going to have plenty of supply this summer for the demand. We're expecting a lot of demand for the summer. But we are not supply constrained any night of the year, not even close to the global level. The challenge of most travel companies is that a lot of people try to go to the same place, the same city on the same day. Cities, essentially, like travel OTAs typically get sold out. So like a lot of people try to go to New York City on New Year's Eve, and there's only so many places to stay in New York, and so you're going to get sold out. Now, here is Airbnb. We're in 100,000 towns and cities all over the world. We see a couple phenomena, and I think it's important to point out. The first thing we see is the fastest-growing supply markets are actually our fastest-growing demand markets. As a market experiences more demand, more supply gets unlocked. I think the reason why is primarily because the vast majority of hosts at Airbnb are individuals. The majority of new hosts get a booking within three days. When a regular person gets a booking, and the booking might be $300, $400, or $500, they tend to tell their friends about it. As more people get booked, they create more word-of-mouth, and this unlocks more supply. So we have a global network where demand, in a sense, stimulates more supply. Additionally, the 'I’m Flexible' feature is critical, because it allows us to point demand to where we have supply. If somebody types in Paris on June 4 to 5, we are limited to the properties in Paris on those dates. But if somebody says, we’re flexible, we can point them to other dates in Paris that are a little lower season or other towns around Paris that have available supply. So I think these are really important aspects of our business model. But Dave, I don't know if you want to go into a little more specifics about either utilization and also kind of the capital allocation theory.

Yes, just double click on a couple areas. One is we just have more supply than we've ever had in our history. As Brian kind of mentioned on the call, the fact that we grow more supply in the areas that we have the greatest demand—like non-urban active listings grew 21% in North America and 15% globally—is the area where it's kind of self-healing, where we have the demand is where we end up having this supply. This redistribution is also incredibly important, because we have listings in all types of markets. We're not globally constrained at any given night, which is different than if you only had supply in one type of market. When demand spikes in that particular, more narrow market type, like vacation rentals, you don't have anywhere else to distribute demand. But because we're all around the world, in every kind of community, we end up with the benefit of being able to redistribute demand to other places. I think that's been incredibly strong for us. Regarding the capital allocation, yes, we have $9.3 billion. That gives me as a CFO and the continued pandemic a strong balance sheet to sleep well at night. We have noted previously that we're going to use about $1 billion of our cash to pay for employee tax obligations as they exercise their shares. That will be a use of cash this year. Beyond that, we're continuing to be in growth mode; we will continue to have a balance sheet that enables us to be ready to invest when and where we find that it's appropriate. It does enable us to do M&A in the future, if desired. Although M&A is not our primary driver of growth, we still plan to grow organically as our primary means. We will continue to evaluate our balance sheet use and make sure that we are deploying capital appropriately.

The next question comes from Mario Lu with Barclays.

Great. Thanks for taking the questions. The first one for Brian, high level strategy question. So now that the total room nights have fully recovered versus 2019, how do you decide when is the right time to broaden the company's focus to other potential growth areas such as experiences, hotels and flights versus continuing to hone in on the core product?

Great. Yes, so let me take that. So thanks, Mario. We've learned some really important lessons during the pandemic. I started this company with my two friends when I was 26. I just turned 26 to start this company, and we had this enormous amount of success. One of the things that happens when you're a first-time entrepreneur with an enormous amount of success is you do something well, and you think you can do everything well. We pursued a lot of things before the pandemic. I remember growing up, my teacher said, you can do everything you want in your life, just not at the same time. When the pandemic happened, there was a silver lining to our crisis: we got really focused, we took all of our best people, we paused a lot of new initiatives, and we put our very best people on the most important problems in the company—stimulating core business. What we saw is that the total addressable market for short-term stays is bigger than we ever imagined, and we are also able to extend it to long-term stays. Our general approach moving forward is to be incredibly focused. We'll absolutely pursue new opportunities, but we want to concentrate on the most perishable opportunities right now. The most perishable opportunity is this: Last year we had what was probably the travel rebound of the century. I've never seen a travel rebound like last year since I started Airbnb. This year is going to be even bigger than last year because last year was a little tempered by the Delta variant and other strains. We're focused on capturing as much market share as possible and getting as many people who haven't traveled in a couple of years to try Airbnb because for many, Airbnb is no longer an alternative way to travel; it's the default. That being said, we are absolutely looking at new opportunities and new services. Nothing we paused during the pandemic is off the table for resuming. Airbnb Experiences, for example, is a big area of investment in the coming years. We're starting to ramp up that product this year; I think more next year. You're going to see some major new offerings around Airbnb Experiences. Some of our best ideas are ahead of us, and we want to focus on a few things at a time—the most perishable opportunities—get as much scale as possible, and build an ecosystem, and then we can explore a variety of line extensions for guests and hosts.

The next question comes from Brian Nowak with Morgan Stanley.

Great. Thanks for taking my questions. Brian, I have a couple for you, the $2 billion—did the $2 billion 'I’m Flexible' searches—yes, that's up quite a bit from $800 million last time around. I guess I'd be curious to hear about what you are seeing when people use that 'I’m Flexible' feature. Is that leading to higher conversion? Is that leading to higher utilization of some radius of the search? What are you seeing that’s driving that quick inflection of that product? And then to go back to your earlier answers about your innovation in your 40s now, what are still the areas on the host front where you see low-hanging fruit opportunities to improve it to drive more host growth?

Yes, these are great questions, Brian. Good to talk to you again. Let me start with the guests and then go to the host side. You're right. I don't mean to just preface by saying that last year, we launched 'I’m Flexible.' We launched it because we saw more people being flexible. The challenge is this: for 25 years, travel search has basically been the same. There's a search box; in the search box, it asks you, 'Where are you going?' It assumes where you're going is fixed, and presumes you have to come to these websites with intent. Most OTAs aren't really in the business of inspiration; they're in the business of converting traffic into bookings. We always thought that the holy grail of online travel was to inspire people about where to go. The results have been that 'I’m Flexible' has exceeded our expectations. It's been used 2 billion times, and for a travel product to be used 2 billion times when people typically use travel products a couple of times a year is unusual. So what are we seeing? The primary thing we're seeing with 'I’m Flexible' is we're seeing strong engagement. People see more properties in a lot more markets. We're seeing people book properties outside many popular tourist destinations. We're seeing an ability to redistribute travel demand beyond the top hotspots like Rome, Paris, Las Vegas, New York, and Los Angeles. So that's the most important thing that 'I’m Flexible' can do. 'I’m Flexible' inspires people to find new supply. Our measures of success are how often people return to the website, how many properties they wish list, how frequently they use the product for inspiration, and on the demand side, how well we’re repointing demand to where we have available supply. So what we're seeing in the Q1 results is that the product is clearly working because 'I’m Flexible' as a feature has helped drive a fair amount of that growth. Now regarding the host side, it's important that we continue to innovate. Last year we made a number of improvements to the host side of our product. Our general principle is the easier we make something, the more people will do it. If you make something easy, you reduce friction, and more people will do it. In hosting, the easier we make it, the more people become hosts. We reduced the number of steps to becoming a host to ten easy steps, we added a new product called 'Ask a Superhost,' which I think 170,000 prospective hosts have used. They can ask whatever questions they want to our very best hosts. Probably most importantly, last year, we launched AirCover for hosts. It provides $1 million protection against property damage, as well as $1 million personal liability coverage, and it’s free; we did not charge anything incremental. We are the only company in travel that offers this for free with our transaction fee. Regarding new innovations, I'm really excited about what is coming. I won't go into too many details; I'd like to save them for our announcements. But high level, we're looking at features that bring more people into our hosting ecosystem. We want to provide more ways to make it easier for hosts to list, more support for them, and more control so hosts can decide who sees their property and when it’s available. We have a couple of big updates on those fronts coming soon. Again, the focus is on making hosting easier and more appealing for people who aren't hosts to become hosts. If we can achieve that, it will drive growth for years to come.

The next question comes from Naved Khan with Truist Securities.

Yes, thanks a lot. Question for Dave. So, Dave, last time around you set expectations for ADR to be down for the year in aggregate. Is that still where you expect to be and then what are you making in terms of this new product release that's coming up next week?

Right on ADR, yes, what was shown in the past is that ADRs are up substantially from where they were back in 2019. They were up 37% year over year. Throughout 2021 Q4, about half of that ADR increase was driven by just mix—regional mix like North America and Europe and the type of home, like nonurban whole home. So mix was driving about half of the price appreciation. The other half was driven by price appreciation itself. Here in Q1, price appreciation has become a larger percentage overall of the driver of ADR and mix has been a little less than half, so it shifted even a little bit more. We're going to see, as we showed in the outlook, that Q2 of this year, ADRs will be relatively flat with Q2 of the prior year. This gives you a sense that ADR will remain elevated, both due to price appreciation and mix. We think that they will likely moderate throughout the back half of the year as mix continues to adjust more towards cities, which have lower average daily rates. Price appreciation has remained high and stickier. I think the level of decrease in ADR will probably be lower than what we anticipated at the beginning of the year. Regarding your question around new product introductions that we'll be talking about next week, I'll provide those details—

Yes, just details of, just the contract. Does your outlook contemplate any contribution from those products?

Yes, our outlook for Q2 clearly includes a lot of the results from the investments we've made to date, and we're very bullish on these continued improvements to drive the strong results that you've seen. So we're not providing guidance beyond Q2 at this time.

The next question comes from Stephen Ju with Credit Suisse.

Okay, thank you. So Brian, the rising consumer demand for longer term stays has been something you've been highlighting in terms of a fundamental change of behavior for some time now. Can you share with us how the reception from the host has been in terms of their willingness to accept longer term stays versus the more traditional shorter bursts?

Yes, thank you very much, Stephen. So let’s start with rising demand for long-term stays. What has been the reception of hosts? This is actually one of the most interesting points, I would say, which is when we really started looking at this category, my assumption was that it would be a different type of host. Right? Some hosts wanted to list their place for short terms, and other hosts wanted to list their properties for long terms. This is what you see on Craigslist; there’s a short-term stay category and an apartment category, and they aren't the same people. However, on Airbnb, that’s totally different. The vast majority of hosts on Airbnb, who initially list their homes for a short term, have now included a monthly stay discount. That’s critical; we have a large percent of people who have a monthly stay discount or are available to host on a long-term basis. So I think that's the most important thing I would say: they absolutely are interested in it. Now, why are hosts interested in this? There are a number of reasons. One is seasonality. Some people live in highly seasonal areas, where in high season they want to rent by the night because they achieve a great yield. But during low season, they have low occupancy. In some markets, especially urban markets, there are restrictions on the number of nights you can rent on a short term basis below 30 days, but they don't have restrictions on 30-plus days. For the most part, what hosts see long-term stays as is a way to increase their annual occupancy. They generally want to rent nightly to get as many bookings as possible, but during low season where there are limits, they’ll move to monthly. They are really the same host overall. While there are hosts that only do short term, and hosts that only do long term, most hosts have an open-mindedness to offer both. The great thing about our product is you hardly had to do anything different to offer long-term stays. Having long-term discounts is key, and having verified Wi-Fi is also important. There are a number of tactical things; however, I think generally speaking, the product as it currently exists works for short term or long term stays, and the vast majority of hosts are open to it.

The next question comes from James Lee with Mizuho.

Great, thanks for taking my questions. I'm just curious, is inflation having an impact on consumer behavior? Maybe, for example, consumer trading down on hotels to home accommodation? And also in terms of market share within home accommodation, as you see mix shift to urban markets, we have strengthened supply. How's that compare versus your peers who may be more non-urban focused?

Maybe why don't we do this day? Why don't I answer a high level on the second question, because I just wanted to share a point about our urban business? And then maybe you can go into the details about both inflation impact on consumer behavior and kind of how we're comparing to our peers in urban markets. James, the thing I would just say about our business is I think that our business is uniquely resilient and a uniquely adaptable model. The reason our model is adaptable is because we are not just a U.S. business. We're not just a European business. We are a global business, and we are strong in Europe, North America, Asia, Latin America, Africa. We're globally in 220 countries and regions; one of those global companies in the world. We're not just a vacation rental business; we are vacation rental markets. Our bread and butter is urban, cross border; that's how we got our start. We're very much an urban, a rural vacation and an off-the-grid business; we even have homes that are off the grid. We have homes that are $20, $30 a night, and others that are tens of thousands of dollars a night, so we're really at all price points. We have catered to families and individuals. I think that we've been able to be uniquely resilient. Another thing I want to say about our urban market business is we’re seeing record long-term stays. I'm doing this call from New York City, Airbnb, where I have been for a month. We're seeing in New York City a huge uptick in long-term stays because a lot of people have to come here, working remotely for months at a time. So that’s just a bit of how we think about it. Dave, I'll hand it over to you and go to a little bit more detail.

We're just not seeing price appreciation impact our business negatively. We had our strongest quarter ever; we have even stronger demand for Q3 and Q4 than we've ever had. I think Brian hit the nail on the head because we have every type of home in every type of community; everything from budget shared homes to luxury homes. People can choose what property fits their particular budget and needs. I think it's that strength of diversity of product that will continue to support our business during the long term. You also hit on it, which is the mix shift toward urban markets, which has traditionally been our strength at Airbnb. Compared to others who don't have the same amount of supply and capabilities built in those cities, it's going to give us a further tailwind. What we're seeing right now is continued strength of the domestic business that was up 65% versus 2019. Strength in our non-urban business is up 80% versus Q1 2019. That remains incredibly strong, and now we're seeing the mix shift towards urban markets back to 2019. We're seeing cross border demand move back to 2019 levels. I think that tailwind will continue to help our business going forward.

The next question comes from Jed Kelly with Oppenheimer.

Hey, great. Thanks for taking my question. Just thinking about how higher interest rates and like a potential recession, how do you think that would impact your supply? And then just thinking about the top line from the back half of the year with APAC opening up, and more and more cross-border urban—do you think revenue or I guess bookings will be driven more by volume? Or by ADRs? Thank you.

Yes, so why don't I take the first question about higher interest rates or recessions' impact on supply, and Dave can take the second question. Jed, there’s no way to know for sure on your question, but I'm pretty sure I have a sense of it. Airbnb launched on August 11, 2008. So you’ll remember what the world was like in August 2008. We really got going in January, February, and March of 2009 in the depths of the Great Recession. The reason Airbnb grew initially was that people were having trouble paying their rent, having trouble keeping their homes, and people turned to Airbnb to list their homes. In recessions, people generally change their behavior based on price considerations. Therefore, we would expect in a recession—if that were to happen—probably more people would turn to hosting, number one. Number two, travelers would probably become more budget-conscious. That would likely benefit Airbnb. The downside, of course, in a recession is that often times fewer people travel. However, I think we're a pretty resilient business; good or bad economy, we're a pretty adaptable model. That’s what I would expect on the supply side. On the demand side, the more difficult the economy is, the more people are going to need supplemental income. A handful of them will turn to hosting. Dave, I’ll hand it over to you.

In a recessionary environment, if people feel more constrained on the dollars they have to spend to travel, they often will come back to Airbnb because we provide a better value than hotels. We have all types of price points—budget to deluxe—and consumers can figure out what meets their best budget needs. I think it actually makes us a better option than many other alternatives in a recessionary environment. In terms of the back half of the year expectations, revenue will be driven more by volume than ADRs. We provided our outlook on ADRs for Q2 being flat year-over-year; they may moderate a little bit in the back half depending on mix. The biggest driver of revenue, maybe outperforming current expectations would be a further strengthening of the European business or acceleration of normalization of cancellation rates across the globe could also be a tailwind. APAC coming back more strongly, more quickly will help results, but I don't think it would be the major driver this year. North American and European travel are still substantial percentages of our business at the moment. APAC will be super important over the long term, but less of a driver here in 2022.

The next question comes from Mark Mahaney with Evercore.

Okay, Brian, I want to applaud you for your efforts with Ukraine. You came up with a creative and direct way to help out, so I applaud you for that. I also want to give you some comfort in terms of your thoughts on innovation and age. Most studies show that peak innovation occurs when people reach 50, so if you can just make it through the next 10 years, you’ll be good. Lastly, let's get back to experiences. It seems you may start leaning in a little bit more to experiences. I know you're focused on the core business, but talk about the timing of when you may lean more aggressively into experiences. Thank you.

Well, thanks, Mark. It's great to hear from you again. Yes, I hope to see you at 50—or past 50! One of the things I want to do is focus on experiences. I think experiences are a massive opportunity. When we started Airbnb, our homes took off. Years ago, I remember saying that we’ve monetized people's biggest asset, which is their home; what do we do next? We go to the next largest asset: your time. Your time can generate more revenue for the average person than their property can. That’s a bit of personal insight on experiences. It came from realizing that a lot of people don’t just book Airbnb to save money, but to have a local travel experience, and I think experiences provide that. I was expecting 2020 to be the breakout year for experiences; we prepared for it. Then, of course, the pandemic hit, and we had to put the product on hold. The last two years, when people were uncomfortable leaving home with masks on, were not right conditions to double down on experiences. Now that the light is shining at the end of the tunnel, we think people's first trips won’t be to meet strangers and go on experiences; they’ll be to reunite with family and friends and get a big home together. We think that this summer, although people will book experiences, it’ll be a little more about homes as people get comfortable getting out. That being said, I believe you're going to start to see a ramp-up of experiences this summer. I think next year, and beyond, it will be a massive opportunity. I’m incredibly excited about it; some of our best product opportunities lie ahead. To answer your question definitively, we are ramping up and getting more aggressive with experiences. There will be a slower on-ramp this year, but we’re going full throttle next year. I think it’s bigger than most people realize because people are looking for interesting things to do. They want to meet one another, have activities, and although they can go to restaurants and watch shows on Netflix, many physical experiences are being digitized. They want to have real experiences in the real world. Travel is a great way to do that, and as you mentioned, people aren’t just booking homes in Paris to see the Eiffel Tower; they may go to a small town in France and want to do something interesting outside of dining; experiences would be a great way to explore that.

The next question comes from Justin Post with Bank of America.

Great, thank you. A lot of my questions have been answered. On the urban supply side, I imagine you had some churn on health issues and other factors. What are you seeing in urban markets? Could you see a big uptick there as demand comes back? How are you thinking about that? And then maybe one follow-up.

Yes, Dave, do you want to take this one?

Sure. One of the key things to remember about our supply is that the vast majority of our hosts are individual hosts, and they won’t get rid of their homes. They’re using their own homes or a second home to host. Even amid a pandemic or during other recessionary environments, they do not get rid of their own homes or their second homes, which means that they are ready for hosts, and they will be there when the demand comes back. That’s what we’re seeing now with our urban demand coming back. It’s now back towards 2019 levels, and our hosts are ready for them. Our growth in hosts in the urban markets has also increased, so we’re seeing an increase in our listings for both our high density and urban markets overall. We continue to see supply is there to meet demand.

Right, and then follow-up on ADRs. I think you’re saying around flat year-over-year; can you just talk about the normal seasonality for ADRs? Is it mix that caused them to dip? How do you think about the back half seasonality on ADRs?

Yes, I think if you could look back, we’ve been up 5% year-over-year in Q1. It’s going to be flat relative on a year-over-year basis in Q2. You can look at some of the seasonality back to 2019, which will show you that Q3 and Q4 have moderately lower ADRs, not substantially. You could use that as a guide. Just know that the mixed change is being offset a lot by strong price appreciation that is continuing to prop up the ADR overall. That is a bit of the unknown for exactly where ADR is going to land in the back half of the year, but I can clearly see what's going to happen in Q2, which will be flat year-over-year.

The next question comes from Rohan Joshi with Citi.

Great, thanks for taking the question. I want to ask a little bit more about cross-border, given the rebound that we saw this quarter. Can you talk about the dynamics—maybe Brian, whether there's cross-border traffic, mostly North American users going overseas? Are we seeing more EMEA users coming to the U.S. or any insights around there? And then Dave, on overall EBITDA, I understand more leverage and margin expansion in the first half, but it’s impressive to see continued leverage across most of your line items. Can you remind us about operations and support and gross margin, what's driving that? Thank you.

Yes, hey, Rohan. I can start on cross-border. I’d say North America, Europe, Australia, Latin America—not really just limited to one geographical area—but it's really going in all directions. People are coming into North America, and people in North America are leaving. They're going to Europe, and we’re now seeing Europeans come to the United States and go into other locations as well. The great thing is the network effect is starting to move in multiple directions. Last year, the market was much more domestic and limited; the corridors are starting to truly open. Dave, I’ll let you take the rest of the answer.

I'm really pleased and proud of the work that we've done to improve our overall profitability. We made some really difficult choices in the midst of the pandemic to reduce our overall workforce and focus on the core of our business. We think that focus is enabling us to deliver even more; I think we’ve actually delivered more innovation and productivity as a company by being more deliberate and focused on a more narrow area versus trying to do everything at once. That’s been really effective. We actually have 16% fewer people at the end of Q1 2022 than we did at the end of Q1 2020, before we had our layoffs. Yet we think we're more productive than ever before. We're getting nice improvements in our variable costs and our operations support, which is 15% of revenue in the first quarter, and we’re seeing nice improvements versus our operations and support in prior quarters. Operations support will include largely our community support operations and our trust and safety activities. We’re going to continue to invest in those areas because we think those are differentiators for us, and handling those really well supports our individual host community. We're making strides in improvement and leverage, so that we'll gain continued profitability. One of the things we noted in the letter is that we're expecting for the full year, a modest expansion in our overall EBITDA margin rate. That’s nice to see versus 2021, and I’m really excited that in 2022, we’ll have our first full year of net income profitability. So to reach profitability on a net income basis this year feels excellent.

The next question comes from Lee Horowitz with Deutsche Bank.

Great, thanks for taking the questions, two, if I could. High level demand across the accommodation industry has proved incredibly sticky to the front half of this recovery, and your comments suggest even into the back end. To what do you owe this stickiness in consumer patterns in terms of how they travel even as things open up and hotels gain a bit of share? And then a bit on cost as well: wage inflation and its inability to find talent has been cropping up across a lot of the names that we cover. You guys haven't commented too much here, but how, if at all, are you seeing wage inflation affect your model as we move through 2022? Thanks so much.

Dave, do you want to take that?

Sure. For the first question, the stickiness in demand can be attributed to multiple factors, which include—we were growing really fast before the pandemic. A lot of people want a local experience when they travel. They want to save money when they travel. Airbnb allows them to travel with groups, and increasingly, people are traveling in groups. It also allows them to travel and stay in nearly every community in the world, whereas hotels don’t have this same reach. Additionally, the longer you're away from home, the more you want to be in a home. Overall, those reasons explain the stickiness. The longer the period of rural demand increased during the pandemic, and people are still traveling to rural areas and domestically. People don’t have to go back to the office five days a week, so longer stays are strong and prevalent, and they are still booking in that way. Those three trends, along with existing demand for traditional urban and cross-border models, are part of the stickiness. Regarding wage inflation, we made choices to focus our workforce, and we have 16% fewer people than before the pandemic. We do not need to add incremental people to have this business grow dramatically. We are significantly larger today as a business with significantly fewer people.

That concludes the Q&A session. I would like to pass the conference back to Brian Chesky for additional remarks. All right. Well, thank you all for joining us today. I'm incredibly proud of what we accomplished this quarter. We hit new records with nights and experiences booked and GBV. We had our first positive Q1 adjusted EBITDA and our highest free cash flow ever, $1.2 billion of cash flow. But we're just getting started because we are going to be accelerating our pace of innovation. I'm really excited to announce the biggest change to Airbnb in a decade. It's going to be next Wednesday, May 11 at 9 AM Eastern Standard Time, you can watch a special event right from our homepage. Until then, thank you, and I'll see you soon.

That concludes the Airbnb Q1 2022 earnings call. Thank you for your participation. You may now disconnect your line.