Good afternoon, and thank you for joining Airbnb's earnings conference call for the Second Quarter of 2023. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Airbnb's website following this call. I will now hand the call over to Ellie Mertz, VP of Finance. Please go ahead.

Good afternoon, and welcome to Airbnb's Second Quarter of 2023 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 second quarter of 2023. These items were also posted on the Investor Relations section of Airbnb's website. During the call, we'll make brief opening remarks, and then spend the remainder of time on Q&A. Before I turn it over to Brian, I would like to remind everyone that we'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 provided reconciliations to the most directly comparable GAAP financial measures in the Shareholder Letter posted to our IR website. These non-GAAP measures are not intended to be a substitute for our GAAP results. With that, I will pass the call to Brian.

All right. Thank you Ellie. And Good afternoon, everyone. Thanks for joining today. I'm excited to share our results with you. Q2 was another strong quarter for Airbnb. We had over 115 million nights and experiences booked. Revenue of $2.5 billion grew 18% year-over-year. And when you exclude foreign exchange, our revenue increased 19% year-over-year. Net income was $650 million, representing a net income margin of 26%, our highest second quarter ever. And free cash flow for the quarter was $900 million, up 13% year-over-year. In fact, on a trailing 12-month basis, our free cash flow was $3.9 billion. And this represented a trailing 12-month free cash flow margin of 43%. And because of our strong cash flow and balance sheet, we were able to repurchase $2.5 billion of our stock in the last 12 months, which more than offset the impact of share dilution. Now, during the quarter, we saw a number of positive business trends. First, guest demand in Airbnb remained strong. Nights and experiences booked increased 11% in Q2 compared to a year ago. Active bookers grew in every region, and we had more first-time bookers compared to a year ago. In fact, we've now had more than 1.5 billion guest arrivals since starting Airbnb. Second, guests are traveling farther. Cross-border nights booked increased 16% in Q2 compared to a year ago. And we are especially encouraged by the continued recovery of Asia Pacific, where inbound international travel increased 80% compared to this time last year. We also saw cross-border nights booked to North America increase 20% year-over-year. Finally, the third trend we're seeing is that guests are staying longer on Airbnb. Millions of people remain flexible about where they live and work, and we see this reflected in our bookings. In Q2, long-term stays remained 18% of total nights booked. Throughout the quarter, we saw an acceleration in year-over-year growth in bookings for long weekend stays. In fact, in the past six quarters, long stays and long weekend stays have been the fastest growing trip type on Airbnb. This is just evidence of the incremental flexibility people have post-pandemic. Now, given that we're halfway through 2023, I just want to provide a very quick update on the progress we made across our three strategic priorities. First, we are focused on making hosting mainstream. With supply growth stagnated at the beginning of COVID, we developed a new strategy to recruit more hosts. Since then, we've been focused on raising awareness around hosting, making it easier to get started, and improving our tools for hosts. Our strategy is working. In Q2, supply growth was 19% year-over-year, up from 18% in Q1. In fact, in every quarter since we've gone public, we've seen an acceleration in total active listings growth. We're continuing to see strong supply growth across all regions, market types, and all price points. In fact, we added a record number of new listings in Q2, and we ended the quarter with more than 7 million total active listings. Second, we're perfecting our core service. We want people to love our service, and that means obsessing over every detail. Millions of people have given us feedback on how to improve Airbnb. We've listened. On May 3rd, we introduced over 50 new features and upgrades as part of our 2023 summer release. Many of these new features and upgrades were aimed at addressing affordability, starting with new pricing tools for hosts. Hosts told us that our pricing tools were difficult to use. So we redesigned our tools and made it easier for hosts to add discounts and promotions. They also told us they had trouble setting competitive prices. So we added a new feature called similar listings to help them see listings in their area so they know what to charge. We received very positive feedback from our hosts, and the changes are already having an impact. Hosts have started lowering their prices, with more of them offering weekly and monthly discounts. As more hosts adopt these tools, we believe we'll be able to drive greater affordability and value for guests. We also rolled out more affordable monthly stays. Guests are staying longer with Airbnb, so we took steps to make longer stays more affordable. We significantly reduced fees for stays longer than three months. We started offering U.S. guests the option to save money by paying with their bank account, and we made it easier for hosts to offer monthly discounts. As a result, the percentage of new active listings offering monthly discounts jumped from 22% to 50%. We took another step to address affordability with the launch of Airbnb rooms. Airbnb rooms take us back to our founding ethos of sharing, and it's one of the most affordable ways to travel, with an average price of only $67 per night, significantly lower than the average hotel room. Given the increased price sensitivity for many guests, especially the next generation of travelers, this is going to remain an important category for Airbnb. Our third strategic priority is to expand beyond the core. We've spent the past few years perfecting our core service. We’ve rolled out hundreds of new features and upgrades. Our core is stronger and more profitable than ever, but we're not stopping there because we have big ideas for where to take Airbnb next, and we're building the foundational capability for these new products and services that we plan to launch in the years to come. Before I turn to Q&A, I want to tell you about a recent campaign that highlights what makes Airbnb unique. Airbnb is known for one-of-a-kind listings. As I'm sure you know, the Barbie movie just came out in theaters. In celebration of the premiere, we partnered with Warner Brothers and Mattel to transform a home into the Barbie Malibu Dreamhouse and launched it as part of our Only on Airbnb campaign. Only on Airbnb captures global pop culture moments, inspiring guests with some of the most iconic homes in the world. The Barbie Malibu Dreamhouse has been a sensation; it is now Airbnb's most popular listing ever, with 13,000 press hits and more than 250 million social media impressions since it was announced. To give you a sense of how significant that is, that's more than twice the press hits generated from our IPO. Only on Airbnb campaigns are an effective way to introduce Airbnb and our unique inventory to new guests, and they'll be an important part of our playbook going forward. Those are the results I wanted to share for Q2, and with that, Dave and I look forward to answering your questions.

Thank you. We'll go to our first question from Mario Lu at Barclays.

Great. Thanks for taking my question. So the first one is on the third quarter ADR guide. You said there's upward pressure in the quarter. Can you help explain what you mean by the listing type mix shift that's affecting ADRs?

Yes, the listing type mix shift is just simply the mix of types of listings, either geographic type or size of home location, that's right in the mix. ADRs are coming up due to that. It's also being driven up in the third quarter due to foreign exchange.

Okay, got it. In terms of your section on the operational take rate, you mentioned that you're offering a lower take rate, especially for stays after the third month. Does that mean, over time, should we expect this number to come down? Or are there offsets that you're going to provide to keep the operational take rate flat? Thanks.

Yes, that's Mario. I can answer that. We always want to make sure that we're providing the very best value for our guests. We identified this as a huge opportunity where we could drive incremental conversion by lowering take rates after the third month. We saw some great results. That said, I do not expect our take rates to change materially. There may be some segments or trip types or geographies where we would want to reduce it, but that could be offset by other areas that could increase. Generally, I would expect it to be pretty stable. The way we're going to see margin expansion is by launching incremental services for guests and hosts over the coming years.

Great. Thank you.

We'll move next to Jed Kelly at Oppenheimer.

Hey, great. Thanks for taking my question. Just following up on the listing pipe, are you still adding more vacation rental single unit inventory versus some of the smaller units in urban vacation areas? Could you also give us an update on how we should think about your marketing into the back half? Thank you.

Yes. Hey, Jed, I can start and I'll hand it over to Dave. Our supply has actually been really, really strong. You might remember that during COVID, we flagged this as something we needed to work on. That's why we created an initiative called mainstreaming hosting, and the results have been very successful. In fact, supply growth is growing 19% year-over-year. Urban is actually growing faster than vacation. Urban is growing 20%, whereas vacation is growing 19%. So that is pretty stable. As for the number of individual hosts versus what we describe as professional hosts, around 90% of our hosts remain individuals. I'll hand over to Dave.

Yes, on the marketing back half, our marketing expenses as a percentage of revenue we expect to remain relatively flat year-over-year on a total year basis from 2023 over 2022. We did pull forward more marketing to the first half of the year relative to the second half this year. We've been really pleased with the results. Remember that 90% of our traffic remains direct or unpaid, which is an important differentiator versus others. When we do things like the Barbie Dreamhouse and other big events like that, we're able to drive greater awareness about Airbnb and the uniqueness of our offerings. This is a powerful strategy for our marketing.

Yes, maybe I'll just add one thing about marketing, which is that it's a full funnel approach. Last year, we got 600,000 articles written about us. People talk a lot about Airbnb. What you're also seeing is social media, whether it's the Only on program Barbie or just generally, social media is a topic of conversation. This is a testament to when you invest in a brand. When your brand's a noun and a verb, and you have something unique, you reap a lot of those benefits. I think it's going to be consistent, and we'll have pretty consistent marketing expenses to revenue over time because of the strength of the brand.

Thank you.

We'll go next to Douglas Anmuth at JP Morgan.

Hey, this is Douglas. Thanks for taking the question. I have two. So first, regarding affordability. Are you seeing that consumers are coming to your platform, seeing that the prices are high, and walking away? Do you feel like that's an opportunity you're not capturing? Or is it just the case that people are okay with higher prices on the platform right now? And the second question on your full year guidance for adjusted EBITDA, where do you see upside that gives you the confidence to raise it?

I don't think we were able to hear the second question. Could you repeat it?

Yes, sorry, on your full year guidance for adjusted EBITDA, what gives you the confidence to raise it?

On affordability, our prices have obviously risen since pre-pandemic, and the growth has been incredible; the business is nearly about twice the size that it was pre-pandemic. That being said, in the long run, Airbnb started as an affordable alternative to hotels. It's important to remember that for every dollar people spend on Airbnb, they spend as much as $10 in the world on hotels. So we're still a very small player in a very large market. One of our big opportunities is to ensure we continue to be affordable. Last year, we received feedback from the community that Airbnb was not as affordable as it used to be, which led us to make some significant changes. What we've seen, though, is that people booking prices on Airbnb are, on average, lower than the listed prices. We introduced a new feature called similar listings to help hosts see the listings that are getting booked, and what we've found is that the most popular listings that make the most money often offer the best value. So this has been a win-win for guests and hosts by really trying to build better tools. Additionally, it’s important to note that our prices are essentially flat year-over-year. They're about 1% up year-over-year, but in North America, our prices are down 1%. When you take out mix shifts because people are booking larger homes, our prices in North America are actually down 4%. Comparatively, hotels are up anywhere from between 4% to possibly 10% or more, which suggests that they expect prices to continue to rise. So to answer your question, people are coming to Airbnb for unique spaces at great value. If we can keep prices affordable while focusing on reliability, we believe there will be increased demand.

In terms of profitability, I'm proud of our continued progress in increasing our overall margins over time. We made some hard choices during COVID to reduce our fixed costs, refocus on our core, and concentrate on our overall profitability. Our marketing expenses have shifted, where 90% of our traffic remains direct or unpaid, giving us leverage for improving our overall profitability. We're continuing to make excellent improvements in our variable costs, such as operations support and community support infrastructure costs, and we're diligently managing our fixed cost growth.

I think that as we become more efficient, we actually grow faster. Being incredibly disciplined and focused has positively impacted our growth.

Okay, thank you.

And our next question comes from Stephen Ju at Crédit Suisse.

Okay, thank you. Brian, the shareholder letter is teasing us a little bit with commentary about expanding beyond the core, but there isn't much detail beyond that. In addition to experiences, could you share any updates on what you may be doing there, as well as the new directions you might be considering for products and services for either hosts or consumers? Thank you.

Hey, Stephen, thanks for the question. It's one of my favorite questions. What are we going to do next? Before we delve into expanding beyond the core, I would like to highlight our core. The hotel industry is over ten times the size of Airbnb. Almost anyone who stays in a hotel could consider an Airbnb. The spaces are unique and often offer better value, but we must continue to drive that value. The next big focus for Airbnb is reliability; we can make Airbnb nearly as reliable in many markets as hotels, which can open a new generation of travelers to our service. Therefore, we believe there is significant runway in our core business, as we are only scratching the surface, which is why we are concentrated on perfecting it. Now, beyond that, let's discuss what's next, starting with near adjacencies internationally. We've seen that Airbnb has substantial scale in the U.S. and top markets in Europe, but we're under-penetrated in most countries worldwide. For instance, a few years ago, we were worried about our penetration in Germany and Brazil. However, since the beginning of the pandemic, Brazil has more than doubled in size, while Germany has seen more than 60% growth, and is now on track to become one of the largest Airbnb markets. We plan to apply this playbook to Asia, beginning with Japan and Korea. The Asia Pacific market is a frontier and a huge growth opportunity. Beyond that, we see significant potential in longer stays. Pre-pandemic, only 13% of our business consisted of monthly stays, which has now grown to 18%. We believe this trend is stable and will likely continue to increase as more people work remotely with flexibility. We also think this business segment is underrated by many. Lastly, experiences, which had to be sidelined due to the pandemic, have shown tremendous potential for scale, with 95% of reviews for experiences being five stars as opposed to 84% for our core business. This indicates strong demand for experiences, which we believe is ready for scaling. While I don't usually wish to pre-emptively disclose new initiatives, I will note that we have numerous opportunities for services that could be offered to both guests and hosts. We've amassed a wealth of insights from companies like Eats, Amazon, Etsy, and Alibaba, and there's a range of services that could significantly enhance the host experience. Regarding guest services, we believe that in many markets, given our scale, we can afford to offer experiences that hotels might find economically challenging. Finally, I believe AI represents a once-in-a-generation platform shift, potentially even larger than the transition to mobile, and that we will be at the forefront of innovation in this area. I’m truly excited about our progress over the past three years in building a strong business, achieving profitability, and now moving to expand beyond our core.

Thank you.

We'll move next to Bernard McTernan at Needham & Company.

Great. Thank you for taking questions. Could you discuss booking trends throughout the quarter with April up 10% and June at plus 15%? What was driving that better performance throughout the quarter? And on pricing, you mentioned the new pricing tools focused on affordability. Are we seeing the full impact in Q3, or how should we expect that to trend throughout the coming quarters?

Let me start with the booking trends. What we shared in the letter is that global booking trends increased from 10% growth year-over-year in April to 15% in June. Q2 had a hard year-over-year comparison primarily driven by Europe, where delayed bookings in 2022 compressed into Q2. That pressure moderated through the quarter, which is the main reason we're seeing this acceleration. Interestingly, we actually saw total growth acceleration from Q1 to Q2 in North America. This speaks to the strength and resilience of the North American consumer. We're continuing to see that strength lead into Q3, which is why we're forecasting further acceleration of nights’ growth from Q2 into Q3. Great growth is occurring in Asia Pacific; we noted over 80% growth in the APAC region. I'm also pleased with our growth in Latin America, which is twice its pre-COVID size and continues to grow well. Regarding the pricing tools, we have observed several positive impacts from them. As we mentioned earlier, in North America, ADR is down 1% year-over-year when excluding the impact of mix; it's effectively down 4%. I don't believe we've fully seen all the effects yet. We will continue to improve and enhance these pricing tools for our hosts and offer transparent insights on competitive rates. Even as our prices moderate or decrease, other competing platforms have been struggling with increasing their rates, which highlights the value gap that exists in booking with Airbnb.

Great. Thanks, Dave.

We'll go next to Jacob at TD Cowen.

Hi, this is Jacob in for Kevin. Thanks for taking my question. We've been receiving inquiries from investors on potential initiatives that Airbnb could implement to increase its take rate, including allowing advertisers to bid on the platform. Could you provide details on that? Additionally, you discussed the expansion tools in Germany and Brazil earlier. Could you share any results you've observed so far? Thank you.

Yes, I'll start. Regarding increasing the take rate, I've learned from Jeff Bezos at Amazon that one of the essential roles of a business leader is to focus on the most perishable opportunities first. I believe the most urgent opportunity for Airbnb was to concentrate on scaling up our platform quickly to increase market share. Though advertising on the platform is a common query and absolutely on the table, it has not been our priority right now. We have efficient and unique tools for hosts; consider this: we introduced over 500 upgrades and innovations, mostly aimed at benefitting hosts, without increasing our take rate. However, we do understand there are several opportunities, including advertising, that we could explore in the future to enhance the experience for hosts. Regarding Germany and Brazil, Brian mentioned that we are not just a European or North American focused entity; we operate almost everywhere. The results we are seeing in Germany and Brazil are promising, as we expanded our approach regarding product localization and focused on marketing strategies like PR and social media partnerships with local celebrities.

You hit it well, David. I'll reinforce that the first step in launching in new markets is to ensure the product is localized. While the main product remains consistent, we need to consider local payment methods. A comprehensive marketing strategy involving all components, including social media, is crucial for effective scaling. We're expanding this strategy to Asia as well.

Great. Thank you.

We'll go next to Brian Nowak at Morgan Stanley.

Thanks for taking my question, Dave. To revisit an earlier question about ADRs being up in Q3, I understand the geographic size and mix impact, but could you provide more detail on that? We want to comprehend the drivers of ADR growth in the third quarter and its durability into next year.

What we see in the near term for Q3 is ADR being projected to go up year-over-year, driven by foreign exchange and the mix shift toward larger homes and geographic diversity. Over time, as we're seeing growth in regions like Latin America and Asia, where cross-border travel is increasing, we expect to see some moderation of ADRs over time. However, we refer to moderation by just a percentage point here or there. Historically, our ADR predictions have shown resilience, so we are optimistic based on our recent quarter experiences.

We'll move to our next question from James Lee at Mizuho.

Great, thanks for taking my questions. Two here, one on ADR, could you unpack the 1% decrease in North America? How does that breakdown between like-for-like comparisons and the mix shift? Additionally, can we address price elasticity, regarding how travelers are responding to hosts using the tools for pricing adjustments? Thank you.

Sure, we measure the price elasticity of our pricing and observe a positive correlation between lower prices driving increased nights overall. Affordability remains significant in people's minds globally. Although calendar prices have increased, actual booking prices on average are declining. In North America, while the overall ADR is down 1% year-over-year, the like-for-like comparison shows that same property averages are down 4%, which is notably different from trends in the hotel industry that report price increases of between 6% and 10%, leading to a widening gap in value.

I have one more question regarding student loan forgiveness expiration. What are your thoughts on its potential impact on your 2023 guidance?

I don't have a specific viewpoint on the student loan forgiveness and its impact on guidance. What we've observed is that while people anticipate some economic downturn, consumers are prioritizing travel over other expenses, which is proving resilient.

Okay, great, thank you.

We'll go next to Ken Gawrelski at Wells Fargo Securities.

Hi, thank you. I want to revisit the ADR issue. Brian, you provided helpful insight into the 4% like-for-like decline in North America. However, how do I reconcile David's comments on flat ADRs over the medium term with your emphasis on driving affordability? Additionally, how will you determine when the marketplace has reached equilibrium and the appropriate ADR prices?

Affordability and our prices need to consider the market context. Inflation means most services are more expensive today than a year ago. While our North American ADRs are down 4%, hotels are increasing their prices significantly. If Airbnb prices remain stable while hotel prices rise, our relative affordability improves. Balancing the right prices for both guests and hosts is vital. We want hosts to earn meaningful income, so we focus on finding the equilibrium where guests get great deals and hosts earn profits. We observe sensitivities and guide hosts to lower their prices to attract more bookings since most hosts have low occupancy rates. There's a balance that we seek to achieve for both sides that we believe is critical to our marketplace.

Thank you.

Next, we'll move to Tom Champion at Piper Sandler.

Hi, good afternoon. It appears you've developed tools designed to stimulate long-term stays. What effect do you think this will ultimately have on the 18% rate, which has remained consistent for the past couple of quarters? Where do you see this statistic going in the future? Alongside that, I've noticed another strong quarter for EBITDA margins. What's the long-term potential of business margins as you look ahead?

Hi Tom, I'll take the first question. Long-term stays currently account for 18% of our booked nights. Defining long-term stays as one month or longer, we expect this percentage will be significantly higher over the next decade. Flexibility is a growing trend; more individuals and families will seek alternative arrangements to traditional housing or travel. This area presents considerable growth potential for us, and we’re developing features and upgrades to enhance this segment. The emergence of a category dedicated to longer stays—despite not having a proper name—represents a new business opportunity that didn't exist meaningfully when we started. Anyone interested in booking a month or longer should look primarily to Airbnb. We believe we’ll lead in this new category. I can’t predict exact short-term fluctuations, but our long-term outlook is quite favorable.

I'm proud of our progress toward improving EBITDA margins. While we focus on growth, efficiency improvement continues to contribute positively to our margins. Higher average daily rates have bolstered our overall profitability. While we look to expand margins over time, we emphasize adding more services that Brian discussed earlier, which will lead to increased revenues flowing through to higher profitability. However, I don't possess new long-term targets; I’m pleased with the profitability we've achieved and the speed of our enhancements.

Thank you both.

Thank you.

Next, we'll move to Mark Mahaney at Evercore ISI.

I wanted to ask Dave about the financial impact of AI and Gen AI. Considering your investments in this area, do you think it’s more likely to lead to improved monetization or improved cost efficiencies? If you had to lean towards one, which would it be? Thanks a lot.

Absolutely, it’s both. The timing matters here. Presently, we leverage AI in our product offering; we utilize it for our party prevention technology and various matching technologies. While we see notable efficiencies from AI now, its future potential lies in further automation and customer service enhancements. In the short term, we’ll gain leverage in both fixed and variable cost areas, allowing us to manage customer service more effectively. Over time, we envision AI creating value through improved guest and host experiences.

To add something, as Dave mentioned, in the near-term, we're likely to see efficiencies; in the long-term, we anticipate growth. One specific area is customer service. The strength of Airbnb's model is rooted in the uniqueness of our billions of listings, but sometimes categorized experiences present challenges. With AI, we can enhance reliability and improve our service efficiency. For example, AI tools can read comprehensive policies, help summarize cases, and provide recommendations to customer service agents on how to address guest inquiries quickly. If we can perfect this, Airbnb will see a significant change in service quality, ultimately triggering more growth. Speaking of longer-term opportunities, I believe personalized services and recommendation systems are where the real potential lies, allowing us to craft unique offerings depending on individual needs and preferences.

Thank you, Brian. Thank you, David.

And that does conclude the Q&A session. I'd now like to turn the call back over to Brian Chesky for closing remarks.

All right, everyone. Thank you for joining us today. I want to recap. Revenue was $2.5 billion, which is 18% higher than a year ago. Net income and adjusted EBITDA were both Q2 records, and our trailing 12-month free cash flow was $3.9 billion. This represents a free cash flow margin of 43%. We made significant strides in the first half of the year, yet in many respects, we are just getting started. In November, we will share a new array of features and upgrades as part of our 2023 winter release. I'm proud of the journey we've made thus far, and I look forward to sharing more in our next quarter.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.