Airbnb, Inc. Q3 FY2023 Earnings Call

Good afternoon and thank you for joining Airbnb's Earnings Conference Call for the Third 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 Elli Mertz, VP of Finance. Please go ahead.

Thank you. Good afternoon and welcome to Airbnb's third 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 third 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 Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. With that, I'd like to pass the call to Brian.

All right. Well, thank you, Elli and good afternoon, everyone. Thanks for joining. I'm excited to share results with you. Q3 was another strong quarter for Airbnb. We had over 113 million Nights and Experiences Booked. Revenue of $3.4 billion grew 18% year-over-year. Net income was $4.4 billion. Now this includes a one-time income tax benefit from the release of a valuation allowance of $2.8 billion. But even excluding this tax benefit, adjusted net income was $1.6 billion, our highest ever and represented an adjusted net income margin of 47%. And free cash flow for the quarter was $1.3 billion. In fact, on a trailing 12-month basis, our free cash flow was $4.2 billion, which is also our highest ever. And because of our strong cash flow and balance sheet, we repurchased over $500 million of our stock. Now during the quarter, we saw a number of positive business highlights. First, we have added nearly 1 million active listings this year. Our supply grew 19% in Q3 compared to a year ago. We once again saw double-digit supply growth across all regions with the highest growth in regions with the highest demand. Urban and non-urban supply increased at nearly the same rate and we saw relatively similar supply growth among individual professional hosts with the majority of new listings exclusive to Airbnb. Second, Q3 was a record travel season on Airbnb. Nights and Experiences Booked grew 14% in Q3 compared to a year ago. We saw an acceleration of nights growth across all geographies and we are particularly encouraged by the growth of first-time bookers during Q3 and we saw more nights than ever booked in the Airbnb app with 53% of gross nights booked in the app compared to 48% in the same period last year. And finally, international expansion markets are gaining momentum. Cross-border nights booked increased 17% in Q3 compared to a year ago. In Asia Pacific, our business has fully recovered to pre-pandemic level. And we're seeing significant growth in Asia Pacific markets such as Taiwan, Thailand, and Indonesia, all experiencing year-over-year nights growth above 30% on an origin basis. Now we've been able to achieve these results by continually making progress on our 3 strategic priorities. First, we're making hosting mainstream. We've been focused on making hosting as popular as traveling and our Q3 results show that our approach is working. We ended the quarter with the highest number of active listings and we saw strong active listings growth across all regions of the market types. And hosts are benefiting. During Q3 alone, Airbnb hosts earned more than $19 billion. We'll continue growing supply by raising awareness around hosting, making it easier to get started, and improving the overall experience for a host. Second, we're reflecting our core service. We've collected millions of pieces of feedback on how to improve Airbnb. And 2 years ago, we started doing twice a year product releases to address this feedback. And since then, we've launched more than 350 new features and upgrades across our entire service. And in the past year alone, this has included things such as improved customer service, total price display, and new tools to help hosts set more competitive prices. These upgrades are paying off for both guests and hosts. For example, we redesigned our tool and we made it easier for hosts to add discounts and promotions. And now almost 2/3 of hosts offer weekly or monthly discounts. We also added a new feature called similar listings that lets hosts see listing prices in the area, so they know what to charge. And since we launched the similar listings tool, nearly 1 million hosts have used this feature. In mid-September, we shared progress we've made to help lower cleaning fees, reduce prices, and improve search and reliability. We have even more improvements coming as part of our November 8 winter release next Wednesday, where we'll introduce dozens of new features aimed at making Airbnb more reliable. And finally, our third strategic priority is to expand Airbnb beyond their core. Now we made significant progress in the past few years in building a strong and profitable business. And in addition to laying the foundation for new services and offerings, we've been focused on international expansion. We are investing in under-penetrated international markets and we're seeing great results. Following the success, we've seen in recent quarters in Germany and Brazil, Korea has now become one of our fastest-growing countries compared to 2019, with gross nights booked 54% higher than they were in Q3 2019 on an origin basis. As international travel continues to recover, we're building greater momentum for Airbnb in under-penetrated markets. So those are the results for Q3. With that, Dave and I look forward to answering your questions.

We'll take our first question from Mark Mahaney at Evercore ISI.

And I have 2 questions. You talked about some of these improvements you've seen in markets like Germany, Brazil, and Korea. Could you just spend a little bit more time on that opportunity going forward? And is it the expectation now that Germany and Brazil are already optimized, you just keep optimizing other ones? Or does this take a while to add to monetize those? And then secondly, in terms of future services that you could offer to sellers, any update on when we could see those, particularly things like sponsored listings for sellers, for hosts, I mean.

Yes, this is Brian. I'll address that. First, regarding international expansion, it's an important topic. Airbnb operates in 220 countries, making us one of the most globally present companies in the travel sector. However, our market penetration in the United States is much higher compared to many other countries. We believe there is substantial growth potential if we can extend Airbnb's presence to even a small fraction of that penetration in international markets. Last year, we initiated an updated strategy, implementing it in Germany and Brazil. This approach includes product optimization, public relations, local marketing, and various ground-level improvements. As a result, Brazil has doubled in size compared to pre-pandemic levels, and in Korea, we've seen a 54% increase. That said, we believe we have only begun to explore the potential in Germany, Brazil, and Korea. These markets hold great promise for further growth, and we're also identifying opportunities in Japan, India, China, and various parts of Asia Pacific. We're optimally positioned for growth in Southeast Asia and expect continued progress in Mexico and several European countries. In the next two years, we anticipate a significant leap in our market penetration in these regions. We have identified about a dozen to fifteen markets worldwide with considerable tourism potential, which is a key focus for our near-term expansion efforts. Concerning future services for sellers, we don't have specific announcements at the moment. However, we are building the infrastructure necessary to support new tools and services, such as sponsored listings. We are also piloting a co-hosting service that connects hosts lacking homes but with time to spare, to homeowners with space but without the time to host. This service has begun to gain traction in France and parts of the United States, and we believe it has the potential to unlock additional supply. Over the next couple of years, we expect to roll out several new services for hosts.

We'll go next to Eric Sheridan at Goldman Sachs.

I just have one. Brian, in a number of interviews in the quarter, you talked about the potential for product road map over the longer term, different products that could probably expand elements of the platform, car rentals, maybe even long-term apartment rentals. How do you think about product evolution that's being offered to the consumers on the platform and thinking about investing behind those initiatives?

Eric, I mean, just to step back, the last few years, I think we've really, really benefited by being focused. When the pandemic occurred, we felt like we had to hunker down, get really lean, get really focused and we went from basically a breakeven company to now a company doing obviously cash flow margins of around 44% of revenue. So we've really benefited from this focus and really benefited from focusing on our core business. To your point, Eric, I think we are now getting ready to re-expand Airbnb beyond its core. It was always our intention to do much more than just short-term housing for travelers. We're always intended to do more of that. So we're working on making Airbnb more of an extensible platform. And I think, ultimately, there are actually quite literally dozens of services, guests and hosts that we could build on top of the Airbnb system. I think a lot of it comes down to making the platform extensible so we can offer these services. I think at the end of the day, we're really thinking about a couple of big ideas. First, I think that we are thinking about generative AI as an opportunity to reimagine much of our product category and product catalog. So if you think about how you can sell a lot of different types of products and new offerings, generative AI could be really, really powerful. It can match you in a way you've never seen before. So imagine Airbnb being almost like the ultimate travel agent as an app. We think this can unlock opportunities that we've never seen. Additionally to that, there's a lot of opportunities on both the guests side and the host side. And so we're going to be thinking through a lot of this. So you'll see hopefully some updates in the coming years.

We'll move to our next question from Brian Nowak at Morgan Stanley.

I have two. First one, maybe on the guide a little bit. I know there's a lot of moving pieces between the revenue comments and the ADR comments and the take rate. Just sort of wanted to confirm, are you guys sort of looking to guide room night growth in sort of the high single, low double-digit range in 4Q? Is that the right way we should be thinking about with take rate and things? And then the second one, Brian, I know you have a lot of innovation, you have 350 features and upgrades, etcetera. Can you just sort of give us 1 or 2 of them that you think could be most impactful to accelerate that room night growth as we go into '24 and '25?

And Brian, sorry, are you referring to things we've already shipped or things that we're working on that we haven't shipped?

Well, either way you want to go. Yes, if you have one that already shipped that would be great. If you have other ones you want to tell us about next week, that would be good too.

Yes, let me address the innovation aspect first, and then Dave can discuss our guidance moving forward. I'll share some of the initiatives we've implemented and how we're approaching the upcoming weeks. Last May, we completed over 50 upgrades, driven by feedback from millions of guests and hosts about how to enhance Airbnb. Three key areas I want to highlight are total price display, pricing tools for hosts, and monthly stays. Regarding total price display, we introduced the display of total prices before taxes due to popular demand, making us the only travel platform to do so. As a result, 260,000 listings have either removed or lowered their cleaning fees, and we now have 3 million listings without a cleaning fee. We believe this has encouraged users to focus on better overall value. For pricing tools, since we launched the new tools, about half of our new listings are now offering monthly discounts. We also introduced a tool called similar listings, which allows hosts to see what nearby competitors are charging. This has proven effective in ensuring our hosts maintain competitive pricing, as many find that the most booked listings around them offer greater value. Approximately 1 million users have engaged with these tools, and I want to highlight that while hotel prices increased by 10% year-over-year in September, Airbnb prices globally rose only 1%. In North America, on a year-over-year basis and adjusting for foreign exchange, our prices are down 3%, starkly contrasting with hotel price hikes nearing double digits. Regarding monthly stays, we’ve made several updates, including the option to pay through banks, lowered fees after three months, and revamped interfaces. Listings for stays of three months or longer are now experiencing nearly 20% growth year-over-year. From these insights, it's clear that when we listen to our customers and adapt swiftly, we can drive growth. Looking ahead, while we don’t typically share too much about upcoming releases, next Wednesday we will focus on some significant opportunities related to reliability. Considering Airbnb’s size, for every person staying in an Airbnb, roughly nine people stay in hotels. This highlights the scale of hotels in comparison. When asked why they choose hotels over Airbnb, the primary reason cited is reliability—they want to know what to expect before booking. This reflects both the uniqueness and the variability of Airbnb, which may not appeal to everyone. Therefore, we are excited about new offerings next week that we believe will make a considerable improvement. I’m optimistic about what you’ll see next week, and we’re already planning for initiatives for next May and October as well, so stay tuned.

In terms of guidance for the fourth quarter, we expect revenue to be between $2.13 billion and $2.17 billion, reflecting a growth of 12% to 14%. In the third quarter, our revenue growth, excluding foreign exchange effects, was around 14%. We do not expect the same level of foreign exchange impact in the fourth quarter, so overall, our revenue growth is likely to be similar for Q4 and Q3. Regarding nights demand, we are experiencing some variability early in the quarter, so we are approaching that guide with caution. While we are not being specific, we anticipate that nights growth will be a few points below that of Q3.

We'll move to our next question from Lee Horowitz at Deutsche Bank.

Can you maybe help us think about how you guys are tracking towards expectations on occupancy or utilization moving forward? As you guys extend beyond the core into newer markets, do those markets come with occupancy or utilization headwinds that we should be thinking about? And holistically, how do you guys think about how occupancy or utilization may track next year? And then, maybe just one high level one. Sticking beyond the current cycle, we've seen a lot of other remote travel models sort of hit this low teens to high single-digit growth rate and decelerate from there or not be able to reaccelerate their business as a meaningful like. Can you maybe take a step back and help us better understand how you think that maybe Airbnb may be a little bit different than prior ratios that we've seen and could perhaps sustain sort of that double-digit revenue cadence over a longer period of time than what we're used to in the market.

Yes. Yes, you start with occupancy and I'll take the second question.

In terms of occupancy, we've actually seen it be pretty stable on a global basis. I mean, if you actually step back, you got to remember that the vast majority of our hosts on Airbnb are individual houses. They're not looking to drive 100% occupancy of all their listings. What they want to do is earn enough money to usually hit a certain amount of financial goals. So as we continue to grow our inventory, we're continuing to see strong occupancy levels overall. Clearly, we grew our inventory at 19%, which is ahead of kind of revenue growth in the current period. But if you actually step back and look over like a 4-year period, go back all the way to 2019, the growth in our overall listings has actually been relatively similar to our overall growth in nights. So that occupancy over an extended time period tends to be fairly stable, while in any short-term time period, it can have a little bit more volatility. But overall, again, we don't focus on occupancy as a primary driver; we monitor it local by local because what really matters is that we have great available listings in a specific market on a specific date.

Lee, I'll address your second question. Yes, I believe that we are just beginning to tap into the potential of this company. I genuinely think we can achieve strong double-digit revenue growth for many years ahead. There are three key points I want to highlight. First is our core business, which I believe has significant growth potential even without introducing new initiatives. I think nearly everyone who stays in hotels could benefit from Airbnb if they were aware of its advantages and if we could ensure that our service is reliable enough to serve as a viable alternative. Recently, we launched a marketing campaign called 'Airbnb it', which highlights the advantages of our service compared to hotels. Our research indicates that many hotel guests are not aware of the unique benefits Airbnb offers, especially for certain types of trips. For example, Airbnb is often more suitable for groups of three or more. When traveling with family or friends, why choose multiple hotel rooms when you can have an entire home? We’ve been running these digital campaigns, and they are performing exceptionally well. This will serve as the foundation for a significant marketing initiative next year. Additionally, if we continue to emphasize reliability—ensuring customers know what to expect when booking and providing top-notch customer service—we could reach a tipping point where more people opt for Airbnb in the coming years. Next is our international growth. While we operate in 220 countries and regions, only a few have penetration comparable to the U.S., namely Canada, Australia, and France. There is immense opportunity for us to replicate our successful strategies in other regions, particularly throughout Northern and Eastern Europe, as well as Italy and Spain, where penetration is much lower. Latin America presents a fresh market for us, and Asia Pacific can also be seen as a new frontier. We can unlock substantial growth simply by following our expansion strategy. Finally, regarding new products and services, we aren't revealing anything new at this moment, but I believe one of my greatest strengths as a CEO is innovating new offerings. This is why we've brought on many talented technologists and designers, and I see this as a key area for us moving forward. While we won't discuss new developments until they are ready to launch, we aim to introduce new ideas twice a year in May and November, which I believe will significantly broaden Airbnb’s market potential. While we can explore areas beyond short-term housing, I still view this segment as a substantial opportunity for us.

We'll go to our next question from Doug Anmuth at JPMorgan.

First, you caught up with the greater volatility in early 4Q. Just curious if you have any view of whether that's more macro driven or geopolitical and then curious if you have a sense of kind of visibility and any kind of bookings into 2024 and perhaps maybe how that visibility compares now versus a year ago?

It's challenging to identify the precise reasons for any softness or volatility. Overall, there is a slight decline in demand compared to Q3. We're highlighting macroeconomic and geopolitical factors as they seem to be influencing volatility. However, I am confident in our revenue growth for Q4, which is projected to be between 12% and 14%. The stability of this growth compared to Q3 is encouraging. As for 2024, it's still too early to provide a clear outlook, but I feel positive about our strategies and plans. I'm particularly excited about our increased efforts to expand in international markets. Demand for Airbnbs remains strong, as people continue to prioritize travel over material purchases, which makes me optimistic for the long term.

Next, we'll go to Jed Kelly at Oppenheimer & Company.

Okay, great. Can you just give us further update on the regulations you talked about in the shareholder letter? And then Google announced a new update to their vacation rentals where they're essentially letting property managers show their price. So can you talk about how you're seeing some of the changes Google is making?

Jed, I'll take regulation. So yes, I would generally say, over the last decade, we've been really, really encouraged by the general trajectory of regulation. Here are a couple of stats. Currently today, 80% of our top 200 markets already have regulations on the books and these regulations, though they vary, generally have found workable solutions for home sharing for us to continue to grow and thrive. I'd point out like the country of France has passed national legislation that is very, very favorable and workable. We've had cities near us, like Seattle or San Diego, that have passed really favorable legislation. I will probably contrast that to New York City which has completely gone a different direction. Unfortunately, I thought when we started Airbnb, we could develop model legislation in New York that we could make in New York, we could make it anywhere and that other cities have adopted legislation that New York has adopted. It turns out that's actually not the case. In fact, New York has gone a different direction and I think it's going to turn into a cautionary tale because what we're already seeing hotel prices in New York are now up 8% year-over-year. A one-bedroom or a studio in New York seems to be about $500. A lot of people can't even afford to go there anymore. We are seeing work bookings in Jersey City and the perimeters around New York City. I do anticipate more and more activity will probably go underground, which is probably not the intention of the people who passed a lot. Generally speaking, we're seeing the trend line to be really, really constructive. We built the city portal as the one-stop shop for cities to be able to self-serve, to be able to get data and monitor the type of activity happening in their city. We have 400 cities on the city portal. Generally, we're seeing that a lot of cities in the pandemic or post-pandemic era have reached out to us wanting to make sure that they can benefit from economic dollars going to the city and we've paid $9 billion in hotel tax. So generally, it's gone fairly well. It is going to be notable that if you just read the news, you're always going to seem to be reading about these cities, something happening in New York because we're in 100,000 cities and nearly all regulations happen at the municipal level. It's kind of a long slide to be able to work with these cities because there are so many of them and there's not a lot of standardization but generally speaking, excluding New York, we are seeing a lot of positive developments.

Yes, I can take this. I mean we're not going to respond directly to any kind of specific thing that Google is doing. I think if you do step back though and remember that the vast majority of hosts on Airbnb or individual hosts, approximately 90% of them, that the majority of those listings are unique to Airbnb and you can only get them here. I think that is one of the larger kind of defensible moats that we have which is if you want to have an amazing stay, if you want to have the unique listings, you come directly to us and we're really not seeing the impact of the competition taking additional share from us. In fact, we continue to take or increase our relative share of listings in the market, continually. This is why we're continuing to grow faster than the overall kind of travel market. So I don't have much more to say beyond that.

Yes. Maybe the only other thing I'd say is we're just seeing a lot of strength in mobile bookings. You can think of mobile bookings essentially like direct. It's not people not going to Google. 53% of our gross nights booked in the last quarter were on native mobile apps, essentially iOS and Android. And that is up from a year earlier which was less than 50%. Again, I'll just say 90% of our traffic is direct or unpaid. We think that the strength of our brand, the strength of our app, and the strength of people coming direct to Airbnb is key. The reason it's direct is because their inventory is unique. It's not commodities. The majority of hosts don't list anywhere else and we build customer tools for them. So that's our general theory, to build unique inventories that allow people to come direct to Airbnb. I don't see that changing.

We'll move next to Nick Jones at JMP Securities.

Brian, you mentioned that while hotel prices are increasing, Airbnb's pricing may be stable or even decreasing. What are your thoughts on the current average prices on Airbnb? Is there still potential for further reductions? Additionally, regarding your marketing and advertising strategies, do travelers consider Airbnb as a premium service, a discount option, or is reliability a key factor for them? Could you provide more insight into consumer hesitations when it comes to booking an Airbnb and the influence of pricing on those decisions?

Nick, let me start with pricing and then I'll talk about the general offering. When we started Airbnb, our original tagline was a cheap affordable alternative to a hotel. The primary reason people chose Airbnb in the early days was price. Now, once they used it, we used to say money is the hook but the experience is the reason you keep coming back. It turns out when you stay in Airbnbs, you're often typically in a real neighborhood, not a hotel district. You have this really cool space, you can make a meal, you have a lot more of a quick home. Sometimes there's a local connection to the community, that's what you're looking for. But affordability has always been one of the most important benefits that we have in Airbnb. I do feel like we still have the opportunity for our prices to be even more competitive. There's a really interesting thing we discovered. Within reason, generally, when hosts lower the prices, they tend to make more money. This is typically not true of hotels, right? Because if you're running at 80% occupancy and you lower your prices per night, you typically don't have a lot more room to make up the lower prices with higher occupancy and you'll typically lose money. But many of our hosts run at low enough occupancy and they always have that if they lower the price just a bit, they can sell more nights. We think there's a win-win where if we continue to encourage hosts to offer more competitive pricing, it's a win for guests, but it's also a win for many of the hosts. I would also just point out that in addition to pricing tools, you need to have ample supply. Supply, I just want to highlight again, is growing 19% year-over-year. This was a huge question by the way 18 months ago. Could Airbnb re-accelerate to nearly 20% supply growth and we are approaching 20% supply growth. I think that is really, really key. So to answer your question, we've made huge progress in the last year but prices are up quite significantly from pre-pandemic for Airbnb and hotels. We're both up a lot. My hope is whether or not prices come down on Airbnb further in the next year or 2, my hope is while hotels will almost undoubtedly keep increasing year-over-year, our prices will continue to be a little bit more moderated. That goes to the next question. We actually think there's a very high correlation of relationship between ADR and night growth, and the higher the ADR, typically the lower the nights growth, and the lower the ADR, typically the higher the nights growth. So there's a trade-off there. We think that as we continue to be more affordable, we'll continue to stimulate more demand. The interesting thing about Airbnb is that we're not really one type of offering, right? Southwest is a budget brand. Louis Vuitton is a luxury brand. Apple is kind of like a luxury brand for a lot of different people but they do have premium prices. Airbnb's offering really is one of the most unique and resilient models. We're one of the most popular brands for people under 30 in travel, probably the most popular brand for people under 30. We're also very much a family travel brand because homes accommodate families much better than typically hotels. We're not just an urban brand. We're a rural brand and vacation brand. We're not just a North American brand. We're a global brand. One of the things we highlighted in public is that we literally have something for everyone. As we continue to get more affordable, I think that's going to continue to drive a lot more growth for us.

And next, we'll go to Ron Josey at Citi.

Great. Brian, I wanted to ask a little bit about your comments on first-time bookers. I'm just trying to understand a little bit more about the drivers that are attracting these new bookers. Are they doing this directly through the brand Airbnb, through the app, and just trying to understand a little bit more as you're expanding the pie and getting more supply and how users are coming to the site, point number one. And the second question, just on probably with Experiences, is there any update there?

Yes, David can add to this as well. At a high level, we are noticing that most first-time bookers are coming directly to Airbnb. The primary reason people choose Airbnb is due to recommendations from friends or family. Our growth mostly happens through word of mouth. Additionally, we have a significant amount of earned media, with around 500,000 to 600,000 press articles published each year. Airbnb's share of voice far exceeds that of most travel companies, even surpassing many major travel brands combined. We also maintain a strong presence on social media, highlighted by popular events such as the rentals of the Barbie house and the Shrek House, which generate earned media attention. Furthermore, we run substantial brand campaigns, and most of our marketing expenditure focuses on brand marketing rather than performance marketing. Our marketing is aimed at educating people about our unique offerings. While we do engage in performance marketing, we see it not as a way to acquire customers like other travel companies, but rather as a precise tool to balance supply and demand and optimize specific markets. A significant portion of our traffic remains direct—about 90% is either direct or unpaid, and this trend has been fairly stable. Regarding Experiences, I don’t have new information to provide at the moment. I can say that we are actively working on improving this product. While many people appreciate our homes, with 84% of bookings resulting in 5-star reviews, and an even higher satisfaction rate of 94% for reviews, we haven't made updates to the Experiences product yet. We have been focused on recovering from the pandemic, enhancing our core services, and meeting customer needs. However, we plan to release updates on this product in the upcoming year and continue investing in it.

We'll go next to Kevin Kopelman at TD Cowen.

Could you touch on your vision for building more of a travel community on Airbnb and maybe the timeline you expect for rolling out some of the new community features that you've talked about a little bit?

Let me explain what I mean by a travel community. One of our main goals as a company is to create a global travel community where people can access homes, experiences, and various other services all in one place. This allows us to offer a wide range of options for both guests and hosts. We're looking to leverage emerging technologies like generative AI, potentially transforming the Airbnb app into an ultimate travel agent. To achieve this, we've been investing in several key areas, starting with identity and account structure. Unlike many travel companies where booking can happen without account details, every Airbnb booker and host must have a verified ID linked to their account, ensuring robust profiles. About 70% of users on both sides leave reviews for others, showcasing that Airbnb fosters a unique sense of community. By further investing in profiles and our trust system, we can learn more about our guests and hosts and present them with more tailored offerings. AI's potential is remarkable, and I want to highlight two key opportunities. Firstly, AI will likely impact digital businesses more than traditional ones. Companies like Airbnb and OTAs are likely to see quicker benefits from AI compared to hotels because our operations are more digital. One specific area where we expect improvements is customer service. Currently, navigating customer service at Airbnb can be challenging, especially when dealing with language barriers between hosts and guests. AI can help streamline this process, enabling agents to oversee a model that can quickly provide better resolutions and support. Secondly, we aim to reimagine the travel search experience. The current format has largely remained unchanged for the past 25 years, and with AI, we see the potential for entirely new booking models. This moment feels like a turning point for the internet and mobile in travel, where apps could personalize service by learning more about users and asking them questions. In the past, travel agents offered personalized insights, but then it shifted to self-service and price-driven models. We believe travel can evolve again, with AI leading the way, and we're excited about the possibilities ahead. This journey is just beginning.

We'll move next to Justin Post at Bank of America.

Supply is up 19%. How do you think about that as a leading indicator for room night growth? How do you maybe accelerate night growth to capture that? And then the second question is on ADRs. Is that supply coming in higher or lower than similar ADRs? And I don't know, Dave, if you can give us any thoughts on positive and negative drivers for ADRs next year.

Sure. Yes, I'll start with ADR and I'll go back to growth. I mean on the ADR side, it varies a little bit by market. We have seen, depending on the market, the ADRs of new listings coming in a little bit higher than they were in the average current ones. What actually ends up happening is people are booking lower ADR places, and so that's kind of the offset. It depends on what's available and versus what's booked. It does vary a little bit by region between North America and Europe on what the prices are. In North America, we're seeing more of the prices come down, and I think that's been a good indicator of strength for us going forward. In Europe, the ADRs have been a little bit more elevated, and we're hoping that with some more of the work that we've done to improve host tools and give greater visibility to hosts on how they're pricing, we'll continue to be able to moderate ADRs in Europe going forward, too. So that's on the leading indicator. I do think that the strength of 19% listings growth is a great leading indicator of what we're capable of growing over time. As I said earlier, the overall growth of Airbnb since 2019, nights growth has been actually relatively in line with the total growth of supply. I'm really bullish that we can get more supply coming on which will have more quality supply coming in, which will also can drive down actually the prices because the more supply that comes on board, maybe back to your first question, the more likelihood that we can actually bring prices down in the market or at least moderate them, so they don't grow as fast as competing supply. I'm really bullish on our overall growth. It's been great to see the strength of our listings growth this year.

Maybe, Justin, I'll just say that like this is my intuition having done this for almost 16 years of my life. I think that supply is even more important than it seems on the surface. Ultimately, when you're tiny and no one ever hears about you, one of the big levers is awareness. But once you're a brand like Airbnb that's known and used all over the world, supply growth becomes a very important long-term leading indicator. As long as we make sure we have healthy supply growth and then continue to improve reliability and promote Airbnb globally around the world, then that is a very healthy long-term indicator. We'd love for that number to be a bit higher.

We'll go next to James Lee at Mizuho.

Great. Two questions here, Dave. I remember at the beginning of the year when you were guiding ADR down about mid-single digits. You were talking about leverage and like variable expenses like payment and cloud. I was just wondering where you are in that process and how much up to unlock going forward? And secondarily, on sales and marketing, it looks like supply is creating demand right now. Is it fair to assume we're shifting more to demand-side advertising going forward? And can you talk about the implications there?

I'll begin with sales and marketing. We are not shifting more towards demand-side marketing. What we’re observing aligns with the success Brian mentioned earlier on the call. The majority of our traffic is direct or unpaid, with most people coming to Airbnb through referrals from family and friends. They reach us directly. Brand marketing plays a role in highlighting the features and benefits of Airbnb, while we employ search engine marketing strategically to address areas where demand may lag behind supply or in specific countries where we aim to strengthen our presence and grow overall. This approach of prioritizing brand marketing followed by precise search engine marketing continues to yield strong results for us. Regarding average daily rate, the improvements we’ve made in managing variable expenses have facilitated profitable growth. Our discipline in managing fixed costs has been commendable, with headcount growth this year at around 4%. We are increasing our headcount and fixed expenses more slowly than revenue. We are making significant progress in enhancing our operations and support, with Brian discussing many upcoming opportunities in customer service. We are also seeing notable advancements in payment costs and our infrastructure expenses. However, those are not our main drivers. Our primary focus remains on growing the business, making hosting mainstream, refining our core service, and expanding those core areas. I take pride in being able to achieve all these objectives while maintaining profitability and actually increasing our overall margins this year.

And we'll move to our next question from Lloyd Walmsley at UBS.

My question, you guys have been talking a lot about innovating on the search experience, like working on GenAI, the community side, things like co-hosting. Do you see a path where some of these features, over the longer term, like community and search drive enough differentiation that you could bring on more traditional supply, things like boutique hotels in such a way that you kind of expand your addressable market and revenue per user while still sort of preserving enough that's unique about Airbnb? Is that sort of makes sense? Or is that just too far out there?

No, Lloyd, that absolutely makes sense. I think that's inevitability. Just to back up for a second, we are very supportive of having hotel inventory on Airbnb. We acquired HotelTonight before the pandemic because we believe so much in it. Over the last few years, we had to make some decisions, especially when our business initially contracted and we made some decisions. We said, well, we have to really just get focused on our core. Our core was individual people renting homes, sharing homes. That is the most differentiated thing. It's inventory you can't find anywhere else. It's the thing that is most defensible; it's the thing that attracts all the direct traffic. That being said, I mean, let's just take New York, for example. We still have a lot of traffic and people searching for New York, and we now have a lot less inventory we used to have, so there's a real opportunity for us to supplement what used to be homes with boutique hotels. They're already on HotelTonight and others, and we can certainly put those in New York. I generally think for sure, as Airbnb becomes a little more of a so-called AI travel agent, which is what I think all travel apps will trend towards to some extent. I think there's opportunity for us to do things in a differentiated way, even with slightly less differentiated inventory. Our bread and butter for combinations is always going to be homes. That's where our heart and soul is. I think that's where the biggest growth opportunity is, but you should not think of our total supply or addressable market of supply as only homes. We've had hotels; we've just been prioritizing homes because we wanted to be really focused.

Next, we'll move to Kenneth Gawrelski at Wells Fargo.

Thank you. I have two questions. First, I'd like to revisit the topic of supply. You've mentioned it frequently, and with room nights up 19% and double-digit growth across all regions, it seems there’s a contradiction with the ongoing reports of new STR regulations in North America. Can you help us understand this discrepancy in the financial market? What are we missing as investors regarding where the supply growth is actually occurring, particularly in the Western markets? My second question is more specific; I know you've pointed out the volatility in room nights and demand during the fourth quarter. Are there particular regions you can highlight, or is this a widespread issue? From a timing perspective, did this volatility begin in October, or did it emerge during the third quarter?

Maybe I'll go for it, Dave.

Well, I'll just start with the volatility in room nights. There's not a specific region where we're seeing it. I think maybe the biggest thing we've seen is that it's more broad-based on a global basis right now, which is why we've kind of called out the macroeconomic and potential geopolitical issues as a potential driver to it. We saw maybe some of it just late September, and it's kind of been early October. Again, it's just a little too early to tell how much volatility we see going into the rest of the quarter. That's why we continue to highlight the revenue growth that we're still expecting this year between 12% and 14% and our growth overall. On the regulation side, I think it's a lot of what Brian said earlier that 80% of our top 200 markets already have regulation. I think the headlines, they tend to make good headlines when people are highlighting kind of issues with short-term regulation. But in many ways, outside of New York City, I have never felt better about our overall regulatory landscape on a global basis. We have really good partnerships with many cities around the world and things like our City Portal and other things have made us continue to collaborate extremely well with the vast majority of cities. So, I think those are outliers. But Brian?

Yes. I want to emphasize that we operate in 100,000 cities worldwide, and while some headlines may suggest issues, many cities have effective solutions in place. We're observing growth in supply across various markets, not just the major cities highlighted in the news. For instance, a report from the U.S. Census indicates that two-thirds of markets with Airbnb don't even have hotels. This underscores that there are numerous markets, especially in vacation rental and non-urban areas, that lack hotel options. Overall, while the media may focus on a few cities, they actually represent a very small fraction of our total market presence.

And we'll take our next question from Conor Cunningham at Melius Research.

Regarding the two-thirds of hosts currently using the pricing tool, you mentioned that the average daily rates for new supplies are higher. Are these hosts also more inclined to utilize the discounting tools you've discussed after listing? Additionally, considering the implications for the take rate as you expand into international markets, with over 50% of your rooms projected to be there, do you anticipate that the take rate will gradually decrease as you grow? I'm interested in your overall thoughts on this.

Yes, I can take the first one, Conor. On tools, generally, new hosts adopt new tools at a higher rate than existing hosts. The reason why is like when you sign up, we have this really great onboarding and you're immediately presented with all the tools. We do have a percentage of our hosts, maybe like, call it, 1 million hosts that are highly, highly engaged, and they're going to be really engaged on a lot of these tools. But every new host, as far as they're concerned, every tool is exactly how you're supposed to use Airbnb, whereas an older host, there's an adoption where you have to get them on to the new tools and they're used to hosting a certain way. So we're generally seeing that new hosts would probably adopt new tools at a faster rate than existing hosts. That being said, the ADR-related new hosts might also be related to the mix shift. We're getting a lot of inventory in non-urban areas. There are a lot of different reasons I can explain that. Dave, I can hand over to you.

No. I mean, actually, I think over time, the way we think about our take rate is that it's been very stable. We've actually made no underlying kind of recent changes to our absolute take rate. What we want to be able to do is as we add more services and capabilities, that would be the way to further kind of monetize Airbnb. What have we done things like adding guest travel insurance has been a nice add for kind of incremental monetization. It's small but it's growing nicely. As Brian said, as we expand beyond core and add more services for hosts and guests, that will be the way to kind of increase it.

You could theoretically argue the inverse, which is to say that as we expand into new markets, they might be more interested in new services that we can offer because hosting is newer to them. So as we expand in new markets and as we expand to new host services, we want to make sure that new hosts and new markets are part of those opportunities.

And there are no further questions at this time. I would like to turn the conference back to Brian Chesky for closing remarks.

All right. Well, thanks, everyone, for joining today. Just to recap, revenue was $3.4 billion, 18% higher than a year ago. Net income and adjusted EBITDA were both Q3 records. I just want to highlight that our trailing 12-month free cash flow was $4.2 billion. This represents a free cash flow margin of 44%. I want to call out the incredible hard work that the team has done over the last 3 years. We've been really disciplined to try to make this business a cash-generating machine and to be really focused. The team has made some great progress. Next week, we're going to take a leap forward in making Airbnb more reliable with some big updates as part of our 2023 winter release. I hope you can tune in; it's next Wednesday, November 8, to learn more, and I'll see you there.

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