Airbnb, Inc. Q3 FY2024 Earnings Call

Good afternoon, and thank you for joining Airbnb's Earnings Conference Call for the Third Quarter of 2024. 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 it over to Angela Yang, Director of Investor Relations. Please go ahead.

Good afternoon, and welcome to Airbnb's third quarter of 2024 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, Ellie Mertz. Earlier today, we issued a shareholder letter with our financial results and commentary for our third quarter of 2024. 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 the time on Q&A. Before I turn it over to Brian, I would like to remind everyone that we will 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 provide a reconciliation 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 will pass the call to Brian.

All right. Good afternoon, everyone, and thanks for joining. Airbnb had a strong third quarter. Nights and experiences booked accelerated throughout Q3 and into Q4. Despite a slower start to the quarter due to shorter booking lead times compared to last year, bookings grew steadily each month and returned to double-digit growth by the end of Q3. We had 123 million nights and experiences booked. Revenue grew 10% year-over-year to $3.7 billion. Net income was $1.4 billion, representing a net income margin of about 37%. We generated $1.1 billion of free cash flow. In fact, our total trailing 12-month free cash flow was $4.1 billion, which allowed us to repurchase $1.1 billion of our shares in the quarter. As of the end of Q3, we have $4.2 billion remaining on our repurchase authorization. During Q3, we continued to make progress across our three strategic initiatives, which are making hosting mainstream, prospecting our core service, and expanding beyond the core. Now I am going to share a few highlights about each. First, we're making hosting mainstream. We are focused on making hosting just as popular as traveling on Airbnb. Today, we have over 8 million active listings with growth across all regions and market types. To retain and attract new hosts, we prioritize making hosting easier. Last month, as part of our 2024 winter release, we introduced co-host networks, an easy way to find the best local host to manage your Airbnb. Co-hosts are some of our most experienced hosts. They provide personalized support that ranges from listing setups to managing bookings and communicating with guests. Second, we're prospecting our core service. Over the past three years, we've launched more than 535 new features and upgrades to make Airbnb a better service. Our 2024 winter release included over 50 upgrades for guests that make Airbnb a more intuitive and personalized app. This includes features like recommended destinations, suggested search filters, and personalized listing highlights. We're also focused on one of the top issues for guests: listing quality. Since last year, we removed over 300,000 listings that failed to meet guest expectations. We will continue to invest in improving the quality of guest stays. Finally, we're expanding beyond our core. Outside of our core markets, there are many countries and regions that remain under-penetrated, and we're focused on these expansion markets as part of a global market strategy. We’re seeing great results. In Q3, the growth rate of nights booked in our expansion markets more than doubled that of our core markets. We’re also preparing for Airbnb’s next chapter, which will take us beyond accommodations. You’ll see more about this next year. Additionally, guest demand accelerated throughout the quarter. As I mentioned earlier, after a slower start in July, bookings accelerated each month in Q3. Global lead times also normalized throughout the quarter. Part of this growth has been driven by our app strategy; nights booked on our app increased 18% year-over-year in Q3. App bookings now account for 58% of nights booked, up from 53% in the same period last year. We also saw continued growth of first-time bookers, with the highest growth among young travelers. This is quite exciting. I'm also really excited to share that we recently surpassed 2 billion guest arrivals on Airbnb. Our global market strategy is working. We continue to drive growth by investing in under-penetrated markets. While our timing and investment level will vary by market, our strategy is consistent—to make Airbnb local and relevant in more places around the world. In each market, we focus on finding product-market fit, increasing brand awareness, and driving traffic. For example, in Japan, Airbnb is still relatively new and pretty unfamiliar to most Japanese travelers. To raise awareness, we launched a brand campaign last month centered on domestic travel. Beyond Japan, we are also introducing more local payment options in countries around the world like Vietnam, Denmark, and Poland. By spring of next year, we expect to offer nearly 40 local payment methods globally. Finally, supply quality is improving on Airbnb. We are focused on removing low-quality supply as well as making it easier for guests to find the best places to stay. We removed over 300,000 listings last year, and we're already seeing the payoff. Customer service contact rates have decreased, guest MPS has improved, and we’re also reducing host cancellations, which are now almost 30% lower than a year ago. We’ve made it easier for guests to find the best place to stay with Guest Favorites. Since launching Guest Favorites a year ago, over 200 million nights have been booked at Guest Favorite listings. Next, I want to share briefly some highlights from our 2024 winter release last month on October 16th, starting with the co-host network. We know that hosting on Airbnb is one of the best ways to make money from your home. However, not everyone has the time to host. That's why we introduced the co-host network, an easy way for people to find and hire the best local co-host to manage their Airbnb. Co-hosts offer personalized support for host needs, helping with everything from setting up listings to managing bookings and communicating with guests. These are super experienced hosts with an exceptional track record; 73% are superhosts, and 84% manage Guest Favorites. When we announced this on October 16th, we launched the co-host network with 10,000 co-hosts across 10 countries. In the three weeks since we launched, we've already received interest from over 20,000 potential new co-hosts. This is huge and much bigger than we expected. We believe this co-host network will enable us to lock in even more high-quality supply. We also introduced safety updates for guests and made Airbnb a more intuitive and personalized app. Features include a personalized welcome tour of the app for first-time guests, suggested destinations, and recommendations based on search and booking history. For our hosting highlights, when a guest views a listing, we'll highlight the details relevant to their search, and we have many similar features. This is just the beginning of a more personalized Airbnb. Turning to Q4, last quarter we talked about shorter booking lead times. However, nights and experiences booked accelerated throughout the quarter, returning to double-digit growth by the end of Q3. While we know the comparisons from last year will get tougher in the back of the quarter, we anticipate that nights booked will accelerate in Q4 relative to Q3. With that, Ellie and I look forward to answering your questions.

Our first question comes from Richard Clarke with Bernstein. Your line is open.

Hi, good afternoon. Thanks for taking my questions. Just a question on supply. It looks like you stopped sort of giving us the year-on-year supply growth, I guess because of the removals. Any color on what’s happening to maybe gross supply growth? And whether the removals you are doing and the additions you are seeing any meaningful shift towards professional hosts as you carry out this process or co-listed supply? And then, maybe any color on whether this co-hosting is unlocking supply here. You talked about adding co-hosts, but are you getting additional supply due to the co-hosting initiatives?

Yes, thanks, Richard. Let me talk a little bit about what we've seen on supply. As you probably noted, our initiatives around supply have really morphed over the last 12 months. We continue to focus on growing our overall supply base, but we are increasingly focused on ensuring we deliver very high-quality levels of supply across the world to our guests. The two important features we've implemented to drive quality are the introduction of Guest Favorites a year ago, and the removals that you referenced over the last 12 months. Interestingly, we’ve seen the intended impact of these quality initiatives. Encouraging guests to use Guest Favorites and taking down listings that we believe do not meet our quality expectations has resulted in increased average ratings for our stays, decreased incident rates, and reduced customer service contacts. Regarding the specific questions about supply growth, it continues to be strong. In Q3, we saw supply growth exceed demand by a couple of points. Our focus has recently shifted towards incrementally raising the quality bar, rather than just adding more supply to the platform. Brian, do you want to discuss co-hosting or should we take that as well?

Yeah, I can take that. Richard, it’s a great question. I believe that we are just scratching the surface of how big this company can become. The growth rate of demand will likely align with the growth rate of supply. We had to contemplate how to unlock millions of listings on Airbnb and how to get more everyday people to share their homes on our platform. We conducted research and learned two key things; first, people are interested in making extra money from homes they already have, and second, many people don’t host because they feel they lack the time. Thus, we thought, what if we matched people with homes who don’t have time with those who have extra time but do not have homes? This could potentially unlock millions of new listings. Importantly, our co-host network has shown we can achieve better performance than third-party property management companies, which historically underperformed. We started with 10,000 co-hosts, and interest is significantly larger than we anticipated. I firmly believe this will unlock more supply in the coming years, with many of the new hosts being everyday individuals who will list exclusively on Airbnb.

Thanks. Thanks very much.

And your next question comes from the line of Mark Mahaney with Evercore ISI. Your line is open.

Hey, thanks. Two questions please. You talked about this acceleration or improvement in room nights as you kind of went through the quarter. Did that come from any particular geographic areas? We'd heard that Europe was one market that was recovering maybe faster than others. Was that your experience, as well? And then, just back on the co-hosting experience, you had this out in a series of markets for a while. How long do we see materiality come through it? Have you seen these in relatively small markets where you’ve rolled it out this become material to the growth rate in those markets already in the 6 to 12 month period, or does this take more of a 12 to 24 month process? Thank you.

Thanks, Mark. Regarding the acceleration of the business, what we shared in the letter indicates that there was a bit of softness globally related to lead times. We noted continued strength in last-minute bookings, but relative softness for longer lead times. Over the quarter, we observed normalization in lead times, specifically in EMEA, which recovered significantly post-Olympics. This trend of acceleration was experienced across all four major regions. Regarding co-hosting, Brian provided broader insights earlier. One reason we had confidence in launching the Co-host Network is from our pilots over the last several years, particularly in France, which has shown encouraging results with co-hosts attracting high-quality listings themselves. While it will take time to scale co-hosting relative to our existing business size, the pilots have been very promising, and we’ll continue to enhance and grow the network.

And your next question is going to come from the line of Brian Nowak with Morgan Stanley. Your line is open.

Thanks for taking my questions. I have two. Excuse me. The first one, I think that the Q4 EBITDA guide sort of implies a margin somewhere in the 20s around 27%, 28%. Are there any factors you would call out that are driving the margin down to that level? And then, how should we think about the levels of investment and the philosophy around investment and margins into next year to sort of go off this 27 number in the fourth quarter? Thanks.

Yes, Brian. Regarding Q4, the guide does imply several points of margin compression relative to last Q4. This will be most evident in our product development line item as well as marketing. In marketing, we’re continuing to invest in our global expansion markets in our comm strategy around icons and also performance marketing, where we’re seeing great efficiencies. Additionally, there are some timing differences in terms of spend from Q3 into Q4, but overall, the incremental marketing spend year-over-year is relatively modest. In regards to the level of investment and philosophy around margins in 2025, we will provide more details in the following earnings call; however, one important aspect of our P&L management is that we have been extremely disciplined in delivering over quarter basis points of EBITDA margin expansion since 2020, moving from negative margins in 2019 and 2020 to over 35% consistent with our outlook this year. Our business model is strong and highly profitable with world-class cash flow generation, and over the long term, we expect opportunities for further margin expansion. As we head into 2025, our focus will be on investing in growth, both in our core accommodations business as well as in our new offerings. Our goal is to make our core business better and more efficient every year, creating greater value for guests and hosts while identifying incremental efficiencies across our variable costs.

And your next question comes from the line of Justin Patterson with KeyBanc. Your line is open.

Great. Thanks for taking the question. Brian, recently you’ve passed the two billion guest milestone, and you did that next one billion much faster than your first one billion. As you look at the business today, what investments do you need to make to attract that next billion-plus guests to Airbnb when you consider the types of people taking trips today? What demographics do you under-index on? And how do you think these service releases can really attract that next wave of customers? Thank you.

Justin, it’s a great question. Let’s step back—it’s remarkable that Airbnb has been used by two billion guests. I remember when we started Airbnb, I told investors that one day this company would be huge, and I think there has been a common pattern where we keep saying it’s going to be big, and it’s even bigger than we imagined. The travel industry is massive, comparable to the oil industry, and people love to travel. One thing I know about the future is that more people will travel than in the past. If we think about how to grow, I think we can break it into a few chapters. The first chapter was the idea we had in 2008, and how it evolved into what it is today. The second chapter started around the pandemic when we lost 80% of our business but rebounded to profitability and went public. I believe the next chapter of Airbnb is starting next May, as we expand beyond our core business. I'll outline three areas of growth, starting with the shortest to longest horizon. The immediate opportunity is finding ways to improve our core business, specifically driving room nights booked from our existing base of almost 500 million. I believe our core business can reach a billion nights a year. I don’t want to give a specific timeline, but the focus will be on increasing quality and usability. Next is our Global Market strategy. A large percentage of our business is still centered in five countries: the US, Canada, Australia, France, and the UK. There are enormous opportunities in emerging markets, which include Mexico and Brazil in the Americas, Germany, Italy, and Spain in Europe, and Korea, Japan, India, and China in Asia. Finally, beyond our core business is where the biggest opportunity lies. We are not just going to put more emphasis on accommodations; we intend to launch one to two new businesses that generate a billion dollars or more in annual revenue over the coming years. While I cannot share all our plans now, one key initiative will be reimagining Airbnb experiences, which will be launched next May.

And your next question comes from the line of Justin Post with Bank of America. Your line is open.

Great, thanks for taking my question. I just wanted to ask about the new markets. If you could provide some details on the expansion markets, specifically some of the biggest ones? I know Japan is one of them, and how significant they are so we can think about the growth contribution next year. Thank you.

Yes, Justin. Let me provide some context regarding our overall concentration of the business. Our core markets—US, Canada, Australia, France, and the UK—represent approximately three-quarters of our gross booking value. The rest of the world makes up the remaining quarter. Our expansion markets account for roughly 15% of the remainder and, in a normalized world, should be significantly larger. To illustrate the success we're seeing, let’s take Brazil as an example; it was one of our first expansion markets and since focusing on it two years ago, we have localized our brand campaigns and products to fit their market. As a result, from a destination night perspective, Brazil is currently three times larger than it was pre-pandemic. We can see that the combination of localized marketing and product relevance allows us to scale these smaller portions of our business into significantly larger proportions over time. Additionally, Japan represents a significant market where we are relatively new in the eyes of travelers, and we aim to introduce ourselves more to local travelers, expanding our domestic operations.

And your next question comes from the line of Lee Horowitz with Deutsche Bank. Your line is open.

Great. Thanks so much. A couple of I could? Maybe your online travel peers have given us color on what they think their long-term booking growth should look like. Given your leverage to alternative accommodations, could you provide any insight into the long-term growth algorithm for your core business? And what new verticals may add to that on top of that? And then, what’s your follow-up if I could.

Lee, before Ellie answers, I’d just like to clarify one thing. I don’t think we operate in the alternative accommodations sector; that’s what our competitors do. I've never heard a customer say alternative accommodations; they say Airbnb. We believe we are in a category of our own. Ellie, over to you.

Thanks, Lee. When we analyze our growth algorithm and overall growth drivers, it aligns with what Brian described earlier. It starts with optimizing our core offering such that we reduce the barriers to booking Airbnb relative to alternatives, particularly hotels. As we focus on affordability and reliability, we know that many consumers still consider themselves hotel guests over Airbnb guests. Our ongoing optimizations and marketing strategies help not only elevate consideration but also streamline the booking experience. We maintain that there’s substantial growth potential ahead even within our core markets due to the considerable gap between awareness and booking confidence across our platform. The second aspect involves addressing our over-concentration in core markets, which does not reflect our business opportunity across the globe. As we continue improving our global market strategy, we expect the contribution of these expansion markets to grow each quarter. The results we've experienced this year support this optimism, but scaling these businesses will require ongoing effort.

Great. And to the extent that your improving Q4 outlook due to some of the investments you’ve been making is indeed encouraging, does this confidence motivate you to invest more behind these initiatives? How should we think about this interplay of investment in driving margin over the longer term?

We’ve built out our product roadmap around core optimizations where we see success; as improvements arise, we proactively allocate stable resources to these areas to ensure continuous enhancement each quarter.

And your next question comes from the line of James Lee with Mizuho. Your line is open.

Great. Thanks for taking my questions. Can you discuss the progress you've made on affordability and quality that’s driving the increase in bookings we’ve observed this quarter? Also, could you provide an update on your service transformation, specifically what’s working, what's not, and what still needs improvement? When do you expect to complete this process?

Great questions, James. Let me start with affordability and reliability. It’s interesting, the first tagline Airbnb had was 'an affordable alternative to hotels,' and it was the primary reason many tried us. Today, I believe people use Airbnb because they want local experiences and more space, but affordability remains crucial. After the pandemic, demand surged, supply constrained, and prices increased. A couple of years ago, we prioritized driving affordability on Airbnb. We received a lot of feedback about rising cleaning fees, so we implemented total price display for transparency. Since then, over 300,000 listings have lowered or removed their cleaning fees, which has been significant. Additionally, we incorporated weekly and monthly discounts—now over two-thirds of hosts offer discounts, and more than half provide monthly discounts, which has led to 70% of our nights booked being for monthly stays. We also introduced a similar listings tool to help host price competitively, and we've launched features like price tips to guide them. Ultimately, as supply increases relative to demand, we expect prices to decrease, and I believe the results indicate that while Airbnb prices remained stable over the past two years, hotel prices have surged. Regarding reliability, I believe it is crucial for driving growth. We are focusing on improving guest experience, evaluating the 2 million best listings through Guest Favorites and ensuring customer service quality. We’ve removed around 300,000 listings that didn’t meet our standards and we are seeing a positive impact across various metrics, including NPS and rebooking rates. Finally, our customer service transformation is exciting. We’re incorporating AI to enhance efficiency. While we don’t want to overuse the hype around AI, we are making progress. Phase one focuses on answering basic questions; phase two on personalization, and by phase three, we'd take actions on behalf of our users. Our goal is to ensure that every customer contact feels like a positive interaction.

And your next question comes from the line of Doug Anmuth with JPMorgan. Your line is open.

If you could check to see if your line is on mute. Moving forward to our next question from Kevin Kopelman with TD Securities. Your line is open.

Thanks a lot. A question on the new services that are expected to roll out next year. Should we think of those new services as driving revenue growth immediately, or do you expect a more gradual rollout, more of a 2026 revenue driver?

I can take that, and Ellie can feel free to add. Kevin, the answer is a little bit of both. Let’s refer to Uber. When they launched Uber Eats, they did it city by city, gradually. We intend to take a more aggressive approach with our new offerings next year, making them broadly available in over 100 cities globally. We anticipate some incremental revenue next year that will contribute positively to financials. However, we also recognize that some of these initiatives represent multi-billion dollar opportunities that require patience to fully scale, potentially needing up to five years to reach their full potential.

One point I will add is that we expect some of the investments behind those new services to precede their revenue generation. You will begin to see those expenses early in the year, as we ramp up the investment before scaling the revenue.

And your next question comes from the line of Patrick Scholes with Truist. Your line is open.

Great, thank you. Good evening. I want to go back to the first question I was asking and ask it maybe a little more direct. Can you provide us in percentage terms what your year-over-year net unit growth was in the quarter? Thank you.

On supply? Yes, we had over 10% growth in supply as of the end of Q3, which is down several points based on the removals.

Your next question comes from the line of John Colantuoni with Jefferies. Your line is open.

Great. Thanks for taking my questions. I wanted to ask about the Experiences offering. As you get closer to the relaunch next year, how are you thinking about the pace of expansion and scalability? I know you’d like to keep experiences unique like your accommodations offering, but I’m curious if this means it will take longer to build supply behind it. Could you also provide some insights on investments in technology or marketing planned around the relaunch of Experiences? Thanks.

John, this is a great question. We're able to achieve a balance where we can offer something unique and also scale. However, I want to moderate expectations regarding experiences. These journeys will be multi-year endeavors. I don't believe we need to pick between being unique and scaling; our core business itself—which is approaching $100 billion in gross sales—is unique. While I can't promise that experiences will reach that level, we feel confident that they will be both unique and scalable globally. Most of the technology investments have already been made over the past few years, as we've largely rebuilt the company, making it stronger and capable of supporting multiple verticals like Amazon. Our approach will be to market experiences not as standalone businesses, but as part of the Airbnb brand, allowing for a broader appeal across all our offerings.

And your next question comes from the line of Jed Kelly with Oppenheimer. Your line is open.

Great, great. Thanks for taking my questions. Could you discuss the expanding regulatory landscape in cities like New York City where the regulations are becoming increasingly difficult? How should we view these trends and will you be leaning more into hotels? As you expand outside your non-core markets, will you be more brand-driven or will you focus more on performance marketing?

Sure, Jed. I’d like to discuss two cities: New York City and Paris. Both cities have made recent decisions regarding Airbnb; however, there is a stark contrast between their approaches. New York City banned Airbnb a year ago, hoping to increase rental supply and lower prices. However, a longitudinal study showed that rent prices increased rather than decreased, along with rising hotel prices. New York's experience serves as a cautionary tale of what not to do with Airbnb. Conversely, Paris took a different approach; they recognized Airbnb as a solution to their housing shortage for the Olympics, leading to an increase from 100,000 homes to 150,000 homes in the area, accommodating 700,000 guests during the event. This favorable scenario in Paris is becoming a template for cities worldwide, seeking our partnership for local events. Regarding New York, I remain optimistic about finding a workable solution for re-entering the market, although the timeline remains uncertain. We’ve also had a positive approach towards hotels, and we will be adding more hotels to Airbnb, signifying that both can coexist; guests should have the choice between homes and hotels on our platform. We’re looking at hotels in New York City and encouraging stays in areas outside of Manhattan.

Our next question comes from Stephen Ju with UBS. Your line is open.

Great. Thanks. So Brian, about Experiences again, I'm curious if there’s a potential to increase overall engagement and even frequency of usage for your platform. I might not book an Airbnb every weekend, but I could try an Airbnb Experience every weekend. I'm wondering how product development will shift as your selection expands.

Absolutely, Stephen. This is an excellent point. Experiences can enhance our platform engagement significantly. While Airbnb stays are typically booked once or twice a year, experiences can be more frequent, allowing us to shift Airbnb from an annual app to a monthly or even weekly usage app for many users. We are designing experiences that cater to locals beyond travel; we plan to create offerings for various occasions, making it valuable for non-travelers. The potential is vast, and we believe many customers will engage with experiences regularly, boosting our overall engagement.

And there are no further questions at this time. I would now like to turn the call back over to Brian Chesky.

I just want to thank everyone for joining today. To recap, revenue was $3.7 billion, which is 10% higher than a year ago. Adjusted EBITDA was $2 billion, and our trailing 12 months cash flow is $1.1 billion, representing a free cash flow margin of 38%. Our strong results enabled us to repurchase $1.1 billion of our common stock this quarter, and we continue to innovate as our products keep getting better. I am proud of what we've accomplished, and I am satisfied with our progress. Thank you all for joining.

This concludes today's conference call; you may now disconnect.