Earnings Call Transcript - ABNB Q1 2024

Operator, Operator

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

Angela Yang, Director of Investor Relations

Good afternoon, and welcome to Airbnb's first quarter of 2024 earnings call. Thank you for joining us today. On the call today, we have Airbnb 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 first 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 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.

Brian Chesky, CEO

All right. Good afternoon, everyone, and thanks for joining. Airbnb had a strong start to 2024. We had 133 million nights and experiences booked in Q1, marking our highest first quarter ever. Revenue of $2.1 billion grew 18% year-over-year, primarily driven by continued strength in travel demand and the timing of Easter. Net income was $264 million, representing a net income margin of 12%. For Q1, our free cash flow was $1.9 billion, our highest ever. And for the trailing 12 months, our free cash flow was $4.2 billion, representing a free cash flow margin of 41%. Our strong cash flow allowed us to repurchase $750 million of our shares in the quarter. And at the end of Q1, we had $6 billion remaining on our repurchase authorization. Now, during Q1, we made significant progress across our three strategic initiatives, which are making hosting mainstream, perfecting our core service, and expanding beyond the core. First, we're making hosting mainstream. We remain focused on making hosting just as popular as traveling in Airbnb. And to do this, we're raising awareness around the benefits of hosting, providing better tools, and helping hosts deliver high-quality stays. As we grow, we're also taking action to rapidly improve the quality of stays on Airbnb. In Q1, we removed thousands of listings that failed to meet our guest expectations. And excluding these removals, active listings for accommodations grew 17% year-over-year. We also saw sustained double-digit supply growth across all regions. This year, we'll continue to raise awareness around hosting and improve the overall host experience. Second, we are perfecting our core service. Over the past few years, we've rolled out more than 430 new features and upgrades to improve our service. In November, we took another huge step forward on reliability with the launch of Guest Favorites, a collection of the top homes on Airbnb based on ratings, reviews, and reliability. Since launching Guest Favorites, there have been more than 100 million nights booked at these listings. We will continue to make it easier for guests to find high-quality and affordable stays. Finally, we're expanding beyond our core. During the quarter, we continued investing in less mature markets to unlock more growth. In Q1, growth nights booked in our expansion markets grew twice as fast as our core markets. We're also focusing on expanding beyond our core business. This will be a multi-year journey, and we've already begun laying the foundation. Last week, we introduced Icons, a new category of extraordinary experiences by the greatest names in music, film, sports, and more. Icons mark an important next step in helping people understand that Airbnb offers more than just travel accommodations. It's still early, but we're really excited about the response we've seen to Icons so far. In just one week, the Icons launch generated over 8,100 pieces of global media coverage and 371 million social media impressions. The coverage has been overwhelmingly positive. To put this into perspective, Icons have already generated more for us than our IPO. It's clear Icons are resonating with people. Looking back to Q1, we saw a number of positive business highlights. First, mobile downloads are accelerating. To quickly zoom out, nights and experiences booked in Q1 increased 9.5% year-over-year, despite a tough comparison this time last year. We were particularly encouraged by the growth in app downloads. In the U.S., app downloads increased 60% in Q1 compared to a year ago. Global nights booked in our app increased 21% year-over-year, and they now represent 54% of nights booked during the quarter. This time last year, mobile bookings represented only 49%. Second, Airbnb is uniquely positioned for special events. Special events are really how we started Airbnb. We began to provide housing for conferences and events. In April, we had over 500,000 guests stay on Airbnb during the solar eclipse in North America. Interestingly, we saw more than twice as many nights stayed on Airbnb along the direct path of the eclipse compared to the year prior, with many of these locations in areas that don't even have hotels. Nights booked in Paris during the summer Olympics are five times higher than this time a year ago. Germany is also seeing a similar trend for the Euro Cup this summer, with nights booked nearly double compared to a year ago. We continue to see double-digit supply growth across all regions, with the highest growth in regions with the highest demand. Urban and non-urban supply increased at about the same rate, and we saw relatively similar supply growth among individual and professional hosts, with the majority of new listings exclusive to Airbnb. We're really proud of our strong Q1 results, and we're looking forward to another record summer travel season. So with that, Ellie and I look forward to answering your questions.

Operator, Operator

Our first question will come from Mark Mahaney with Evercore ISI. Please go ahead.

Mark Mahaney, Analyst

Thanks. You talk about leaning into less mature markets and this doubling of growth rate in some of those expansion markets versus your core markets. Could you give a little more color on which countries and which markets that is? Which countries, I think in the past, you may have mentioned Brazil, but which ones you're leaning into this year? Secondly, that U.S. app downloads increase of 60% year-over-year. That's an extremely high number for what you would think would be a reasonably well-known app and brand. So what drove that? Do you have any insights behind that? Thank you very much.

Brian Chesky, CEO

Yes. Hey, Mark. Why don't I start? So leaning into less mature markets. If you think about Airbnb, we're in 220 countries and regions. We're one of the most global brands in the world. But our markets with the highest penetration would be the U.S., Canada, Australia, France, and the U.K. The next markets with the biggest potential TAM would be Mexico, Brazil, and Latin America. In Europe, it would be Germany, Italy, and Spain. We’re also seeing some traction in Switzerland and the Netherlands. In Asia, it would be Japan, Korea, China, and eventually, a little bit longer-term, India. I think a really good thing to look at is our penetration for each country. While the U.S., Canada, and Australia are similar, there's a significant drop-off in many other markets that have huge travel TAMs, especially in Asia. Airbnb resonates equally everywhere once there's awareness. I could argue that Airbnb might resonate better in Asia because there's a younger travel population not predisposed to hotels and they are on social media. We are disproportionately present on social media compared to our competitors, so I'm very bullish about that. Regarding U.S. app downloads, you're correct, it grew by 60% last year. At a high level, what drove that was a focus on our roadmap. Many people in the U.S. have heard of our brand, but we've never really optimized our app from a download perspective, and these numbers were driven organically, not by paid advertising. We’ve optimized by encouraging downloads at the right moments without being intrusive, and as we recently shifted focus from just the mobile website, which does not convert nearly at the rate of app downloads, we've seen our downloads significantly increase. What we've proven in the last three years is that when we focus on something, we can drive the numbers.

Mark Mahaney, Analyst

Thank you, Brian.

Ellie Mertz, CFO

Brian, if I could just add, I think the app download effort is part of our broader priority around perfecting the core and optimizing the core business. We identified that not as many of our guests were using the app as they should, and we know that the app provides a better user experience than the mobile web. It's part of a broader suite of roadmap items intended to improve and perfect the core experience.

Mark Mahaney, Analyst

Thank you, Ellie.

Brian Chesky, CEO

Thanks, Mark.

Operator, Operator

Your next question will come from the line of Richard Clark with Bernstein. Please go ahead.

Richard Clarke, Analyst

Hi, good afternoon. Thanks for my questions. Just on, you mentioned on the prepared remarks that Q1 would have quite a tough comp. You're guiding that Q2 is going to be flat on room night growth. Is there anything you can call out in Q2 that's maybe holding that back, and how should we think about the rest of the year? A similar question on margin: the Q2 guide appears a bit softer than consensus, with some calendar effects in there. Is that including any of the growth investments you talk about, or are those things that may come in more in the second half of the year?

Ellie Mertz, CFO

Yes, thanks, Richard. Let me just talk a little about the trends we've seen to help answer your question. As we were heading into 2024, we were widely aware that last January was particularly strong, which made the guidance for Q2 back in February reflect a step down in growth from Q4 to Q1 due to that hard comp. We experienced this, and since then, we've seen relatively stable growth, which is frankly a strong statement about both the stability and resilience of leisure travel demand this year. We've observed no significant volatility in booking lead times compared to last year. Our Q2 guidance reflects this continued stability in bookings. Overall, while we aim for higher growth, the outlook reflects the trends we have seen thus far. Regarding Q2 margins, Q1 results represented substantial year-over-year margin expansion largely due to the timing of Easter. However, we expect headwinds in Q2. Easter will have an inverse effect on revenue growth and overall margins. Additionally, there were some one-time credits in payment processing last year that will not occur again, and we have slightly shifted our marketing spending to be heavier in Q2 than Q1, which will increase marketing expense relative to revenue.

Richard Clarke, Analyst

Very helpful. Thank you.

Operator, Operator

Your next question will come from the line of Jed Kelly with Oppenheimer. Please go ahead.

Jed Kelly, Analyst

Hey, great. Thanks for taking my question. Just one on ADRs. They seem to be relatively sticky. A couple of quarters ago, you talked about driving value to the consumer. Can you give us an update on where you are with some of your value initiatives? And then on supply, great supply growth again. Can you talk about how we should think about supply and nights eventually converging to similar growth rates? Thank you.

Brian Chesky, CEO

Yes. Hey, Jed. I’ll take the first one on value initiatives, and let Ellie take the second one. When we started Airbnb, our core tagline was as a cheaper, affordable alternative to hotels. However, a year and a half ago, we noticed concerns about rising prices. We created an entire team focused on initiatives to modulate our prices, and they're working. One initiative is total price display, allowing consumers to see the best total value, which changed behavior in our host community, with 300,000 hosts removing or lowering their cleaning fees as a result. We also introduced discounts for monthly and weekly stays, and more than two-thirds of our hosts now offer these discounts. The Compare Listing Tool helps hosts compare pricing, encouraging them to adjust their prices based on real market data. The net effect is that while hotel prices are up year-over-year, Airbnb listings on a like-for-like basis are down, meaning the value of Airbnb is better than it was a year ago. As supply grows faster than demand, prices tend to decrease. Ellie, over to you.

Ellie Mertz, CFO

To your question about the relative growth rates of supply and demand, we don’t expect them to grow exactly in line every quarter. However, over a longer period, they generally align. Currently, we're encouraged by strong supply growth, which supports affordability by increasing competitive pricing. As we've implemented recent quality initiatives, the faster supply growth than demand enables us to continuously drive quality. Last year, we removed many listings that did not meet our community's expectations. With supply increasing, we can maintain high standards, resulting in continual quality upgrades for our guests.

Jed Kelly, Analyst

Thank you.

Operator, Operator

Your next question comes from the line of Ron Josey with Citi. Please go ahead.

Ron Josey, Analyst

Great, thanks for taking the question. Brian, I wanted to ask you about search on Airbnb following the strength and benefits of guest favorites. I wanted to understand how search and conversion rates have improved post-guest favorites, and how you see search evolving over time. As a follow-up to the inventory quality discussion, I’d love to hear your process for ensuring that quality listings continue to come on the platform. I think we’ve talked about verified listings and trophies, but any additional thoughts would be helpful. Thank you.

Brian Chesky, CEO

Yes, Ron. These are really good questions. We processed approximately $10 billion in revenue last year. To contextualize this, an additional 100 basis points in growth translates to $100 million. In the past year, we’ve driven several hundred basis points of incremental growth just through search flow optimizations. For instance, mobile app downloads significantly boost booking conversion rates. We also help users with a carousel feature that suggests other available listings based on altered dates. We've implemented numerous improvements, such as enhancing filters and making the search box more prominent, contributing to increased bookings. Therefore, I am excited about our ongoing improvements to search experience. Regarding inventory and quality, we launched Guest Favorites, which identified our top-performing listings. We've seen that these listings have a significantly lower rate of trip issues and higher rebooking rates compared with lower-rated listings. This encourages improvement among hosts and we are actively expanding quality evaluation metrics, including identifying top classifications for listings based on guest feedback. We are investing heavily in ranking and quality initiatives as we aim to match our growing size with elevated standards. The challenge is ensuring consistency and reliability, as hotels typically offer more confidence in this regard, and we aim to transition that assumption towards Airbnb. So we have a long-term roadmap addressing quality and reliability, which we're excited about.

Ron Josey, Analyst

Thank you, Brian. Super helpful.

Operator, Operator

Your next question comes from the line of Eric Sheridan with Goldman Sachs. Please go ahead.

Eric Sheridan, Analyst

Thanks so much for taking the question. Maybe coming back and putting a finer point on some of the topics we've discussed already, Brian. When you think about your top investment priorities for 2024 and beyond, how would you categorize those investments into buckets such as demand generation, supply growth, and platform/product innovation over the long term? In that last bucket, how should we think about the role of AI in reducing friction over time?

Brian Chesky, CEO

Hey, Eric. Good to hear from you. So regarding our resources—primarily product and engineering resources—I categorize our approach as focusing on our core business, international expansion, and diversifying beyond accommodations. In our core business, we prioritize quality and reliability, affordability, and usability. Changes in these areas yield immediate benefits. Our international expansion necessitates marketing strategies for each market and product localization. We've positioned ourselves to accelerate growth in this area. As for expanding beyond accommodations, this area is currently smaller but a major focus for me and our leadership. In terms of deploying AI, we've focused on reducing friction and enhancing user experience. For instance, we trained AI models to categorize host photos, launched AI-powered quick replies for hosts, and developed reservation screening technology to decrease discrepancies. Generative AI will significantly impact customer service as we formulate an AI-powered concierge approach over time.

Eric Sheridan, Analyst

Great. Thank you.

Brian Chesky, CEO

You're welcome.

Operator, Operator

Your next question will come from the line of Brian Nowak with Morgan Stanley. Please go ahead.

Brian Nowak, Analyst

Thanks for taking my questions. I have two. First, with the comps getting easier in Q2, can you walk us through some reasonable ranges of outcomes for room-night growth in the second half and potential micro-level innovations that could drive stability? Secondly, Brian, you mentioned that like-for-like pricing is more attractive versus hotels. If I look at Marriott and Hilton and their ADRs are up 2 to 3%, and your ADRs are also up 2 to 3%, can you help us understand how relative pricing can improve from here?

Brian Chesky, CEO

Yes, why don't I take the second question first before Ellie addresses the first? Specifically, the data we're discussing is based on a global like-for-like basis. For clarity, we're comparing the average price of a global hotel room to a one-bedroom Airbnb listing in March. In March, our prices dropped 2%, while hotel prices rose 3%. Our listing was $114, whereas hotels averaged $148. ADRs for us often adjust based on mix shifts, as more group travel is observed. Presently, 81% of our trips involve two or more guests, and there's a growing trend towards larger listings. Now, Ellie, do you want to address the first question?

Ellie Mertz, CFO

Yes. To your question regarding Q2 and Q3 growth: while Q2 is expected to be softer, we have witnessed steady trends year-to-date with no significant volatility in lead times or booking hesitance. Thus, Q3 looks perceptively strong as growth initiatives remain robust. We've identified opportunities that could spur near-term growth while balancing steady demand.

Brian Nowak, Analyst

That's helpful. Thank you both.

Operator, Operator

Your next question comes from the line of James Lee with Mizuho. Please go ahead.

James Lee, Analyst

Great. Thanks for taking my question. I want to follow up on the earlier question about supply and demand growth. In the gig economy, segments benefit when supply exceeds demand, driving prices down and boosting consumer demand. Should we regard that trend similarly in home accommodations? Do you anticipate a comparable shift for your business?

Ellie Mertz, CFO

Generally, increased supply enhances demand as we have more to offer when users search for stays. However, our business model has unique characteristics compared to others in the gig economy; frequency of activity is lower and lead times are longer.

James Lee, Analyst

Great, thank you.

Operator, Operator

Your next question comes from the line of Stephen Ju with UBS. Please go ahead.

Stephen Ju, Analyst

Okay, thank you so much. So Brian, could Icons be viewed as a leading indicator for revitalizing experiences? The overnight stay generates media attention, but does it present an opportunity to expose users to more daily experiences? Additionally, how additive are the Olympics and Euro events likely to be? Any insights would be appreciated.

Brian Chesky, CEO

Absolutely, Stephen, you are not overreaching. Icons is a strategic brand positioning move reflecting a company that’s transitioning from offering single products to a wider array of services. When we launched Icons, we announced extraordinary experiences, not just stays. Icons exemplify the aspirational quality of our brand, fostering broader recognition of Airbnb's capabilities. Thus, while past events, like the Olympics and World Cup, serve as beneficial supply acquirement opportunities, they decrease reliance on hotels. We aim to signal to cities the value Airbnb can provide through these special events in ramping up organic supply.

Ellie Mertz, CFO

We've observed that prior events have had positive implications for both branding and supply growth, even if some of that presence isn’t sustained long-term. They illustrate how Airbnb can contribute positively without necessitating additional hotel infrastructure.

Operator, Operator

Your next question will come from the line of Doug Anmuth with JPMorgan. Please go ahead.

Unidentified Analyst, Analyst

Hey, this is Dave on for Doug. Thanks for taking the questions. Can you discuss how you’re approaching investment levers that will support your 35% plus EBITDA margin guide for the year? Can we anticipate more spending in these levers throughout the year?

Ellie Mertz, CFO

Yes, I couldn't hear entirely, but regarding our guide for full-year EBITDA margins, let me provide some context on that 35% target. Pre-IPO, we had a negative margin, but we delivered nearly 37% last year, highlighting our strong profitability. We’ve outlined areas where we can lean in to drive incremental growth. One area for flexibility is marketing. We've been disciplined with our marketing spend and have identified areas offering higher ROIs, which allows us to adjust our marketing efforts to capture growth opportunities. Additionally, in the international market, we can increase our marketing spend based on its performance. Also, we may add more personnel for product development to accelerate our roadmap. All in all, we maintain our financial discipline while leveraging opportunities for growth.

Unidentified Analyst, Analyst

Thank you for the detailed response.

Operator, Operator

Your next question will come from the line of Kevin Kopelman with TD Cowen. Please go ahead.

Kevin Kopelman, Analyst

Great, thanks a lot. I had a question on the May release. You added a couple of small new features to the user profiles, such as photos and travel stamps. Can we view that as an initial step towards profile enhancements and community features you’ve previously discussed? Where does building these community features stand on your priority list?

Brian Chesky, CEO

Yes, Kevin. While we spoke about Icons this call, I am also excited about the results from features related to group travel. We've seen better metrics in this area. It’s strategic for us to connect co-travelers to accounts with Airbnb, ensuring we better understand our users. We want the entire party to integrate into our platform, enhancing profile capabilities. This initiative is a part of a broader effort to bolster profiles and deepen accounts through features like identity verification and preference settings. This is essential because as trust increases, we can enhance overall user engagement. Looking forward, I envision profiles becoming central to the Airbnb experience, with listings orbiting around them.

Operator, Operator

Your next question comes from the line of Nick Jones with Citizens JMP. Please go ahead.

Nick Jones, Analyst

Great, thanks for taking the questions. Can you discuss the percentage of supply removed over time? You mentioned a process that allows hosts to return after making improvements. How does this, along with the removal of lower-quality listings help your overall strategy?

Brian Chesky, CEO

Yes, Nick. Global occupancy on Airbnb is much lower than hotels. Therefore, as we remove low-quality listings, we don't significantly affect global bookings since many had low traffic. Our strategy includes offering warnings first before removals, and we've found many hosts are coachable. We’re committed to enhancing quality universally rather than relying solely on volume. We're positioning ourselves uniquely within the market, focusing on a multi-year roadmap to increase our quality and reliability.

Nick Jones, Analyst

Thanks for the insights, Brian.

Operator, Operator

Your next question will come from the line of Naved Khan with B. Riley Securities. Please go ahead.

Naved Khan, Analyst

Yes. Hi. Thanks for the clarification, Ellie. I heard you mention high ROIs on performance marketing channels. Can you elaborate further on where this came from? Also, was there any impact from the rollout of the DMA in Europe in March or changes to Google search in late March and early April? Then I have a follow-up.

Ellie Mertz, CFO

Yes, we've seen excellent results from our marketing efforts, including expanded target audiences and improved landing pages. Despite being a minority of our spend, we’re finding performance marketing efficient. Regarding the DMA rollout, we haven’t recognized any material impact, particularly since approximately 90% of our traffic comes from direct or unpaid sources.

Naved Khan, Analyst

Okay. On the changes to the extenuating circumstances policy, can you clarify what led to that change and the expected impact?

Ellie Mertz, CFO

We adjusted the extenuating circumstances policy to clarify terms and ensure equity for both guests and hosts, but there’s been no substantial impact on the business.

Operator, Operator

Your next question will come from the line of Conor Cunningham with Melius Research. Please go ahead.

Conor Cunningham, Analyst

Hi everyone. Thanks for taking my question. Regarding under-penetrated international markets, are they meeting your expectations in terms of key KPIs like take rate and ADR? How will mixed changes impact the overall company? Additionally, can you share insights on lead time and how these may evolve from Q2 to Q3?

Ellie Mertz, CFO

Regarding international expansion, we see no change in underlying take rates across markets. Many new markets may have lower ADRs, but increased presence from those markets benefits our overall volume and top line. Our primary concern is to continue fostering strong underlying economics across diverse price points. Regarding lead times, they’ve been stable year-to-date and we anticipate that a strong backlog positions us well for Q3 growth.

Conor Cunningham, Analyst

Appreciate it, thank you.

Operator, Operator

I will now turn the call back over to Brian Chesky for closing remarks.

Brian Chesky, CEO

Thank you all for joining us today. I want to mention this was Ellie's first earnings call as CFO, and the transition has gone incredibly well. Her, Dave, and I are focused on this next chapter of growth. To recap, revenue was $2.1 billion this quarter, up 18% year-over-year. Net income and adjusted EBITDA were both Q1 records, and our trailing 12-month free cash flow was $4.2 billion, with a free cash flow margin of 41%. We've made significant progress over the last few years, and with the launch of Icons, we're laying a foundation to expand beyond our core business. This is just the beginning. Thank you all, and we'll see you next quarter.

Operator, Operator

That concludes our call for today. We thank you all for joining and you may now disconnect.