Earnings Call Transcript - ABNB Q3 2021

Operator, Operator

Good afternoon, and thank you for joining Airbnb’s Earnings Conference Call for the Third Quarter of 2021. As a reminder, this conference call is being recorded, and will be available for replay from the Investor Relations section of Airbnb’s website following this call. I will now hand the call over to Ellie Mertz, Vice President of Finance. Please go ahead.

Ellie Mertz, Vice President of Finance

Good afternoon, and welcome to Airbnb’s Third Quarter of 2021 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 2021. These items were also posted on the Investor Relations section of Airbnb’s website. During the call, we’ll make brief opening remarks and spend the remainder of time on Q&A. Before I turn it over to Brian, I would like to remind everyone that we’ll be making forward-looking statements on this call that involve a number of risks and uncertainties. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described under forward-looking statements in our shareholder letter and in our most recent filings with the Securities and Exchange Commission. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained on this call to reflect subsequent events or circumstances. You should be aware that these statements should be considered estimates only and are not a guarantee of future performance. Also, during this call, we will discuss some non-GAAP financial measures. We’ve provided reconciliations to the most directly comparable GAAP financial measures in the shareholder letter posted to our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. And with that, I’ll pass the call to Brian.

Brian Chesky, CEO

All right. Thank you, Ellie, and good afternoon, everyone. Thanks for joining us today. I’m really excited to share our results with you. The travel rebound that began earlier this year accelerated in the third quarter. Q3 was Airbnb’s best quarter yet. Revenue of $2.2 billion, our highest ever, surpassing 2019 by 36%. Net income of $834 million was our highest ever, nearly 4 times larger than a year ago. Adjusted EBITDA exceeded $1 billion, also our best ever. Our EBITDA margin was 49%, an increase of 30%, or 3,000 basis points compared to Q3 2019. Over the summer, we also reached a major milestone with one billion cumulative guest arrivals. This means that Airbnb has been used more than one billion times since we started. Now finally, I’m delighted to report that our hosts earned a record $12.8 billion in the quarter. Our results show that the growing strength of the travel rebound is here despite the continued pandemic. We saw continued strength in North America and EMEA and an acceleration in Latin America despite sequential increase of cancellations. Now excluding APAC, our total global Nights and Experiences Booked exceeded 2019 levels. Gross booking value of $11.9 billion shot above 2019’s levels by 23%, driven by the strength of ADR. But something bigger than a travel rebound is happening. The world is undergoing a revolution in how we live and work. The pandemic has suddenly untethered tens of millions of people from the need to go into an office. Technologies like Zoom make it possible to work from home. Airbnb makes it possible to work from any home. And this newfound flexibility is bringing about a revolution in how we travel because for the first time ever, millions of people can now travel anytime, anywhere for any length and even live anywhere on Airbnb. And we believe that this trend towards more flexibility will only accelerate. In recent months, some of the world’s largest companies like Procter & Gamble, Amazon, Ford, and PricewaterhouseCoopers have announced increased flexibility for employees to work remotely, and we expect many more companies to follow this. We’re seeing several trends as a result of this travel revolution. First, people can travel anytime because many don’t have to be in the office at specific times; they have more flexibility on when they can travel. So families are increasingly traveling outside the traditional weekend trip. In fact, Mondays and Tuesdays are currently our highest growing days of the week to travel. The second trend we’re seeing is that people are traveling everywhere—literally everywhere. During the pandemic, over 100,000 cities have had at least one booking on Airbnb, including 6,000 towns and cities that received their first booking ever on Airbnb. The third trend is that people aren’t just traveling on Airbnb; they’re now living on Airbnb. Long-term stays, up 28 days or more, remain our fastest-growing category by trip length. People are using Airbnb for extended vacations, relocations, temporary housing, student housing, and many other reasons. More people are also interested in hosting than ever before. We ended Q3 with the most active listings ever, driven by increased demand in our highest demand destinations, particularly in North America and EMEA. Our marketing and product initiatives to attract new hosts are working. We’re improving our service to meet this new way of traveling and the wave of guests it will bring. On May 24, we introduced the Airbnb 2021 release, which included more than 100 upgrades across every aspect of our service. On November 9, we’ll be announcing the Airbnb 2021 Winter Release, which will include another 50 upgrades and innovations to make it easier to host and support the changing needs of guests. I hope you can tune in to see what we have to share. Now let’s turn to our progress on our 2021 plan. To remind you, our single priority in 2021 has been to prepare for the travel rebound. We’ve been perfecting the end-to-end experience of our core service, which includes educating the world about hosting, recruiting more hosts, simplifying the guest experience, and delivering world-class service. We recently launched a completely redesigned host onboarding flow that makes it simpler for anyone to start hosting. We started the “Ask a Superhost” program in nine countries, expanding it to over 30 languages in 196 countries. We’re simplifying every part of the guest experience. Earlier this year, we introduced “I’m Flexible,” a whole new way to search on Airbnb for guests who are flexible about where or when they travel. Since its launch, guests have used “I’m Flexible” more than 500 million times, and we’re soon making it even more flexible by expanding the date range and adding more categories of unique space. We launched dedicated Superhost support in North America, giving our most experienced hosts priority access to our support agents, and we’re expanding this support to all Superhosts globally by the end of the year. Before I go to questions, I have one bittersweet update. Ann Mather will be departing our Board of Directors on December 15 after making the decision to reduce the number of Board positions she sits on. Ann has been a critical member of our team as we transitioned from a private to a public company. We appreciate everything she’s done and look forward to adding another independent director as soon as possible. To recap, Q3 was Airbnb’s best quarter ever. Revenue, adjusted EBITDA, and net income were our highest ever. Travel is undergoing a revolution, and as the world changes, we continue to innovate. More than 150 upgrades and innovations this year alone. So with that, Dave and I look forward to answering your questions.

Operator, Operator

Thank you. Our first question comes from Eric Sheridan from Goldman Sachs. Eric, please go ahead.

Eric Sheridan, Analyst

Thanks so much for taking the questions. It’s been a big year in terms of innovation and investing behind supply. Brian, would love to get a little bit more color on what you see as the key learnings from rolling some of those investments out into the marketplace. And how they can inform the way investors should be thinking about supply growth and innovation in the years ahead. Thanks.

Brian Chesky, CEO

Yes. Thank you very much, Eric. So yes, this has been a really great year for supply growth. We have more active listings on Airbnb today than we ever have. It’s important to share a few thoughts on supply. Number one, we are quite different than our competitors. At Airbnb, we have four million hosts, and 90% of our hosts are individual. That means they could never have hosted if not for the tools that we provide. The vast majority are only listed on Airbnb. We’ve found that if we make hosting easier and more people know about hosting and we give hosts more support, more people will become hosts. So our strategy is a full life cycle, starting with raising awareness about hosting. You see the Airbnb brand is very mainstream. Our brand is now used all over the world, but hosting is not as mainstream. This year, we did our first brand campaign in five years, made possible by hosts. It used real photos from real trips to highlight what makes Airbnb different, which is hosting. The great thing about that ad is that it tracks more hosts to Airbnb as well. Once we can increase awareness of hosting, then the name of the game is making it easier to host. On May 24, we launched a simple ten-step process to become a host, radically reducing the number of steps and making it easier to host. The conversion rate for people starting to list their space has increased. Third, if a host needs help, we provide them support. We launched “Ask a Superhost,” which pairs prospective hosts with our very best Superhosts on Airbnb. Since we launched this feature in May, more than 50,000 prospective hosts have used it, and we’re now expanding this globally to 196 countries. Finally, we’re continually investing in tools to allow hosts to expand their business, signaling that you can expect continued innovation from us. We’ve seen an increase in the trajectory of new hosts. Also, I want to make another point. While we have some supply constraints globally on Airbnb, the vast majority of hosts only rent occasionally. The holy grail of travel is pointing demand to where we have supply. Before the pandemic, most people were fixed in their search parameters with a specific destination and dates in mind. Now, many people don’t have to return to an office, so they’re more flexible. This allows us to point them to where we have supply. Over 500 million searches have used flexibility, and more than 40% of our searches show that guests are flexible about where or when they’re traveling. So, this is what we’re doing. We’re focused on a full funnel approach to supply acquisition and pointing demand to where we have supply. I expect that we’ll have plenty of supply in the years to come.

Operator, Operator

Our next question comes from Mario Lu from Barclays. Mario, please proceed.

Mario Lu, Analyst

Great. Thanks for taking the question. I have a couple on the long-term stays of 28 days and more. You mentioned it was roughly 20% within Q3, but I think in the first quarter, it was around 24%. Was this mostly due to seasonality that it declined slightly since then? And then at a higher level, any updated views on how large the channel these longer stays could attract over time? Thanks.

Brian Chesky, CEO

Yes, Mario, I’ll let Dave discuss the mix shift, and I’ll provide a broader strategy perspective. Dave?

Dave Stephenson, CFO

Yes. The majority of the decrease is simply the increase of short-term stays coming back. Long-term stays have been one of the fastest-growing segments of our business pre-COVID. This trend has continued strongly during COVID, and it remains strong today. The decrease is mainly due to the fact that short-term stays are continuing to recover. In terms of the market opportunity for long-term stays, we believe this adds hundreds of billions of dollars to our long-term total addressable market (TAM).

Brian Chesky, CEO

I’ll share a few more thoughts, Mario. We’ve seen a major paradigm shift in travel. Before the pandemic, short-term stays were our primary business. However, long-term stays have been our fastest-growing segment even before the pandemic. The pandemic accelerated this inevitable trend, with more people now able to travel anytime due to newfound flexibility. Families may be able to extend travel during summers as well. Nearly half of our business is for more than a week, signaling exciting growth opportunities for these segments.

Mario Lu, Analyst

Okay. Thanks.

Operator, Operator

Our next question comes from the line of Jen Shi from Bank of America. Jen, please go ahead.

Jen Shi, Analyst

Thanks for taking the question. This is Jen on for Justin. I’m curious if you’re seeing supply opening up in urban areas and as the mix shift comes back to urban and cross-border travel, how should we think about the impact on ADRs, take rate, and margins in future years? Also, regarding marketing spend, do you see a scenario where you might have to be more aggressive on marketing if hotel travel comes back?

Brian Chesky, CEO

Thank you, Jen. I heard three questions: one about urban supply growth, the second regarding mix shift impacting ADR, and the third about marketing spend. Dave, do you want to take these?

Dave Stephenson, CFO

Sure. The reason we highlighted growth in nonurban areas is that we get the supply when we have the demand, which is why it’s gone up by 15% since the beginning of the year. We’re seeing greater demand pickup in urban areas, and the percentage of nights in urban areas has increased to 46%. We’re still down about 60% of the nights compared to pre-COVID. We’ll continue to see listings growth in urban areas as demand returns. Regarding ADRs, the high average daily rate we’ve seen over the last year has been primarily driven by a mix of space types and locations, with higher rates in North America and Europe. We anticipate ADRs in Q4 to be consistent with Q3. In terms of marketing, our adjusted marketing approach has been quite successful. We’ve reduced our reliance on search engine marketing due to our strength in our brand. Overall, we’re really happy with our marketing spend, and on a relative basis, our marketing expenses as a percentage of revenue have decreased since 2019. We expect this to remain for the foreseeable future.

Brian Chesky, CEO

To recap our marketing strategy, we have a unique approach focused on a full-funnel integrated marketing strategy, starting with PR and word of mouth. Because of this, Airbnb is a well-known brand with more than 90% of our traffic being free or unpaid in Q3. Brand marketing is about educating people on our differentiated product, while performance marketing balances supply and demand. We’ll continue to invest in our brand to increase loyalty over time.

Jen Shi, Analyst

Great. Super helpful. Thank you both.

Operator, Operator

Our next question comes from Kevin Kopelman from Canaccord. Kevin, your line is now open.

Kevin Kopelman, Analyst

Thanks a lot. It’s Kevin from Cowen. Can you give us a sense of the booking trends in the fourth quarter, quarter-to-date? You mentioned acceleration in the shareholder letter; are you seeing that back to Q2 levels yet in terms of growth as compared to the same quarter in 2019, just given the Delta slowdown? That would be helpful.

Brian Chesky, CEO

Hey, Kevin, thanks for the question. Dave, do you want to take this?

Dave Stephenson, CFO

Sure. We’re continuing to see strong bookings as borders are opening up and people feel more willing to travel. Our guidance for gross booking value growth is increasing from Q3 to Q4. While I don’t have a specific percentage to share today, growth is accelerating, which is reflected in our guidance.

Kevin Kopelman, Analyst

Thank you.

Operator, Operator

Our next question comes from Stephen Ju from Credit Suisse. Stephen, your line is now open.

Stephen Ju, Analyst

Okay. Brian, I don’t know if you have this data, but I’ll go ahead and ask anyway. Are you able to say what percentage of your registered users have younger children who, until now, were not able to get vaccinated? I’m trying to get a sense of how much incremental pent-up demand you may have waiting for U.S. parents to feel better about traveling more with their younger kids? Thank you.

Brian Chesky, CEO

Thanks for the question, Stephen. I don’t think we have that specific data. However, I can share some high-level thoughts. We’re entering a new golden age of travel. The last 18 months have turned the world on its head, with many yearning for what was taken from them, especially the ability to travel freely. After the U.S. announced the reopening of borders for international travelers on October 15, we observed a 44% spike in nights booked for stays that would occur after the reopening. Evidence of pent-up demand is clear, and new emerging use cases on Airbnb are here to stay as flexibility gains traction.

Dave Stephenson, CFO

No, I think that’s key. Cross-border travel was at 33% in Q3, but we’re seeing continued strengthening in October as more countries reduce travel restrictions.

Stephen Ju, Analyst

Thank you.

Operator, Operator

Our next question comes from the line of Brent Thill from Jefferies. Brent, please go ahead.

Brent Thill, Analyst

Thanks. Just on cross-border, when you consider Europe, could you provide us a sense of what’s starting to happen within the country there?

Brian Chesky, CEO

Dave, do you want to take that?

Dave Stephenson, CFO

Sure. We’re seeing a sequential improvement in net nights booked in October compared to September. As travel restrictions ease, we’re seeing a nice uptick in bookings, even leading into 2022. Some bookings growth that we are seeing now is for early next year and throughout 2022.

Brent Thill, Analyst

Great. Thank you.

Operator, Operator

We now have a question from Doug Anmuth from JPMorgan. Doug, your line is now open.

Dae Lee, Analyst

This is Dae Lee on for Doug. Thanks for taking the question. Based on your conversations with your hosts, what do you think is the biggest friction point that prevents them from becoming hosts for the first time? And along that line, which initiatives this year have resonated with them? As a follow-up, how are these newer host cohorts performing versus historical cohorts that didn’t have the upgrades?

Brian Chesky, CEO

Thank you for the question, Dae. I’ll address the biggest friction points for hosts. There are really three parts of the funnel: 1) do people know about hosting? 2) Is it easy to host? And 3) can they get help? The Airbnb brand is mainstream, but hosting isn’t fully recognized, so we need to tell the story better. We showed that the average host can make $9,600, which is more than government stimulus checks in the U.S. We’ve innovated and built a simple 10-step process to become a host that’s quicker and easier than ever. We’re excited about our Ask a Superhost program, which has helped over 50,000 prospective hosts and is scaling. It’s critical to focus on these three areas to bring in more hosts. Dave, do you want to address the question about host retention?

Dave Stephenson, CFO

In general, we’re seeing that the churn rate of our hosts has improved compared to historical levels. More than 50% of new listings receive a booking in three days, and 75% in eight days. The success rate of new hosts is increasing, and the growth in new hosts is consistent with our historical trends.

Dae Lee, Analyst

Got it. Thank you.

Operator, Operator

Our next question comes from the line of Justin Patterson from KeyBanc Capital Markets. Justin, please go ahead.

Justin Patterson, Analyst

Great. Thank you. Brian, you’ve clearly had a lot of success with flexible stays. What have your learnings been around that? How do you see the next steps to make this a broader consumer behavior?

Brian Chesky, CEO

Thank you, Justin. I’m really excited about ‘I’m Flexible.’ This feature allows people to search on Airbnb if they’re flexible about where or when they travel. On our homepage, there’s a big button titled ‘I’m Flexible’ which opens a new view for users. This product has been very successful, with over 500 million uses. Our lessons include higher conversion rates when users engage with the feature, effectively directing demand where we have supply, and leveling the playing field for unique listings. This indicates we could be onto something significant. We’re continuing to invest in this feature, and on November 9, we will announce four new categories of ‘I’m Flexible.’ We’re expanding the flexible date feature from six months to 12 months. This approach will likely become a major way people search on Airbnb.

Dave Stephenson, CFO

Historically, Airbnb's strength has been in urban and cross-border travel, which contributed significantly to our revenue mix. Now, our Q3 results have shown strong performance even as urban and cross-border sectors are recovering. Moving forward, we anticipate urban areas to contribute positively to our growth, especially as the recovery continues. Interestingly, our top ten cities accounted for around 6% of our revenue now, down from the traditional 11%. This indicates a more diverse and spread-out revenue profile.

Operator, Operator

Our next question comes from the line of Jed Kelly from Oppenheimer. Jed, please go ahead.

Jed Kelly, Analyst

Great. Thanks for taking my question. We’ve seen larger property managers starting to scale up inventory that will probably use your platform for bookings. Can you provide an update on how you’re working with some larger property managers? Also, regarding the work-from-anywhere trend, are there ways you can collaborate with companies around this?

Brian Chesky, CEO

Thank you for the question. While our platform is 90% individuals, the remaining 10% of professional hosts are essential to Airbnb. We’ve launched several tools targeting them, and professional hosts are part of our fastest-growing inventory areas. For the work-from-anywhere opportunity, it’s an exciting space as companies like Amazon and PwC adopt remote work. We’re in talks with various enterprises, and while there’s nothing concrete to announce now, we aim to make it easier for people to live and work anywhere using Airbnb. We’re committed to continuously innovating in this area.

Operator, Operator

Our next question comes from the line of Colin Sebastian from Baird. Colin, your line is now open.

Unidentified Analyst, Analyst

This is Reese on for Colin. I was just wondering if you could talk about the growth trends between nights booked versus experiences? Is there any recovery trajectory difference there? Also, how are your relationships with communities?

Brian Chesky, CEO

Yes. The growth of our core business of homes has been strong. I expected that 2020 would be a breakout year for Airbnb experiences, and of course, that changed overnight due to the pandemic. However, after 1.5 years, people are eager to leave their homes. Experiences are very popular among guests, receiving higher five-star ratings than homes statistically. I’m bullish on the comeback of experiences, which are ramping back up with strong growth. Regarding our community relationships, we have collaborated with thousands of cities globally, especially in navigating regulations and ensuring compliance. We've collected $4 billion in hotel taxes, solidifying our partnership with local governments. The pandemic reset many of these relationships positively, enabling cities to reshape their tourism strategies. We’ve established about 100 partnerships with destination marketing organizations worldwide, which allows us to direct demand to regions that require it.

Unidentified Analyst, Analyst

Great, thank you.

Operator, Operator

Our next question is from Brian Fitzgerald from Wells Fargo. Brian, please go ahead.

Brian Fitzgerald, Analyst

Thanks, guys. On cross-border travel, are you seeing any trends on lengths of stay? People likely want to amortize that cost over a longer stay, right? Regarding overall length of stay, are you seeing trends shifting from seven days to 14 days? How does Airbnb’s competitiveness increase for longer stays when compared to hotels?

Brian Chesky, CEO

Let me start with the competitiveness of long-term stays. This is interesting as we began Airbnb originally to take on the hotel industry. When staying away for an extended period, hotel options are limited and often costly. We offer great value for longer stays by providing amenities like kitchens or backyards. This makes it appealing to stay in a home whenever you’re away from home. As for the rise in longer stays, Dave can provide more detailed statistics.

Dave Stephenson, CFO

We highlighted in the shareholder letter that 45% of our nights came from stays of at least seven nights. We’re seeing increasing lengths of stay, supported by trends moving toward longer durations. While I don’t have specifics on cross-border travel trends, the general pattern indicates that the length of stays is increasing, which ultimately benefits Airbnb.

Brian Fitzgerald, Analyst

Great. Appreciate it, guys.

Operator, Operator

Our next question comes from Naved Khan from Truist Securities. Your line is now open.

Naved Khan, Analyst

Great. Thank you. Two questions. Did you see any impact from the Apple iOS changes on your social ad campaigns? And can you talk about your technology efforts related to onboarding hotels?

Brian Chesky, CEO

Yes. Regarding iOS changes, we’ve not seen any effect on Airbnb, as that’s not our major business model. For hotel onboarding technology, we had to pause some initiatives last year but believe that hotels are still vital to our strategy. Most users come to Airbnb to book individual hosts, so the majority of our focus remains on that sector. However, we also want to ensure that our platform has enough inventory to meet demand. HotelTonight has shown steady growth, and we’re intently focused on enhancing our offerings in this area. While hotels aren’t our primary priority now, we are dedicated to supporting them and continually refining our strategy.

Naved Khan, Analyst

To follow up on that, will hotels be featured on core Airbnb anytime soon?

Brian Chesky, CEO

Yes, we currently have tens of thousands of listings on Airbnb, and I expect you’ll see more in the future. The key is prioritization; right now, we’re focusing on recruiting hosts, enhancing the guest experience, and offering exceptional service. Those remain our primary objectives, but we’re still investing in hotels.

Operator, Operator

Our next question comes from the line of Deepak Mathivanan from Wolfe Research. Deepak, please go ahead.

Zach Morrissey, Analyst

Thanks. This is Zach on behalf of Deepak. First, can you parse out the ADR trends? I know you mentioned that it’s driven by mix, but are you concerned about overall price appreciation, and how does that affect long-term growth? Additionally, we see rising COVID cases in pockets; how do today’s restrictions differ from six months ago concerning demand behavior?

Brian Chesky, CEO

Dave, do you want to address these?

Dave Stephenson, CFO

The ADR increase was primarily driven by mix; we’ve experienced some price appreciation case in certain high-demand areas. However, Airbnb still offers significant value to customers given the amenities—larger space, kitchens, and more—that we provide. We’ll keep a close eye on this; while elevated ADRs exist, we don’t perceive this as a long-term threat. For the second question, we’ve observed greater resilience in travelers willing to travel despite new COVID strains and restrictions, compared to how they behaved one year ago.

Unidentified Analyst, Analyst

Great, thanks for the color.

Brian Chesky, CEO

Our world is changing rapidly, and while we can’t predict the future, we can adapt to it. Our model is suited to handle unforeseen changes.

Operator, Operator

Our next question comes from the line of Mark Mahaney from Evercore ISI. Mark, please go ahead.

Ben, Analyst

Thanks. This is Ben on behalf of Mark. Considering the success in pivoting product priorities towards the core business over the past 18 months, do you expect your investment goals to shift in 2022? Will you begin exploring areas outside of your core business?

Brian Chesky, CEO

We gained valuable lessons about focus during the pandemic. It’s not feasible to pursue every initiative at once. While we had to scale back projects, our resources have been focused on solving a few major issues, and that has enhanced our growth. This year has been characterized by relentless innovation to refine our core service, averaging one update every 48 hours. We will introduce new offerings in 2022, including further developments in short-term and long-term stays, cross-border travel, and experiences. The upcoming November release will not be our last—expect additional announcements in the spring!

Mark Mahaney, Analyst

Thanks, Brian. Thanks, Dave.

Operator, Operator

We currently have no further questions. I will now hand back over to Brian Chesky for any closing remarks.

Brian Chesky, CEO

Thank you all for joining us today. To recap, 2021 for Airbnb has been a year of relentless innovation. We’ve launched more than 100 upgrades this year, and next week, we’ll announce 50 more—totaling 150 innovations in a year. Our design-driven approach helps us improve our service to adapt to this changing world. For the first time ever, millions of people can now travel anytime, anywhere for any length and live anywhere on Airbnb. This is a travel revolution, and we’re just getting started. Expect many more innovations from us, starting with exciting announcements next Tuesday. Thank you for joining today, and we’ll see you next week!

Operator, Operator

This concludes today’s call. Thank you for joining, and I hope you have a lovely rest of your day. You may now disconnect your lines.