Airbnb (ABNB) — Earnings Review — February 14, 2024
Demand
- Beat revenue estimates by 2.8% & beat guidance by 3.3%.
- Revenue rose by 14% Y/Y on a foreign exchange (FX) neutral basis.
- Beat gross booking value (GBV) estimates by 2.5%.
Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases
Margins
GAAP margins for the quarter include $838 million in tax withholding and reserve charges. I excluded these charges from the GAAP margins for an apples to apples comp.
- Beat EBITDA estimates by 14.2%.
- Beat $0.70 EPS estimates by $0.06.
Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases
Balance Sheet
- $10.1 billion in cash & equivalents.
- $2 billion in debt.
- Diluted share count fell by 4.8% Y/Y; basic share count rose by 1% Y/Y.
- Airbnb announced a new $6 billion buyback this quarter. It now has $6.75 billion in buyback capacity.
Guidance & Valuation
First quarter revenue guidance beat by 1%. Revenue guidance implies mid-to-high single digit nights booked growth, which is a tad worse than expected. Full year EBITDA margin guidance of at least 35% compares to 36% margin expectations. Take rate will rise Y/Y in Q1 due to holiday timing. Excluding this, it should be stable.
“We continue to see strength relative to our competition… our supply is outgrowing all of our competitors.” — Chief Business Officer Dave Stephenson
Airbnb trades for 34x 2024 EBIT and 21x 2024 FCF. EBIT is expected to grow by 16% Y/Y and FCF is expected to fall by 5.6% Y/Y.
Call & Letter Highlights
Solid Recovery:
Airbnb spooked investors a bit last quarter when it told them growth slowed materially in the month of October. That led many to wonder if the shift back from goods to services consumption (and the coinciding Airbnb growth tailwind) had normalized. Not so fast. October volatility was very temporary; growth recovered and accelerated throughout the quarter. It excited 2023 with its fastest nights booked growth rate of the year.
“We’re seeing really stable demand so far this year.” — Founder/CEO Brian Chesky
Supply:
Airbnb passed 5 million hosts during the quarter, with active listings rising 18% Y/Y to reach 7.7 million. Supply growth drives marketplace health and that growth was above 10% in all regions. The tools Airbnb introduced in 2023 to drive a more sustainable marketplace seem to be working. 28% of its hosts are using the newer similar listings tool to better understand what to charge for their homes. 300,000 listings have also cut or lowered cleaning fees since it added total pricing transparency. This may sound bad for the hosts, but it’s not. Occupancy rates for hosts making this decision have been explicitly shown to rise enough to fully offset the nightly rate hit. Airbnb can thread an elusive needle of driving affordability and host success… and that’s what it’s doing.
Global average daily rates were flat Y/Y on an FX neutral basis. Its one-bedroom listings saw prices fall 2% Y/Y while hotels rose 7% Y/Y. It’s recapturing its initial reputation for facilitating affordable travel. Cancellation rates are down, 67% of hosts are offering long-term stay discounts and Airbnb guests are responding positively.
Leadership was asked about competition. Chesky told us that most are focusing on professional hosts, which fosters listing overlap. Airbnb stands out in its ability to offer unique supply (and professional supply) to “wow” the customer. They also reminded us that the biggest competition, by far, is still hotels at 9x the size of Airbnb’s nights booked volume.
Regulation:
The short term rental regulation in New York City is delivering none of its intended impacts. Shocking. Long-term stay demand is growing in the city because of it while other demand is being replaced by bookings in neighboring areas. Hotel inflation has accelerated if anything in that city and there has been “no improvement to rental prices.”
While NYC is a pain in the neck for Airbnb, it’s only about 1% of its total revenue. Furthermore, 80% of its 200 largest markets already have regulation in place. This diminishes the risk of a tightening regulatory grip for a company that arguably feeds housing inflation.
Going Global:
Airbnb’s aim to “expand beyond the core” has been in the works for years. Now, it’s ready to “embark on the next chapter.” There are two pieces to this: expanding use cases and enhancing traction in untapped markets. From a use case perspective, the company continued to tease some launches, but left out detail.
“While this will be a gradual, multi-year journey, we’re excited to share more about this later in 2024.” – CEO Brian Chesky
From a better traction in new markets perspective, things are going very well. Its new market “playbook” consists of localizing the product, driving awareness through marketing and then driving scalable growth. Simple enough. This has worked extremely well in Germany, Brazil and now Korea as of last quarter. This quarter, it told us to expect Switzerland, Belgium, the Netherlands, Chile, Ecuador and Peru to be the next focus areas for this business. Gross nights booked in these countries are growing rapidly.
All in all, Asia Pacific and Latin America nights booked rose 22% Y/Y each to lead its geographic growth. China outbound travel rose 90% Y/Y this quarter as that country bounces back following the pandemic. Cross-border nights overall rose 29% Y/Y while cross-border travel to North America rose by 15% Y/Y. As an important aside, Airbnb’s new cross-currency conversion fee will make cross-border growth more and more profitable over time. Cross-currency transactions account for about half of its cross-border volume (20% of total volume).
Margins and Costs:
Airbnb delivered cost bucket leverage for all categories besides G&A. Its stock comp rose by 20% Y/Y due to IPO-related comp and more headcount. After 2024, it expects stock comp growth to slow enough to be in line with revenue growth.
AI:
Airbnb has no interest in spending on AI infrastructure. It fully plans to use open source models like from Meta and Hugging Face. It thinks it can infuse its massive data supply into these models to create uniquely compelling consumer apps. What would this look like? Think along the lines of better host and guest matching, better fraud detection, travel itinerary creation etc.
More Notes:
- App users represented 55% of total nights booked vs. 50% Y/Y.
- Guest Favorites (curated group of top listings) is boosting demand for hosts in the cohort.
- Its Listings Tab is set to expedite the process of creating detailed listings. Listings with a proper amount of detail enjoy 20% more volume vs. others.
- Cross-border volume was 44% of total nights booked. This is stable Y/Y and compares to 47% in 2019.
- Urban volume was 51% of total nights booked. This is stable Y/Y and compares to 59% in 2019.
- 28+ day stay volume was 19% of total nights booked. This ticked up vs. 18% Q/Q as its long-term discounting initiative continues to work.
- The Airbnb-Friendly Apartments Program now has 400 buildings vs. 175 Y/Y. This is its base of apartment buildings allowing for short term Airbnb rentals.
Take
This was a good quarter. The company continues to drive better affordability and continues to prove hosts are better off in the process of doing so. The margin story remains impressive, the balance sheet is beautiful and the growth engine keeps humming.
I deeply admire this company and have owned it in the past. All I’ll say is that regulation remains a pressing risk. I couldn’t get comfortable with it, and I still am not. That seems to be the wrong opinion thus far. There are solid arguments to be made for this firm driving housing scarcity across its markets. Housing inflation is a key concern for many geographies. As long as that regulatory risk doesn’t hold back this company, I’m not sure what else could.
