Q3 2022 Airbnb Inc Earnings Call
Good afternoon, and thank you for joining Airbnb earnings conference call for the third quarter of 2022.
As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Airbnb website. Following this call.
I'll now hand, the call over to early March VP of Finance. Please go ahead.
Good afternoon, and welcome to Airbnb as third quarter of 2022, Thanks Carl.
You you for joining us today.
On the call today, we have Airbnb is co founder and CEO , Brian Cheskey, and our Chief Financial Officer, Dave Stevenson.
Earlier today, we issued a shareholder letter with our financial results and commentary for our third quarter of 2022.
Items were also posted on the Investor Relations section of Airbnb its web site.
During the call. It will 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.
On slide in the forward looking statements due to a variety of factors. These factors are described under <unk>.
Fitments 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 with that I will pass the call to Brian .
Alright, well, thank you Ali and good afternoon, everyone. Thanks for joining.
Q3 was another record quarter, despite macroeconomic headwinds we.
We had nearly $100 million night and expenses booked which is up 25% year over year.
Gross booking value was $15 6 billion. This is up 31% year over year Rev.
Revenue grew 29% year over year to $2 9 billion, our highest ever and when you exclude foreign exchange our revenue increased 36% year over year.
Now, we also had our most profitable quarter ever.
Net income was $1 2 billion.
And this is up $400 million from a year ago.
Now this represents a 42% net income margin.
Adjusted EBITDA was one 5 billion.
Also our highest ever and we generated $960 million of free cash flow in.
In fact over the last 12 months, we've generated $3 3 billion in free cash flow.
What our Q3 results demonstrate is that Airbnb continues to drive growth and profitability at scale.
And even with the macroeconomic uncertainties, we believe that we're well positioned for the road ahead now why is that well new use cases, such as long term stays and non urban travel are here to stay and this is because millions of people now have the flexibility that they didn't have before the pandemic.
At the same time, we've seen recovery in urban and cross border travel two of our strongest segment before the pandemic.
And just like during the great recession in 2008, when everybody started people today are especially interested in earning extra income through hosting.
Now during the quarter, we saw a number of positive business trends.
First guest demand on Airbnb remains strong glue.
Globally.
We exceeded 90 million guests arrivals during the quarter and this is another record now.
<unk> EBIT with macroeconomic headwinds.
<unk> experiences book increased 25%.
And during the quarter. We also continued to see longer lead times supporting a stronger backlog for Q4.
Second guests are increasingly returning to cities and crossing borders vault.
Both segments continue to accelerate cross border growth nice booked increased 58% compared to a year ago.
High density urban nights booked grew 27%.
And now even as these two segments return.
Domestic demand for domestic and non urban travel remains strong.
Third guests continue to stay longer on Airbnb.
Over the last year, we've seen many companies require their employees to return to the office and at the same time.
Long term state remained 20% of our total growth nice booked on Airbnb.
And finally.
For our host community continues to grow.
We believe there are several factors that are driving this growth.
First reason demand drive supply.
For instance in Q3 as guests were returning to cities, we saw urban supply accelerate.
Second since Airbnb began in 2008 post have consistently turned to airbnb to earn extra income.
In fact since 2008 post on Airbnb have earned $180 billion in our platform.
Third over the last year, we made several product improvements to help onboard and support our hosts.
We're not stopping there on November 16th we're going to introduce an all new <unk>.
Super easy way for millions of people to turn to Airbnb their homes as part of our winter release.
We're also delivering a major upgrade to air cover that provides even more top to bottom protection for every hosts.
Now what these upgrades and more we aim to unlock the next generation of hosts and improve the experience for more than 4 million people that are already hosting.
So just to recap we had a record Q3.
Nice and experiences is booked where our highest Q3 ever.
Our revenue and adjusted EBITDA were a record high.
Free cash flow was $960 million.
And in the last 12 months, we've generated $3 3 billion and free cash flow.
That Dave and I look forward to answer your questions.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. We ask that you. Please limit yourself to one question and one follow up to allow everyone. The opportunity to ask a question, we'll pause for just a moment to compile the roster.
Yeah.
And we will take our first question from Lloyd Walmsley.
At UBS.
Thanks, two if I can first just the classic kind of macro question anything you guys are seeing.
Globally, any pockets where youre seeing.
Trends in bookings or ADR.
Good.
Yes.
Morning.
That you'd flag heading into next year, and then second one.
You guys had talked a little bit about starting to invest again in experiences I guess, if we if we step back how should we think about the cost growth outlook heading into 2023.
Are you guys is there anything youre doing in light of just questions around macro to kind of keep keep a lid on costs.
Heading into next year. Thanks.
Alright.
Thanks Lloyd.
David why don't I answer. These and then you can go at a high level and you can do specifically to the bookings Brian's question, but Lloyd what im going to do is I'll answer it a little more of a high level. So.
One of the things that we've seen is despite a lot of consumers pulling back on spending the one area that I haven't seen them pull back on that much its travel.
And in particular like travel, where you can go and see your friends or family more inspirational type of travel in other words meaningful travel not just mass travel and I think the reason why is because because many people are now working from home.
The mall is now Amazon and movie theaters now Netflix people still want to get out of the house. They still want to have memories. They still want to have meaningful experiences and I think that's why they continue to turn to Airbnb and so just like people continue to travel this quarter, we expect really strong demand for Airbnb next year and again the.
New use cases are sticking in other words, a fifth of our nights booked for longer than a month and half of our nights booked are longer than a week and this is basically been a boon because of the flexibility that people have in being able to essentially work from home or have a hybrid works lifestyle at the same time our urban.
And cross border businesses are incredibly strong because of the value that we provide and we think that value and having great deals it's going to be a key driver as the economy slows down on the supply side.
To remind everyone that we started airbnb in 2008 during the great recession and at that time. Many people were turning to Airbnb to earn extra income and so we think this will be also a great time for millions of people to consider hosting which is why we're focused on this on November 16th. So we're feeling really positive about the path forward with regards to.
Experiences to answer your question very simply.
The great thing about experiences we don't have to have very.
Very much incremental investments to make this work, it's really just a matter of incorporating our strength with more into our existing marketing incorporating it into our existing product. So I don't think youll see that in the P&L from a cost perspective next year at all Dave feel free to take US anything else you want to add.
Yes, I would just double click a few areas, we're just doing incredibly well despite the macroeconomic environment. We saw continued strength in Q3 to Q3 makes experiences grew 25% year over year and our revenue grew 29% year over year and as we've stated is actually 36% growth year over year, excluding the impact of <unk>.
And exchanged and what we're seeing in Q4 is not.
Seeing any overall changes in booking behaviors from our guests.
Four weeks of this quarter, we're seeing really strong promising trends in cross border renewed interest in urban stays stabilizing cancellations and just strong future bookings and that we included in our guidance here.
Guidance for Q4, we are anticipating revenue growth between 17 and 23%.
That's 23% to 29%, excluding the impact of foreign exchange and maybe I'll, just take a minute to double procure because.
One of the things we're seeing is a difference in the behavior that we had last year.
You actually go back to 2019 at historic rates were actually seeing stable to increasing demand for bookings share from Q3 into Q4.
The T cell that we see from Q3 into Q4 is really a hard comp on Q4 last year, where we had really strong demand after delta and before <unk> and so this is really kind of a hard year over year comp. If you go back and compare back to 2019, we're seeing stable to increasing demand across.
The globe and have actually a the areas to highlight and you'll see it in our letter is that APAC had some of the stronger growth 65%.
Growth in APAC, and excluding China APAC is now kind of above 2019 levels. So that's been the last major a region to kind of return to 2019.
Okay. Thank you.
We'll move next to <unk> Khan at true Securities.
Yes, Thanks a lot.
Is there anything worth calling out in terms of incremental demand for.
European sales from travelers outside Italy.
Europe , given the decline in the currencies.
And then in that area and then now.
The other question I had is just on advertising.
Can you share anything in terms of ROI on their advertising dollars and how are you seeing what opportunities too.
To deploy these more broadly.
Yes.
Dave you take these I can round out the answers.
Sure in terms of European demand, we are seeing strong European demand from places like the U S where the dollar is stronger than the euro it's not a material part of the business or it's hard to see it impact the overall materiality given the just the size of our business being in 220 countries and regions around the world.
And Conversely, European travelers can be maybe less likely to come say to the U S where the U S. Dollar so strong so there's some offset in there.
Overall, the impact of foreign exchange isn't as large on the business because of the regional impacts more people kind of travel either domestically or within our regions and then in terms of the advertising ROI. We're really pleased with our approach to the marketing strategy that we've had our brand marketing results are delivering excellent.
Results overall with our strong rate of return and it's been so successful that we're actually expanding to more countries and so that's what you'll be seeing over the course of this next year is to expand more countries to support our brand advertising.
Great. Thank you.
We'll go next to Nick Jones at JMP Securities.
Great. Thanks for taking the questions I guess first I guess, when we look at kind of U S to international travel as the strengthening U S. Dollar maybe helping drive more interest in going overseas and then the second question.
On durability of kind of ADR is elevated home prices maybe.
<unk> hosts less likely to lower the rates at which youre willing to take kind of from here I mean, he is going to be maybe more durable than we think.
Okay.
Dave Why don't you take the first question and I can take the second.
Great Yeah again as I, just said on the U S. International we clearly do have a strong U S dollar, which enables Americans to travel abroad.
Quite well and we're seeing nice strength, there and again that part of the business is not so large as to have a material impact on the overall business. Because you also have some of the offsets of weaker currencies not necessarily trauma in the U S. Again more of a travel is domestic and intra regional that's what's really going to kind of drive things and more.
More of the foreign exchange issues.
Are not as pronounced within reach.
Region.
And I think just regarding elevated home prices and what that does to average daily rate on Airbnb, Nick I mean, just as the amount of people come to Airbnb, because they can find a great value and you can often get significantly more for your money than a hotel room, you can often get an entire home with a lot of amenities.
And.
Continuing to deliver value is going to be really important for next travel season and that means that we need to make sure. We have really competitive prices and that means that we need to give tools for hosts EBIT more tools for them to be able to better price. They are lifting so one of the things. We're doing is we're going to continue to move towards a more all in pricing, where when you see <unk>.
<unk> instead of being more of a nightly rate youre going to see a little bit more of a fully.
Fully loaded right and then our search ranking it as going to prioritize great value and great deal for the fully loaded price I think this will really help hosts understand what they're charging and then we're going to give them more tools. So they can see and understand what they are all in pricing is for guests and we're going to provide more discount tools and other features to allow hosts to remain competitive.
And if we do all these things I believe will be even more competitive from a pricing standpoint than we are today.
Great. Thanks, Brian .
We will take our next question from Brian Fitzgerald at Wells Fargo.
Thanks, guys I think you'll have more to say about supply with the upcoming winter release, but just wondering if you could talk about.
What you see is continuing pain pain points for hosts Brian maybe just talk to that a little bit.
And maybe also structural drivers around supply like local regulations and zoning.
Yes, yes, yes.
Yes, So let me let me let me dive into this because this is this is a pretty important topic.
Just just to zoom out.
We have a global network, where demand drive supply and.
That means that where we see our highest growth of bookings is also typically where we see our highest growth of supply and just to give you. An example, this past quarter approximately 35% of our new available hosts had started yet.
So this is a really strong network where guests become hosts.
And hosts as they get more bookings they tend to tell their friends about it and then we get more supply that way and so this is I think when I think that's really really important but beyond that obviously, we want to be very aggressive about recruiting more hosts to airbnb. Because this is a great time and because of the softening economy, we think increasingly.
Now more than ever before people are interested in putting their homes on airbnb to make supplemental income. So to answer your question what are the pain points I would highlight two as we've talked to people that are considering hosting they told us two things.
The first thing they said is that they want it could be easier to get started they need help getting started becoming a host. The second thing is there are a little nervous about having strangers in their house and so we have tackled both of these on November 16th as part of our winter release number one we're going to unveil.
All new Super easy way for millions of people to put their home on Airbnb I'm pretty excited about this and we're working on this for quite a while.
In to make people feel comfortable about having other people in their homes, which will unlock a lot more everyday people putting their real homes on Airbnb, we are going to be providing some huge upgrades and improvements to air cover for hosts if we do these two things I think we're going to help unlock significantly greater amounts of supply which is already.
On top of the momentum that we have and we've seen in Q3, maybe the final thing I'll just say this.
In addition to adding more supply and Airbnb the Holy Grail is pointing demand to where we have supply because I know Nate.
Globally on Airbnb are we ever close to a 100% occupied it's just a matter of plenty demand or where we have supply and this is the whole theory around airbnb categories.
Instead of hoping people type in the place you have available supply in the search box you can then come and have more of a browse experience, where we highlight homes that are available. So this is our holistic strategy as far as pain points as far as like from a regulatory standpoint, I mean, one of the things we've seen is a redistribution away.
From very large city kind of everywhere and a lot of cities and a lot of local communities have been actually reaching out to us because they can see the economic opportunity. We provide so we're working really really closely with these markets, but we're carrying a very optimistic about our supply for 2023.
Thanks, Brian .
So it looks like the two on a couple of Brian's points, because I think the really important.
Because of these partnerships that we've had with local governments and especially on tax collection, we've delivered more than $6 billion in tourism related taxes to local governments.
A material amount of money and collecting Rubin remitting taxes, we do it in over 30000 jurisdictions around the globe and I think in terms of like zoning regulations, we believe that the reasonable regulation actually normalizes hosting and when you normalize hosts can really be a foundation for future growth. So we actually think that you do this in a reasonable way.
And it will actually be a tailwind to growth for the future.
Got it thanks guys.
Right.
Next we'll move to Brian Nowak at Morgan Stanley .
Thanks for taking my questions I have two the first one just to maybe try to cut the business a little bit of a different way what can you tell us about sort of your growth in active bookers or active stairs versus spend per book or that sort of driving the business right now and how all of those cohorts that came in during COVID-19.
Covid, how are they aged versus versus Covid cohorts you had prior to Covid and then the second one Brian you made so many improvements to the platform over the years from him flexible in trying to load balance supply and demand et cetera. What can you tell us about the conversion of traffic now versus where it was say in 2000.
19.
Alright, Awesome, Yes, Dave do you want to take that first question.
Yes in terms of the active bookers.
Can you kind of step back and look at the marketing approach that we've had since pre Covid and then we really has accelerated in COVID-19 and.
Has been to continue to focus on the overall brand of Airbnb and to be less reliant on search engine marketing, we've been incredibly effective with that 90% of our traffic remains direct or unpaid which is driving a great return on investment for kind of new active bookers and so the return that we're getting on new has been.
Quite good and in terms of the cohorts of new we're actually seeing that the cohorts that are coming in since COVID-19 are actually as strong if not even stronger than they were in prior to COVID-19. The people that are willing to travel right now an experienced airbnb hubs are really sticky and the cohorts are out.
Stronger stronger than we saw previously.
Yes.
We'll go next alright.
Oh, sorry, sorry, I just wanted to I just wanted to answer about conversion of traffic or.
Four on flexible so yes at a high level conversion on a year over year basis is up but I would actually.
I would absolutely generally say, Brian that we actually think about it even more broadly.
When we launched Airbnb categories. For example, one of the bullets, what not just increased conversion, but was actually to increase traffic and there is a scenario where you can engage traffic. Initially conversion can go down because you are a little bit more on the inspiration business and there were people are coming in they're dreaming and planning travel. So you really want to look at conversion over a longer.
At a time, but we have actually seen metronomic improvements in our conversion rate.
Stays listings and everybody categories. Since we launched on May 11th have been viewed more than 300 million times.
They would've never otherwise have known existed. So we're really excited about the progress we're making between urban be categories, which is really bringing a lot more traffic to airbnb 20 demand, where we have supply, bringing us top of funnel.
Air cover for guests, which is making people feel more assured about their experience and allowing a more consistent form of reliability.
But we're going to continue to see.
Step change and improvement in the product from a guest experience and this of course will continue to lead the greater conversion.
Great. Thank you both.
We'll go next to Doug Anmuth with J P. Morgan.
Thanks for taking the questions I have two.
First Brian I know you talked about strong growth in new hosts and a lot of them see new income opportunities, but within that.
Is the macro environment and interest rates is that pretty any pressure on second homes in your view.
And then secondly.
If you could talk a little bit about the early returns on the spring update categories is there anything you can add just around conversion rates or what you might be seeing an incremental bookings.
Yes, Doug I mean, I'll, let Dave fill in in more detail, but at the highest level.
It's actually pretty simple.
And then in.
As the economy slows down I think people are looking for more ways to make either supplemental income or like greater yield on the assets. They have and so we generally see a slowing economy as a moment when more and more people are going to be presumably turning to airbnb for hosting and so whether it.
Second homes or primary home I think there's going to be a pretty big opportunity for us and we just want to make sure that we provide great tools for people. So they continue to lift on Airbnb.
As far as some of the metrics we've seen again as I said conversion has steadily ticked up homes and Airbnb experiences have been viewed more than 300 million times, we're seeing.
US continue to spread our bookings to more and more markets, which is the Holy Grail of being on the point demand rehab supply.
With air cover for guests, which is another very important upgrade that we made because this is aircraft for guests really addresses a bit to the achilles' heel of Airbnb, which is on the one hand, we have this incredible one of a kind homes either hand, one of a kind can be variable and consistency and so what we've seen with air cover as we provide protection and the <unk>.
Likely events at our hosts cancels or do you get to a home and Thats not as described and we've seen a sense. We've launched air cover for guests NPS is up and probably even more importantly, rebooking rates. When a guest is dissatisfied is also up and so if we can do these two things on the front and continue to be more on the XP.
<unk> business point demand already have supply.
On the back and make sure that Airbnb is our.
Our meeting your expectations and in the rare event that they don't we make it right that needs are going to continue to unlock significantly greater growth for us in the year ahead.
Got it.
Click on the stronger in the second home impact question and if you go back and think about the 4 million hosts that we have we have a very different business than maybe others. So 90% of those hosts are individual hosts there the people that own our first primary home or maybe a secondary home and a big strength of our business. We saw this in Covid is that people even during an economic.
Kind of shock period, they don't get rid of their primary home. They don't get necessarily can rid of their secondary home, which is very different than professional hosts that maybe are doing an arbitrage.
The exact cost of ownership and return on the investment they can get on that specific property versus other alternatives and so I think that this helps buffer any of those kind of impacts on our businesses that individual host community.
Thank you.
We will go next to Justin post at Bank of America.
Great. Thanks, one quick one when you say adr's could face some pressure is that quarter over quarter or year over year in Q4, and then much bigger picture.
<unk> bookings were 31% growth guidance, probably implies well over 20 in Q4, how do we think about the backlog for 'twenty three on revenues or.
Associate that with potential revenue growth next year. Thank you.
Alright, Dave I think you can take this one.
Sure on the year over year for Q4, the Q4 pressure ADR is year over year.
In terms of the backlog for 'twenty three it's early.
Early to tell but really what we're seeing is continued strong demand for travel overall like I said when you look back to historic levels and growth back to 2019, we're seeing stable to increasing demand. We are strong bookings on the books for Q4, but then there'll be fewer on the books for.
Tails off into 2200, <unk>. So early to say, but we're seeing no hints of a decline in peoples demand and willingness to travel.
It's a little early to.
Extrapolate much further.
Great. Thank you.
We will move next to Mario Lu at Barclays.
Great. Thanks for taking the questions first one is for Brian .
Earlier, this morning that redesigning pricing and.
Better transparency as a top priority for you.
How much of a uplift because it's D two conversion potentially.
What changes should we expect to see.
Yeah, Hey, Mario.
Yes, just to give a little more context to those listening about pricing.
Right now we have pricing that is primarily displayed on a nightly rate.
Hosts can then choose to add a cleaning fee and.
And then Airbnb add service fees and one of the things that we've been hearing from guests can we heard it loud and clear is that people would like a little more transparency about what theyre actually paying when they first get to Airbnb and so we are working on redesigning how pricing works on Airbnb, So people better understand the total price theyre going to pay the <unk>.
They arrived Airbnb and it's not a surprise for them. So I think the north star for US on this matter is transparency I think the benefit of this is going to be we also want to make it easier for hosts to understand what they're charging and sometimes hosts tell us that they're not aware of what guests are paying because as you know we added guest service fee on top of the price set.
The host charged and occasionally hosts state that.
They are charging more than they intended to and so we are updating some of the tools to make it easier for host to understand what they're charging and this will allow them to be more competitive. In addition to that we're going to be updating our search ranking algorithm, we've been making some refinements to prioritize home that offer a better value and of course, when a guest checks.
They leave a five star rating and one of the questions. We ask is on a scale of one to five how good of a value Wednesdays and home to offer a great value, we're going to be prioritized higher in search results.
And in addition to that we're going to continue to develop new discounting tools discounting tools like seasonal seasonal discounts weekly discounts peak season discounts and really tools to make hosts more competitive if we do all of this I do believe the prices will get even more competitive and one of the things. We know is obviously at the prices get more competitive.
Conversion rate goes up and as conversion rate goes up bookings go up.
And just the final thing I'll, just say is we will have some updates on this soon I'll be making some announcements there.
Great. Thanks, Brian and just one on the operational take rate I believe it's still above 14% and has not changed much over the past few years.
So first one is that correct and if so.
So what are your thoughts on adjusting up or down to the future to drive demand.
Yes, it's a great question Mario I mean, I'll start and Dave you can feel free to jump in.
We do not have an intention to increase take rate I mean, this is a company that obviously in the last quarter did more than a $1 billion of net income nearly $1 billion of free cash flow. So I think theres a lot of levers to increase monetization on airbnb, but I don't think we have to increase take rate to do that in other words, there is opportunities like to allow additional server.
Assist the hosts that we could charge for and they think we think they pay for that we can do so there's a lot of ways to increase the take rate on airbnb, there are going to be some areas, where we can probably optimize and improved take rate.
And potentially lower a little bit light on long term stays if you're booking at play for Q3 four months.
Think conversion rate might go up if we were to lower the take rate a little bit, but I don't think this would cut into our current business I think that might actually keep more bookings on the platform. So we are going to continue to look at some optimizations, but.
We think that we provide a great value and I think if we make some of these pricing and discount changes in the coming future I think the value on the Airbnb will get even better we're going to remain disciplined on our expenses.
Well theres a lot of monetization opportunities going forward, but our general view is if we're going to charge more we should provide more that's our north star.
And as a reminder, we ask that you. Please.
Only ask one question to allow everyone. The opportunity to ask a question. We will go next to Bernie Mcternan at Needham <unk> company.
Great. Thank you for taking the question.
Realize that you guys are saying, you're not seeing any negative impact yet from the macro on the consumer but as you think about different scenarios, playing out and the potential impact of a recessionary environment is there any cohort or demographic data that you see from your consumers that makes you think airbnb it could be more resilient than broader travel.
I mean, I could answer at a high level and Dave you can go and it's a great question.
One of the things we noticed during the pandemic one of the lessons of the pandemic I think Airbnb is the most adaptable business model and all travel and the reason why is we're not just the European business. We're not just in North American business. We are a truly global business. We're in a 100000 cities all over the world we're not just vaca.
Rental business. We're also an urban business also cross border business. We're not just a family business were also popular with millennials Gen Z and retirees and nearly every type of price point. So I think that however, travel demand changes, we will be able to adapt and that's one of the great things about our model, it's a global network guests become host.
Most hosts regular people that tell their friends about Airbnb, which is why when a market occupancy increases in itself create more supply.
So these are some of the reasons why.
We feel very very excited about our ability to continue to adapt given this challenging macroeconomic environment, Dave I know you want to add anything to it.
Yes, I would just play Doubleclick I mean, it's just a great value that we provide right because people can pick anything from where from budget to luxe and if a person has a certain kind of budget constraints. They can choose to maybe get a slightly smaller place replacement pure amenities maybe there.
We will further out like they can adjust the type of home. They want based on their budget and I think Airbnb has such a diversity of offerings that enables them to do it uniquely with us which is very different than the flexibility they might have in hotels.
We'll move next to James Lee at Mizuho.
Great. Thanks for taking my questions and when we spoke with hoteliers in General I think they are planning to keep the ADR is high and what do we do staffing levels. So just curious what youre thinking does that present, an opportunity for you to price your product more dynamically.
Demand and gain share and also considering are you also considering a price structure change.
Charging guess the east given the tighter consumer budget. Thanks.
Yes, James Yes, I think that as we give more tools to hosts to be able to dynamically price. They can be more competitive and as they are more competitive than we will continue to gain more share. So anything that allows greater value allows for more share.
We don't we're not we're not other than changing how pricing will be displayed to make it more transparent intuitive and to continue offer better value, we're not actually looking at a fundamental change to our pricing structure.
Okay.
We'll move next to Richard Clark at Bernstein.
Alright, Thanks for taking my question just wondering based on your commentary do you think of them coming back.
How normal OEM mix at the moment.
And possibly quantify what the AVR hopefully might be evolving.
Just to come back and then maybe just the same question recently.
We're more skewed to the North American market when you pre COVID-19.
Those use cases are a bigger factor in North America or do you expect further changes in the geographical mix over time as well.
Yes, Dave do you want take that one.
Sure in terms of like urban coming back. It's just continues to be a higher and higher percentage of our overall mix, it's not quite back to where it was in 2019 and it may never quite big because we see such great strength in our non urban but urban is strengthening.
Each quarter and so that's the trend that we're seeing on the urban side and I think it's actually similar on the cross border International side, we're not backdrop back to where we were in kind of 2019 level gross types were like 48% were.
Cross border back in 2019, and what we've just seen as a cross border continues to be a greater greater percentage every quarter, but we're not quite back to where we were in 2019.
We'll move next to Mark Mahaney at Evercore ISI.
Okay. Thanks.
Let's see David can I ask you just addressed the over earning question.
Free cash flow margins are truly very impressive just you rarely see see them <unk> been at 40% plus roughly for the last three quarters on a trailing 12 month basis, what would cause those margins to go materially higher or lower from here or is there a reason to think that they are roughly sustainable and then can I just ask about categories I know somebody asked him.
This earlier, but Brian .
This features can sometimes take quite a long time to kind of get broadly used and adopted and they can have a major impact.
And I think this is one of those that could how long do you think it's going to take for categories to be kind of widely adopted used and really start impacting.
And helping people better match up that supply all the supply you have with the demand thats out there. Thanks.
Alright. So we have two question and then I think Dave you can take the first one and then I'll take categories.
Excellent. So yes, the free cash flow I'm really proud of our delivery of their free cash flow and the free cash flow margin. So thanks for calling it out I mean, we've just made substantial improvement in the overall profitability of our business right.
Radically adjusted our marketing expenditures to be substantially lower we've made metronomic improvement our variable costs, we're seeing great leverage on our fixed cost we're being incredibly disciplined in our fixed cost growth and that will continue going forward and so all of those will be tailwind to being able to maintain or even increase our free cash flow margins.
Over time as average daily rates could moderate next year that does put a little bit of a headwind towards our margins, but I think the improvements in our variable costs and fixed cost leverage should enable us to maintain or even increase free cash flow margins over the longer term.
What we will continue to have greater expansion in free cash flow margins would be some of the things that Brian talked about a little bit ago, it would be kind of incremental services or activities that we.
And for guests for hosts over time and there is no immediate announcements of major changes that you seemed to state in 'twenty three.
No that that is a focus for us and over more extended period, we will drive incremental revenue for us.
A lot of margin.
Yes and to answer your other question about the kind of timing for.
Wide adoption of Airbnb categories.
It's a great question I think just to kind of zoom out.
Customers of travel have been as you know trained over last 25 years to search a certain way and that ways to go to our website.
There is a search box you type in where do you want to go in your search and then what you get is a list of results you refine the result, you compare sometimes a different website.
Different apps and then you make a booking.
And I think this is going to be a multiyear transition to retrain kind of customers about how they can search for travel on airbnb, but I think we're going to start to see some really great really great momentum next year again, we're already seeing people discover home. They never knew existed we're seeing a lot more people engage with categories the homes and.
Categories have been viewed more than 300 million times, we're going to continue to be making improvements to this every single every single year, we have some upgrades coming out in two weeks in November and of course, youre going to see some upgrades beyond that as well. So I think this is a really great opportunity for us and again, because we're a little more concentrated.
Vacation rental vacation travel business travel and because people are increasingly more flexible when they travel we think theyre going to be much more open to ibs from Airbnb and part of this is idea of airbnb, becoming more of the top of the funnel the way the travel funnel, we used to be as you go to one website to figure out where to travel. These were typically travel content site.
Then you go to the next site typically to book your flight and then the third thing you do is get your hotel or get your housing so with Airbnb with kind of step three and we'd like to have them be you go from kind of step three to step. One this is going to take some retraining temporary if need be to go from step three the chirp, one, but I think there's definitely a line of sight to getting there.
We will go next to Stephen Ju at Credit Suisse.
Okay. Thank you Hi, Brian .
Hey, you guys took off.
The you guys took off the China supply, but <unk> maintained your outbound business.
Probably a little bit too early to tell and there probably isn't a lot of outbound happening as of yet but is there anything we should worry about from a customer acquisition funnel or retention standpoint, because the airbnb used case for I guess, the Chinese traveler is going to get reduced to I guess international only versus what was previously domestic plus international.
Thanks.
Yes Stephen.
The crown Jewel of our China business was always and we saw always was going to be the China outbound business and the reason why is the take rate with higher for the outbound business than it was for the domestic business. The inventory is more unique there is less competition and the average daily rate is a lot higher so the outbound business was always there.
Price the price part of our business and that's what we're focused on now as you know not a lot of people are leaving the country right now, but we want to be prepared for when they do and they eventually will of course and so the two things we're doing to prepare is number one we're going to be continuing to invest in our brand in China and number two if people are traveling and they are leaving China.
Theyre going to other countries and we would call. These the corridor countries and the primary place their first probably going to go with intra region, they're prebuilt, Jim will be going to be going to southeast Asia Korea, Japan. Eventually they'll go a little further to Europe , and then presumably come back the United States, especially maybe.
The kind of some of the coastal cities and this is kind of how I think travel may recover and so what we need to deal with to make sure. We have enough supply in these core doors and continue to invest in our brand in China, and I think by only having an outbound business. We can actually focus all of our investment just on that and then actually makes a lot more cost effective.
A lot more efficient and one thing I've learned is more focused we are more like we are to achieve our results.
That's we're feeling we're actually feeling really confident about the prospects for China, It's just going to be a longer like pay off then because of the fact that not a lot of people are leaving the country and traveling right now.
We will go next to Eric Sheridan at Goldman Sachs.
Thanks for taking the question maybe a two parter if I can on investment strategy. Obviously, we have a lot of technology companies are talking about slowing hiring possibly pruning talent out of the organization. How do you think that positions you to possibly upgrade talent within the organization Bryan and then how are you thinking about hiring goals over the next sort of 12.
To 18 months and then the second part of the question is obviously, a slow and the economy would not be like the X essential prices to travel felt in spring of 2020, but what's your broader philosophy of investing through a soft patch in the economy or more closely aligning revenue growth with expense growth. If you did see a soft patch over a couple of quarters.
Thanks, so much.
Yeah, Hey, Eric good to talk to you.
Yes, let me let me just recap, how we think about expense management and investments.
Before the pandemic we were essentially.
Nearly breakeven business.
Like a little under $250 million in lost from an EBIT perspective and of course, when the pandemic hit we lost 80% of our business and we completely changed our cost structure and out of that crisis. We made a decision and the decision. We made is we weren't going to wait for another crisis.
Other weakened economy or a recession to change how we invest around the company that we were going to be lean regardless of the economy in other words, we're going to go from like the Navy. The Navy. The Navy seals, a small lean elite group and so we are a small team. We are functionally organized for only slightly more than 6000 people in the beginning of this year before.
Obviously, the economy took a turn for the worse, we still only had a plan to hire 7% to 8% more employees.
Words, we had a plan to be really profitable when we were planning for a storm and so we have not had to change anything about our hiring plans, we don't intend to change anything about our hiring plans in the next 12 months to 18 months, regardless of the economy, because one of the lessons we've learned as a small we are the more nimble we are the faster we can move.
And not only can we be more profitable, we can actually grow faster and we've been actually more productive than we ever were in our history.
We've made more than a 150 upgrades innovation across the core service. So we are still really aggressive about trying to attract the best of our generation to this company, but that doesn't mean hiring a lot of people. We are really embracing being a lean organization, which is partly our functional structure, we're not a business the organization.
Where you would have for marketing departments, we have one functional organization and so that allows us to be quite a bit leaner and I guess that goes to your other question, which is slowness in the economy.
Regardless of what happens economy. Our model is highly adaptable, we have a very low expense base and.
And we're pretty efficient with marketing, we spent a lot less on marketing than our competitors and the vast majority of our traffic is direct so whatever happens to the economy I think we're in a pretty good position, where we won't have to change the way we run the company, but I think we've proven that if we ever have to of course, we will but I don't expect for us to have to make a lot of changes.
Because of how much cash we're generating because of how lean we already are.
Doubleclick I Wonder is that we announced are live and work anywhere policy. This year and I think that has enabled us to hire the best people in the world, regardless of where they live and so to Brian's point about hiring fewer more senior more experts in areas. This has clearly been able.
To make sure that we're getting the best talent in the world.
Yeah, and maybe the last thing I'll, just say is I think that we learned a lot of lessons probably.
Year or two earlier than a lot of other tech companies because we were hit so hard so early but I think the adversity. The challenge that we had just made us a much more focused a much better company and one of the commitments. We've made is we're never going to forget the lessons from the pandemic, we're never going to lose our discipline because the more disciplined we are the more focus we are not only to become.
Our profitable, but we actually innovate faster and so those principles are here to stay.
We'll move next to Ron Josey at Citi.
Great. Thanks for taking the question maybe a bigger picture question first Brian and then Dave one for you on just guidance.
Brian you were talking maybe intra quarter about air cover being a major franchise going forward clearly, we'll hear more about this in the winter release, but just talk to us about how air cover might expand.
Longer term.
We clearly see it for guests for hosts we know we'll have more updates for you in the next week or two but just bigger picture how you see it as a as a franchise and then Dave just on guidance.
In the letter we mentioned longer lead time for booking stronger backlog for <unk>, just trying to understand how that might compare to where we were maybe in prior periods at the same time. Thank you.
Alright, I'll take obviously the first one Ron thanks, So yes questions around kind of the longer term strategy around air cover.
Maybe a way to explain it recover let's just take as an analogy, let's take Amazon. So my recollection of Amazon. This will go back maybe 20 years, it's 20 years ago Amazon even back then their core retail business was the amazing products. They had the most amount of selection on the internet and they are at the lowest prices with the <unk>.
With Amazon as they hadn't achilles' heel in the Achilles' heel was there were competing with walking in the store and taking something out at that moment and so one of the things. They created was Amazon Prime which was obviously addressing the core achilles' heel what's was shipping.
Every business has to understand what its potential weaknesses I think the great thing about Airbnb model is we similarly have probably the widest selection of accommodations and everything we have is truly one of a kind at a great value, but our challenge is unlike a hotel, we don't control the inventory and cannot.
Structurally always be as consistent we cannot expect every property. So air cover similar for consistency address is something similar to the prime did for Amazon with shipping what did you say what if we could take this off the table. This question that consistency.
On the host side.
Texans have led to a huge increase in NPS, our NPS for air cover for our hosts has over 60 and this is after something happened to your homes. So clearly this was a huge hit and was so popular that we decided to bring it to guests and I think where this can go over the coming years, we can offer.
Increasingly more protection more coverage for more different use cases, and I think the north star for Air cover is if listing with <unk>.
Most of our inventories only entered into let's say a home was on two different websites Airbnb and other web site, we want air cover to be so compelling that just by having air cover alone. It would be a reason to go direct and book on Airbnb and notebook anywhere else and we're going to continue to make improvements every single year and I want air cover to be the gold standard for customer service for our cat.
And that's what we're really focused on and then down the road there may be opportunities to offer like a paid version of desk or some other type of membership program, but that would be down the road, but it's a very popular customer request.
We will go next to the back end and then in terms of.
Answer the question on guidance too.
On the guidance, our articulation of the longer lead times for bookings in just the Q4 bookings that we have already on the books for the rest of this quarter is just to indicate that we have stable to accelerating demand for growth and demand from our guests around the world.
It's that we're not seeing a softening of that demand, especially when you look back to historic levels of 2019 that any of the deceleration in revenue growth between Q3, and Q4 is largely due to the uniqueness of the 'twenty one 2021 timing of growth between Delta and <unk>. So.
I just think it just shows the stability of people wanting to get out of their homes, one to travel regardless of the macroeconomic uncertainties.
Okay.
Yeah.
We'll move now to Deepak math Vanden at Wolfe Research.
Great. Thanks for taking the questions just a couple quick ones. So.
So first there's been a lot of press recently about how occupancies on the platform are down for certain how hosts.
Anecdotal or seasonal or whether there is anything more to it I mean, you'll forgive guidance is pretty strong, but just trying to understand how much of this is just kind of noise out there and then second question maybe for Bryan long term stays is stabilizing near 20% of the mix on the platform, even as sort of your room nights is growing pretty nicely you've talked.
Sort of like the flexibility and lifestyle for many people keeping helping this growth, but curious whether there is also like a bigger macro drivers like maybe rental markets being very difficult right now thats, helping this trend just kind of trying to understand how much youre, reaching already into the addressable market beyond travel currently.
Yes, I can.
I can I'll take both and then Dave can feel free to dive and especially on the bookings.
I mean, I think are just to answer your question on whether our bookings are down for hosts.
At the macro level at the high level Theyre not down there.
I think the Q3 results speak for themselves.
There are anecdotal disc.
A description of some hosts bookings are down some hosts bookings are up and this there are many possible explanations for this so just that travel is continue to change one of the other things, though is that our search rank algorithm is prioritizing all in pricing and hosts with the best value.
It's possible that might be one possible explanation, but again, its primarily will be seen as anecdotal and it really depends are you really have to take that on a case by case basis, but overall, obviously bookings are up in fact, it's a record quarter.
Now with regards to long term stays on travel.
I would just say that we've only scratched the surface.
A fifth of our nights booked are risked as a longer than a month and this is before making some really big fundamental improvements to the product in this category and I think in the coming years flexibility is here to stay I think more people are going to work remotely or in a hybrid way five years from now than they do today I think increasingly fewer people are going to have.
One year leases not to say no one will but more and more people are going to value the flexibility and want to live in different places and we think theres, a real opportunity and one of the things we're going to also see over the coming years isn't just that people are going to live in different parts of the United States, but people are going to choose to live for short periods of time abroad in different countries. So we think we're going to start to see more law.
Term cross border business too so theres a lot of opportunities here and we are going to be making some upgrades to our long term stay business to tap into this large market.
The largest expense that most people have in their life is their housing if their housing costs and we've built many of the many of the tools and features that you would need to provide for a longer term stay offering already but we're going to continue to make improvements and as we do I think well continue to take more and more of that market.
Next we'll move to Lee Horowitz at Deutsche Bank.
Great. Thanks, So building on the comments earlier about expense growth given that your advertising strategy has moved away from say purely demand link performance advertising and more towards longer dated ROI investments in brand advertising. How do you think about actively flexing down your advertising spend and perhaps tougher macro.
So environment per se investing into that environment to.
To continue to teach the customers retrained the customers about your ever expanding product set.
Okay.
Dave do you want to start with us.
Sure I mean.
If you look at our actual advertising strategy and the amount of money, we're spending on it it's going to be relatively flat from 'twenty two over 'twenty, one and you should anticipate similar marketing as a percentage of revenue in 'twenty three and so we can certainly flex it in line with revenue will be mindful of that but.
But what we've already kind of hit this new kind of lower overall rate.
What we've actually seen is to the extent that we're keeping it flat even as we grow it's because we're actually seeing such success that we're wanting to be able to invest in other countries. Certainly we can moderate that over time, but we are already so low that I wouldn't anticipate us.
Dropping dramatically in face of.
Substantial headwinds overall growth, but we can flex it.
With revenue within reason, what kind of a few hundred basis points here and there.
And I'd, just say just to jump in I mean, we don't really think of marketing as a way to buy customers because obviously as we mentioned more than 90% of our traffic is direct.
Organic and so the main thing is we take a full funnel approach to marketing and actually the top of the funnel is PR and communications and we we think Thats one of the biggest drivers of our traffic is.
And then brand marketing is actually important actually we think of it more like product marketing, we want to educate people about our new feature so right now we're advertising and educating people about airbnb categories and air cover and then we think our performance marketing is more of a way to laser in it.
To balance supply and demand rather than a way through this.
Purchase a large amount of customers and that's essentially the way we think about marketing and this allows for very efficient very dynamic.
Approach to marketing that should get more efficient every single year.
And we will take our final question from Brad Erickson of RBC capital markets.
Hey, Thanks to setup you follow ups first.
Knights came up just a bit light of where we all have it forecasted so obviously that.
But I guess in cases, where you are maybe seeing a little bit of nights booked softness are you seeing those hosts make any moves on price or your pricing tools spending any message to those hosts about.
Making moves just curious if you look to affect some elasticity in the event of any pockets of softness and then second Dave I know you spoke to this just a minute ago on the backlog, but to ask it in different way are you are you basically saying that youre seeing booking windows expand more than prior years here as we start out Q4.
Yeah, Brett I'll take the first question I think David can take the second.
I mean, what we do see is that many hosts do bring their prices up or down as demand goes up or down.
That being said I think there's opportunities for us to have more dynamic tool can give more visibility that would make prices even more competitive so to answer your question. They do many hosts do adjust their prices, but I think hosts probably adjust their prices less frequently than hotel and so and mark in periods of time, where prices are generally coming down.
Industry, we might be a little bit slower, but as we build more tools to provide more dynamic changes will be.
To be more competitive.
And I'll, let Dave take maybe.
A couple of things one thing is we are not focused on optimizing just diet cycle. I think <unk> is an important measure and it's an important driver of kind of overall demand, but we could also drive a lot of nice try to just driving towards lower nitrogen.
So we're trying to drive a balance of making sure we have nice growth and revenue growth and revenue growth, obviously pays the bills and so.
We are seeing strong growth in the business very happy with our Q3 results and on our.
So I think we're seeing stable to increasing demand and just really impressed with the resiliency of guests and their willingness to travel and interest in travel and Airbnb and I guess it goes back to the backlog too is that the reason why we kind of highlight is just people are having confidence in travel so.
What we're seeing is that yes, the booking windows are up year over year. They are a little bit there is some seasonality in that so they are actually booking windows, a little bit down from Q3.
And so.
As.
The lead times are just up from historical levels because of the people are confident in being able to travel I think that's the important thing you should take away.
And that concludes the question and answer session. At this time I will turn the conference back over to Brian for any concluding remarks.
Alright, well first of all thank you all for joining today I just wanted to recap and just say, we're incredibly proud of our results and I believe we're incredibly well positioned for the future ahead.
I Hope you all join us in two weeks for 2022 winter release, Youll be able to watch it right from our homepage on Wednesday November 16th at eight a M. Eastern Thank you all and I will see you then.
And that concludes today's conference call. Thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
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