Airbnb – Recession or not, people still travel!
Airbnb – Recession or not, people still travel!
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Airbnb reported its Q4’22 results on 14th February 2023, reporting revenues of $1.9B, beating the higher end of its revenue guidance ($1.88B) while it also delivered Adjusted EBITDA margin of 26.6%, i.e. more than 400bps increase from prior year. It has also beaten consensus GAAP EPS by $0.21 ($0.48 Vs $0.27).
This was the first year of achieving full profitability and Airbnb did it in style with a net income margin of 22.5%. This, along with the outlook provided resulted to an increase in share price by more than 9% in after hours.
Key results
In the current quarter, $ABNB had a revenue of $1.9B (up 24% or 31% ex-FX), net income of $319M (up 480%) and Adjusted EBITDA of $506M (up 52%).
For the full 2022, Airbnb had record revenues of $8.4B (up 40% or 46% ex-FX), Adjusted EBITDA of $2.9B (up by 82%, margin of 34.6%), net income of $1.9B (margin of 22.5%) and Free Cash Flow of $3.4B (up by 49%, margin of 40.6%). Excluding Stock Based Compensation, Free Cash Flow remains positive at $2.5B and a margin of 29.5%.
Improvement in margins are growth and expense discipline driven. Traffic remains at 90% direct while “compared to 2019, our headcount is actually down 5%, while our revenue is up 75%”, Brian Chesky, CEO.
Source: Airbnb 10-Q reports, Airbnb Shareholder letters, StockOpine analysis
GBV of $13.5B, up 20% Y/Y (26% ex-FX) driven by a proportionate increase in Nights and Experiences Booked of 20%, while ADR (Average Daily Rate) remained flat.
ADR of $153, 0.4% lower than Q4’21 (5% increase ex-FX) due to FX and changes in mix (e.g. urban destinations) and partially offset by price appreciation.
Nights and Experiences booked increased by 20% Y/Y with strong growth across all regions. APAC region grew the most by 40% due to the easing of COVID restrictions, though it is well below the pre-pandemic levels.
“We believe we have gained share in global nights stayed relative to both 2019 and 2021.”
Active listings reached 6.6 million with the most growth coming from North America. Excluding China listings grew by 16% in Q4’22 or 900,000 listings.
“Now why are listings accelerating in growth? We believe there's probably 2 factors that drove this growth. First, demand to drive supply. Post or attracted the supplemental income that they can earn an Airbnb, which is often critical during tough times. Second, our product improvements are working.” Brian Chesky, CEO
Airbnb remains a cash machine. In Q4 2022 it generated $455M of free cash flow (23.9% of revenue), up from $378M (24.7% of revenue) in Q4 2021. 2022 Free Cash Flow was $3.4B (or 40.6% of revenue) whereas cash, cash equivalents, marketable securities as of December 31, 2022 stand at $9.6B compared to a Long-term debt of $2.0B.
Now that capital is no longer free, having readily available cash is a great attribute. Not only it helps in financing future investments but it also generates income. For instance, $103M of a total profit of $319M in Q4’22 was generated from interest income. Additionally, cash can be used for future M&A opportunities if these exist.
Other highlights
On China outbound
“We think the big prize in China is the outbound business. We think that there are going to be hundreds of millions of people that want to leave China to travel the world, and we think is going to be the best way for essentially Gen Z people to travel… That being said, we are expecting a pretty gradual recovery in China.” Brian Chesky, Co-founder and CEO
Long-term stays
Long term stays of +28 days remain strong at 21% of gross nights booked (stable) whereas +7 days grew by 40% compared to Q4 2019 demonstrating resilience of this offering despite the easing of COVID policies and return to the office trends. +7 days account for 46% of gross nights booked.
Cities and cross border
Cross border gross nights booked increased 49% and high-density urban (cities) nights booked grew by 22% Y/Y. In Q4 2022, high-density urban nights booked was 51% of total gross nights booked (Vs 59% in Q4 2019) and cross-border was 44% (Vs 34% in Q4’21 and Vs 47% in Q4’19).
“guests are increasingly returning to cities and crossing border. And this is the bread-and-butter before the pandemic.” Brian Chesky, CEO
Share repurchase program
$1.5B out of the authorized $2B announced 2 quarters ago, were utilised reducing fully diluted shares from 703M at the end of 2021 to 694M, effectively offsetting dilution from employee stock programs. Management expects at least $1B repurchases for 2023 to offset stock-based compensation.
Results on 2022 winter release
Airbnb Setup – the number of new active hosts recruited with the help of Superhosts increased by more than 20%.
AirCover for Hosts – the increasing damage protection to $3m helped in increasing the net promoter score by 70 points.
Total Pricing display (i.e. including cleaning fees) – business impact was neutral but they will continue to test.
Apartment-friendly – 175 buildings were introduced to this program which effectively allows tenants to Airbnb their studio when they are away. This attracts REITs and developers and it is expected that the program will grow substantially.
It appears that Airbnb continues to strive for innovation in order to optimise its offering. Considering the growth and profitability it is obvious that investments do pay off.
Are you active on Twitter? If yes, you would have definitely seen people expressing that Airbnb is no longer an affordable option as it used to be.
Chesky listens and takes actions. It’s no coincidence that they announced new pricing and discounting tools to help hosts set competitive prices, thus keeping the momentum in enhancing the core business.
Expanding beyond the core
On its shareholder letter it was stated that there are big ideas where to take Airbnb next, effectively implying more optionality for its offering. Per the clarifications provided over the call it seems that most of these innovations will come on the service side and experiences (beyond just booking an accommodation) which per Chesky, do not require significant investments.
Outlook for Q1’2023
Nights and Experiences Booked year on year growth rate is expected “to be nearly as strong as Q4 2022” for Q1 2023. Our best guess is 18% growth Vs 20% in Q4’22.
ADR “we anticipate slightly lower ADR than we had in Q1 2022.” Assuming a 5% decline Y/Y we reach an ADR of c. $160 and a resulting GBV of $19.3B, i.e. a growth of 12%. If management achieves these targets we will see record GBV and Nights and Experiences booked.
Q1’23 revenue is expected to be between $1.75B and $1.82B, up 18.3% compared to Q1’2022 using the mid-point forecast. Revenue outlook includes an FX headwind of c. 2%. Unearned Fees remained at $1.2B in Q4’22 in line with Q3’22.
Adjusted EBITDA to “be slightly down on a year-over-year basis due to changes in the timing of our brand marketing spend.” Effectively, management expects an impact of 150bps from sales and marketing which translates to a resulting Adjusted EBITDA of c. 13.7% Vs 15.2% in Q1’22. Nevertheless, sales and marketing is expected to remain flat as a percentage of revenues for the full year.
For 2023, ADR is expected to face downward pressure due to new pricing and discounting tools, yet the EBITDA margin is expected to remain at 2022 levels (~35%) due to expected cost efficiencies.
“I think part of that is like no matter what happens in the world, people want to travel. And for many people, the office is now Zoom, the Mall of now Amazon, the theater is now Netflix. Travel is going to become a very important way that people experience the world this year. And so therefore, this is going to be an exciting year for Airbnb and for traveling all around the world.” Brian Chesky, CEO
Concluding Remarks
Another solid quarter for Airbnb. Airbnb far outweighed our expectations in terms of profitability demonstrating business model resilience. Outlook is promising, innovations that are taking place are encouraging, management is cost conscious and consumer confidence in travelling appears to be healthy.
Taking these into consideration we believe that there is a long runway for Airbnb and thus we remain bullish on the company.
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