Airbnb: Is "Little Sweetheart" also going to become an "old lady"?

After the US stock market closed on November 1st, Airbnb released its third-quarter earnings report for 2023, with the following highlights:

Slightly lackluster performance in the third quarter: Overall, Airbnb achieved revenue of approximately $3.4 billion this quarter, which is basically in line with market expectations of $3.37 billion, with a year-on-year growth of 18%, maintaining the same growth rate as the previous quarter. The revenue performance is stable without any surprises. In terms of profit, the operating profit for this quarter is approximately $1.5 billion, slightly higher than the expected $1.44 billion, with a year-on-year increase of 2% in operating profit margin. The upward trend in profit margin remains unchanged, but the increase is not significant, also without any major surprises.

Stronger-than-expected average booking price, with Latin America and Asia Pacific driving growth: In terms of business performance, the total booking amount for this quarter was $1.83 billion, slightly better than the expected $1.79 billion, with a year-on-year growth of 17%. Breaking down the price and volume, the total number of booked nights was 113 million, consistent with market expectations, with a year-on-year growth rate of only 14%.

The average nightly price for this quarter was $161, higher than the expected $159. The main reason for the slightly higher booking amount than expected this quarter is that the market has been expecting a downward trend in prices, which has not yet materialized.

In terms of regions, the average nightly price in North America has indeed started to decline (-1% YoY), but the average price in Europe has grown by 6% YoY after excluding the impact of exchange rates, which is the main reason for the strong performance of average price.

In addition, the two developing markets of Asia Pacific and Latin America have performed well this quarter, with a 24% YoY growth in order volume in Latin America and a 27% YoY growth in Asia Pacific. It can be seen that the recovery of these two markets is the company's main source of growth.

Stable monetization rate and gross profit margin: The similar growth rate of revenue and booking amount indicates that Airbnb's monetization rate remained basically unchanged YoY at 18.6%, with a slight increase of 0.1 percentage points. Therefore, the company's gross profit margin also showed no significant change, remaining at 86%, achieving a gross profit of $2.94 billion, slightly higher than the market's expected $2.9 billion.

Continued cost control drives sustained small increase in profit: Although Airbnb's business growth and revenue performance this quarter were mediocre without any surprises, there has been good progress in cost control. After excluding the impact of equity incentive expenses, the YoY change in relatively fixed operating and customer support expenses and management expenses remained basically unchanged, while marketing expenses and product development expenses both showed a significant decline YoY.

Among them, the absolute value of product development expenses has decreased YoY. Although the company claims to increase investment in new businesses, the direction of research and development expenses seems to be pointing in the opposite direction.

Fourth-quarter guidance for revenue in line with expectations, while order volume growth continues to decline: For the next quarter, the company guided revenue to be between $2.13 billion and $2.17 billion, lower than the market's expected median of $2.175 billion. As for the key metric of nightly order volume, management expects a slower YoY growth rate in the fourth quarter compared to this quarter. However, the average daily rate (ADR) of room nights will remain strong, with a year-on-year stability or slight growth.

Longbridge Dolphin Research's viewpoint:

Overall, Airbnb has once again delivered a lackluster performance this quarter. Both revenue and profit did not show significant performance that exceeded expectations. At the same time, the key metric of room night bookings has shown weak growth for two consecutive quarters, and the performance growth is mainly supported by the stability of prices. According to the company's guidance, this trend is expected to continue in the fourth quarter.

The problem lies in the fact that although the performance of the US economy has been unexpectedly strong so far, concerns about economic weakness have resurfaced in the market. Optional accommodation and travel consumption logically belong to the industries that are more affected when the economy slows down. Therefore, in the absence of performance that exceeds expectations, the market is likely to adopt a cautious wait-and-see attitude towards the company. Dolphin Research's advice is the same.

The following is a detailed interpretation of this quarter's earnings report:

1. ADR remains strong, but volume growth is mediocre

In the third quarter, Airbnb achieved a total booking amount of approximately $18.3 billion, a year-on-year growth of 17%, with a slight improvement in growth rate compared to the previous quarter. It slightly exceeded the market's expectation of $17.9 billion, and overall, the performance was good.

However, looking specifically, the total number of bookings for this quarter was 113 million, with a year-on-year growth rate of 14%, which is lower and basically in line with market expectations, not outstanding.

In terms of price, the average ADR for this quarter reached $161 per night, a year-on-year increase of 3%, which is 2% higher than the expected $159. Although the market has been expecting a decline in ADR, the fact is that prices have remained strong.

In terms of regional performance, the average ADR in North America did indeed decline by 1% year-on-year, but the ADR in Europe still grew by 6% after excluding the impact of exchange rates. Therefore, the overall ADR performance of the company is more resilient than expected.

In addition, the two developing markets of Asia-Pacific and Latin America showed strong growth this quarter, with order volumes in Latin America increasing by 24% year-on-year, and the Asia-Pacific region growing by 27%. The recovery in these two markets is currently the main driving force for the company's growth.

2. Stable monetization rate, revenue and gross profit in line with expectations

In this quarter, Airbnb achieved revenue of nearly $3.4 billion, which is basically in line with market expectations. The year-on-year growth rate is 18%, which is also relatively stable compared to the previous quarter. There were no surprises in terms of revenue.

The fact that the revenue growth rate and booking amount growth are basically in sync indicates that Airbnb's monetization rate remained stable at 18.6% compared to the same period last year, with only a slight increase of 0.1 percentage points.

Due to the stable monetization rate, the company's gross profit margin also remained unchanged at 86%, achieving a gross profit of $2.94 billion, slightly higher than the market's expectation of $2.9 billion.

3. Continued cost control, sustained slight increase in profit

Although Airbnb's business growth and revenue performance in this quarter were mediocre without any surprises, there were still good progress in cost control.

After excluding the impact of equity incentive expenses, the operating and customer service support expenses, which are relatively inflexible, remained basically unchanged compared to the same period last year, while the marketing expenses and product development expenses both showed a significant decline.

Among them, the product development expenses have decreased in absolute value compared to the same period last year. Although the company claims to increase investment in new businesses, the direction of the research and development expenses seems to be pointing in the opposite direction.

Mainly due to further reduction in expenses, Airbnb achieved an operating profit of $1.496 billion this quarter, which is slightly higher than the market's expectation of $1.435 billion, with only a slight increase of $60 million, but there were no surprises that exceeded expectations. The operating profit margin reached 44%, an increase of 2 percentage points compared to the same period last year.