Airbnb: Price Power and Emerging Markets are the Driving Forces of Current Growth

Summary of Airbnb's 3Q23 Conference Call

1. Management Discussion

1. Business Highlights: Nearly 1 million new active listings added this year. Compared to the same period last year, our supply grew by 19% in the third quarter. All regions experienced double-digit growth in supply, with the highest growth rates in the most high-demand areas. Both urban and non-urban areas saw supply growth at similar rates, and we observed a relatively similar increase in supply from individual professional hosts. Most of the new listings are unique to Airbnb.

2. The second and third quarters were record-breaking travel seasons for Airbnb. We saw accelerated growth in the number of nights booked in all regions, and it is particularly encouraging to see the growth in the number of first-time bookings in the third quarter. We had more nights booked through the Airbnb app than ever before, accounting for 53% of total nights booked, compared to 48% in the same period last year.

3. Lastly, international expansion markets are gaining momentum. Cross-border accommodation bookings grew by 17% in the third quarter compared to the same period last year. In the Asia-Pacific region, our business has fully recovered to pre-pandemic levels. We have also seen significant growth in markets such as Taiwan, Thailand, and Indonesia, with year-on-year growth rates exceeding 30% in these source markets.

4. We want hosting to become mainstream. We have been committed to making hosting services as popular as tourism. We ended this quarter with the highest number of active listings, and we have seen strong growth in active listings across all market types in all regions. In the third quarter alone, Airbnb hosts earned over $19 billion. We will continue to increase supply by raising awareness of hosting, making it easier to get started, and improving the overall hosting experience.

5. More powerful management tools: Our tools make it easier for hosts to add discounts and promotions. Almost two-thirds of hosts now offer weekly or monthly discounts. We have also added a new feature called "Similar Listings" that allows hosts to see the prices of listings in their area, helping them determine how to price their own listings. Since the launch of similar listing tools, nearly 1 million hosts have used this feature.

6. Another strategic focus for us is expanding Airbnb beyond its core. Over the past few years, we have made significant progress in building a strong and profitable business. In addition to laying the foundation for new services and products, we have also been focused on international expansion. We are investing in untapped international markets, and we are seeing good results. After the success in Germany and Brazil in recent quarters, South Korea has now become one of our fastest-growing countries, with a 54% increase in total nights booked compared to the third quarter of 2019. As international travel continues to recover, we are building momentum for Airbnb in underpenetrated markets.

Q&A Session

Q1: You mentioned some improvements you have seen in markets like Germany, Brazil, and South Korea. Can you provide more specifics? Or is it going to take some time to increase monetization methods? And when can we expect something special in terms of services provided to hosts in the future?

A: In terms of international expansion, Airbnb operates in 220 countries, making us one of the most globalized companies in the travel industry. However, our penetration rate in the United States is significantly higher than in many other countries. We believe that if we can achieve a fraction of Airbnb's penetration rate in the United States, there will be tremendous growth.

We have implemented a comprehensive approach in Germany and Brazil, including product optimization, public relations, and local marketing. Brazil's area is now twice as large as before the pandemic. We have applied the same tactics in South Korea, resulting in a 54% increase compared to before.

We are now considering Japan, India, China, and the Asia-Pacific region. We have some optimizations in Southeast Asia and sustained growth in Mexico. Besides certain regions in Europe, we believe there will be greater growth in other countries as well.

I believe that in the next 2 years, the penetration rate in many of these markets will accelerate significantly, making it one of our biggest expansion opportunities in the near future.

Regarding services for hosts in the future, we don't have any announcements to make at the moment. But what we have been doing is continuously building our host service system.

Recently, we are launching a pilot program for co-hosting. Co-hosting is a service where we match hosts with extra time and hosts with space but no time to host.

Q2: Do you expect the growth rate of room nights in the fourth quarter to remain in the high single digits or low double digits? As we enter 2024 and 2025, can you give us one or two recommendations that you think will have the most influential impact on accelerating room night growth?

A: In terms of total price display, we have introduced pre-tax total price display based on popular demand. We are now the only travel app in our category that truly does this. Since implementing this policy, 260,000 listings have either canceled or reduced their cleaning fees. We now have 3 million listings without cleaning fees. So we believe it is working. People are now inclined to get better deals based on the total price, including cleaning and other fees.

The second one is pricing tools. Since we launched the new pricing tool, about half of the new listings now offer monthly discounts. We also have a new tool called Similar Listings, where you can see other listings around you. We have found that this is the best way to ensure competitive pricing for our hosting.

Because hosting providers are often surprised to find that most of the listings around them offer better value.

With 1 million people using these tools, I would like to point out that the data for September shows a 10% increase in hotel prices compared to the same period last year. Airbnb's global prices have only increased by 1%. So we are definitely moving in the right direction. Now, in North America, our prices have actually decreased by 3%, while hotel prices have seen close to double-digit growth.

The last thing is monthly stays. We have announced a series of updates for monthly stays, including the ability to pay through banks and a reduction in fees after 3 months. Stays of 3 months or longer now see an annual growth of nearly 20%.

Regarding the demand for accommodations, we are just seeing some changes in demand at the beginning of this quarter, so we are cautious about this guidance. Therefore, it is expected that the growth rate of hotel room nights will be a few percentage points lower than in the third quarter.

Q3: Can you help us think about how you track occupancy or utilization expectations? As you expand from your core business into new markets, should we consider occupancy or utilization rates in these markets? Overall, how do you view occupancy or utilization rates for next year?

A: In terms of occupancy, we actually see it as quite stable globally. The majority of hosts on Airbnb are independent homes. They don't want all their listings to have a 100% occupancy rate.

Therefore, as we continue to increase our inventory, we continue to see strong overall occupancy levels. This quarter, our inventory grew by 19%, which is ahead of the current period's revenue growth. But taking a step back over the past 4 years, our overall inventory growth is actually quite similar to our overall nights growth.

So, occupancy tends to be fairly stable over longer periods of time, while it may have more fluctuations in any short-term period. But overall, we don't consider occupancy as the main driving factor.

In the coming years, we expect our revenue to achieve double-digit stable growth. Internationally, although we operate in 220 countries, there are only a few countries where we can reach the penetration level of the United States. These countries are Canada, Australia, and France.

So, it's just a matter of bringing Airbnb's playbook to other countries. For example, Germany, but not just Germany, the whole of Northern Europe, Eastern Europe, and even Italy and Spain.

Latin America is a new market that is emerging for us. The Asia-Pacific region, I think, is a completely new market. With our expansion strategy alone, we can achieve tremendous growth.

Q4: The greater volatility at the beginning of the fourth quarter, do you think it is driven by macroeconomic factors or geopolitical factors? What are your prospects for 2024? How does the current visibility compare to a year ago?

A: Overall, we have seen a slight softening in overall demand compared to the third quarter, which we attribute to the impact of macroeconomic and geopolitical factors. It is still too early to draw conclusions about early visibility for 2024. I feel good about our overall strategic planning and initiatives.

Q5: Can you provide us with the latest updates on the regulations mentioned in your shareholder letter? And then Google announced a new update to their vacation rental, where they basically allow property managers to display their prices. So can you talk about how you view some of the changes Google is making?

A: Currently, 80% of the top 200 markets where we operate have established relevant regulations. While these regulations vary, they have generally found feasible solutions for our home-sharing model. I would like to point out that France has passed very favorable and workable national legislation. Some cities near us, such as Seattle or San Diego, have also passed very favorable legislation. However, New York City has taken a completely different approach, which serves as a warning.

We will not directly respond to any specific actions Google is taking. The majority of hosts or individual hosts on Airbnb, about 90%, have listings exclusively on Airbnb. You can only find them here. I believe this is a larger defensive moat.

Another thing we are seeing is the strong power of mobile bookings. Last quarter, 53% of the total bookings made on our platform were made through mobile applications, primarily on iOS and Android systems. This proportion was less than 50% during the same period last year. I can only say that 90% of our traffic is direct or unpaid.

Q6: What do you think of the current average price on Airbnb? Is there room for it to go lower? Do you think travelers or consumers perceive Airbnb as a premium product or a discounted product? How much do you think price plays a role in consumer hesitation to book on Airbnb?

A: When we founded Airbnb, our initial slogan was an affordable alternative to hotels. The main reason people initially chose Airbnb was price.

In general, within a reasonable range, hosts tend to earn more money when they lower their prices. This is not usually the case for hotels. If your occupancy rate is 80% and you lower the price per night, you don't have much room to make up for the lower price with a higher occupancy rate.

But many of our hosting partners have low occupancy rates, so if they lower the price just a little, they can sell more nights. Therefore, we believe that encouraging hosts to offer more competitive prices is a win-win for guests.

Q7: Can you talk about your views on building more travel communities on Airbnb and the timeline for launching some of the new community features you mentioned earlier? A: One of our biggest visions is to create a global travel community where users can find accommodation, experiences, and various other services all in one place. This allows us to offer a wide range of products to both guests and hosts. We can leverage emerging technologies such as artificial intelligence to make the Airbnb app the ultimate travel agency.

To achieve this, we have invested heavily in identity and account structure. On Airbnb, 100% of guests and hosts must have a verified ID associated with their account.

We believe that the more we know about our guests and hosts, the more types of Airbnb services we can match them with.

One area where we will particularly benefit from AI capabilities is customer service. Imagine having a Japanese hosting reservation and receiving a call from a German guest with a problem, and both parties speak different languages. Since we don't have a front desk and can't be on-site, artificial intelligence can literally help solve these issues.

Q8: Supply has grown by 19%. Do you think this is the main indicator for measuring room night growth? The second question is about ADR. Does increased supply lead to higher or lower ADR? Can you give us some insights into the positive and negative driving factors for ADR next year?

A: The average ADR for newly listed properties is slightly higher than the average for existing properties. However, people tend to book places with lower ADR, which is a form of compensation.

In North America, we have seen more price decreases. In Europe, ADR has actually increased, and we hope to improve late-stage tools and provide hosts with a clearer understanding of their pricing strategies. We will continue to maintain a moderate ADR in Europe.

Q9: Do you expect ADR to decrease to single-digit percentages? Secondly, in terms of sales and marketing, it seems that supply is creating demand. Can you talk about the implications of this?

A: In terms of marketing and promotion, we haven't actually shifted more towards demand-side marketing. The majority of our traffic is direct or organic.

As for average daily rates, we have been making variable cost improvements to continue driving profitability. Our fixed cost growth discipline has been good, and this year our fixed employee count may increase by around 4%. So our employee count and fixed expenses are growing at a slower rate than our revenue.

But that's not our main driver. Our main focus is still on growth.

Q10: You have been talking about a lot of innovations in search experience, such as GenAI and community aspects like co-hosting. Do you see a path where the community drives enough differentiation in search that you can bring in more traditional supply, such as boutique hotels, to expand your potential market and increase revenue per user while still maintaining the uniqueness of Airbnb? Does that make sense? A: We strongly support having hotel inventory on Airbnb. We acquired Hotel Tonight before the outbreak of the pandemic.

Take New York as an example, our inventory is much lower than before the pandemic, so we can supplement the reduced supply with boutique hotels. I believe this is also an opportunity for growth, but we still prioritize individual accommodations.

Q11: For the two-thirds of hosts currently using pricing tools, when you add new supply, you mentioned that the ADR ratio for the new supply is higher, but are these people more likely to use the discount tools you mentioned? And when you enter the international market, you may have an impact on rates, will you track over 50% of the rooms? Will the occupancy rate eventually decrease as a result of this expansion?

A: Generally speaking, new hosts adopt new tools at a faster rate than existing hosts. The reason is that when you sign up, just like we have a great onboarding training, you can immediately see all the tools. Now we have a certain proportion of hosts, maybe we can say that 1 million hosts frequently use new tools. And an old host, they are used to hosting guests in the old way. Therefore, we usually see that new hosts may adopt new tools at a faster rate than existing hosts.

Regarding monetization, what we hope to do is to further increase the monetization rate as we add more services and features.

For example, adding travel insurance for guests is a good incremental monetization supplement. When we add more services for hosts and guests, this will be a way to increase the monetization rate.