Airbnb's Outlook on Travel (3Q22 Conference Call Summary)

Below is the summary of the Airbnb 3Q22 conference call. For financial report comments, please refer to "No Good News Is Bad News. How Much Appeal Does Airbnb Have Left?"

I. Guidance for the Next Quarter

1. 4Q22 revenue is expected to be USD 1.8-1.83 billion, an increase of 17-23% YoY compared to 4Q21, and an increase of 62%-70% compared with 4Q19. Excluding the exchange rate impact, revenue is expected to increase by 23%-29% YoY compared to 4Q21. The proportion of GBV (total booking amount for home rentals) is expected to decline MoM, consistent with the historical seasonal trend.

2. The MoM growth rate of total nights booked is expected to slow down in 4Q22, and ADR (average daily rate) will face pressure from foreign exchange and business mix.

3. 4Q22 Adj. EBITDA is expected to significantly increase YoY compared to 4Q21. Adj. EBITDA% (profit margin) is slightly higher than 22% YoY.

II. Analyst Q&A

Q: Expectations for total nights booked and ADR in 2023; Airbnb will resume investment in Experiences in 2023, so what are the expectations for cost growth and cost control measures for next year?

A: (1) Demand expectations for 2023

Judging from the Q3 situation, consumer travel demand has not weakened, so it is expected that Airbnb demand next year will be very strong.

In addition, in Q3, long-term stays of 28 days or more accounted for 20% of total nights booked, and stays of 7 days or more accounted for about 45% of total nights booked. At the same time, the company's city and cross-border business is very strong, and this part of the business will be a key driver of future performance in the case of an economic slowdown.

(2) Investment in Experiences

One benefit of this investment is that it does not require a lot of incremental investment, but rather integrating it more into existing markets and products, so costs will not increase for 2023.

Q: What are the notable aspects of the increase in demand for overseas travelers to Europe due to currency depreciation? What is the return on investment in advertising, and what are the opportunities for more widespread deployment of advertising?

A: (1) Demand for European travel

Demand for travel to Europe from regions such as the United States is strong, but judging from the company's business scale in 220 countries and regions worldwide, this will have little substantial impact on the overall business. On the contrary, due to the appreciation of the US dollar, European travel will decrease to the United States, and the two will offset each other.

(2) The return on investment in advertising is high, and expansion to more countries is underway.

Q: Will the strength of the US dollar push up demand for US overseas travel? Can the rise in ADR continue?

A: (1) Impact of exchange rates on the business

The strength of the US dollar is conducive to driving demand for overseas travel among Americans. However, residents in areas where the currency falls will reduce their demand for travel. The impact of the two will offset each other, and tourism demand is more reflected within each country and region.

===================== (2) ADR: Airbnb's search also prioritizes high-value, high-priced listings.

Q: Ways to attract people to become hosts; Structural characteristics of supply, such as regional regulations.

**A: Demand drives supply, and the places with the fastest booking growth are also the places with the fastest supply growth. For example, in Q3, 35% of hosts were converted from guests. They share with friends and in turn encourage more people to become hosts. With the current economic downturn, there will be more people looking to rent out their homes to earn extra income.

Airbnb's overall strategy is to show available listings to renters, rather than having renters search for places with available listings.

From a regulatory perspective, many cities and local communities see the economic opportunities provided by Airbnb and are willing to provide assistance to the company. The company works closely with these markets and is very optimistic about supply in 2023.

Cooperation with local governments is crucial. In terms of taxes, Airbnb has already paid over $6 billion in tourism-related taxes to local governments, and has collected and paid taxes in over 30,000 jurisdictions globally.

Q: The driving force behind active users and ordinary users, the changes in the new user base during the epidemic compared with the changes in the user base before the epidemic; changes in platform traffic conversion rate compared with 2019.

A: (1) Users

Since the epidemic began, Airbnb has focused on improving its brand image and reducing its dependence on search engine marketing. The results are significant, with 90% of traffic being direct/free, so the return on investment for users is very high. The stickiness of the new user group during the epidemic is as strong as that of other user groups.

(2) Traffic conversion rate

The traffic conversion rate is increasing year-on-year. When the company launched Airbnb Categories, the goal was not only to increase the conversion rate, but also to increase traffic. Since the launch of Airbnb Categories on May 11th, listings have been viewed over 300 million times, and they are all listings that users did not know about before, which has brought more traffic to Airbnb.

AirCover enhances user confidence. Next, we will continue to promote customer experience and product improvements.

Q: What is the impact of the macroeconomic environment and interest rates on landlords who rent out their second homes?

A: In the case of a bad macroeconomic situation, people are looking for more ways to earn extra income, whether it is the second home or the primary residence, and more and more people are using Airbnb to rent out their homes.

The company has 4 million hosts, 90% of whom are individual hosts with one or two homes. From the epidemic, it can be seen that unlike professional landlords, individual landlords are unlikely to sell their homes for profit even if they suffer an economic shock.

Q: The situation of backlog revenue in 2023

A: Currently, there is a strong demand for travel, and demand is steadily increasing compared to 2019. It is expected that the booking volume in Q4 will increase and gradually decrease by the time 2023 arrives. It is still too early to discuss, and there is currently no sign of a decline in travel demand. Q: How much potential improvement in conversion rate is there by redesigning pricing and increasing transparency?

A: Currently, the pricing is based on the nightly rate, and the option to add cleaning fees and advertising service fees is available. Customers want to know the actual payment more clearly, which is also helpful for landlords to understand their charges more clearly.

In addition, the company is also providing more tools to help landlords better understand their charges and provide competitive prices. For example, the algorithm for updating search rankings will prioritize showing higher-value listings (based on customer evaluations of the property when checking out). The company will also provide new discount tools, such as seasonal discounts, weekly discounts, and peak-season discounts.

Overall, as the competitiveness of prices improves, the conversion rate will increase, leading to an increase in bookings.

Q: Is the nominal monetization rate currently around 14%, and will it continue to increase in the future?

A: There is no intention to increase the nominal monetization rate. As a company that achieved over US$1 billion in net revenue and nearly US$1 billion in free cash flow in Q3, the company has ways to increase revenue other than raising the nominal monetization rate. For example, providing additional fee-based services to landlords. In the future, as pricing and discount tools are introduced and optimized, Airbnb's revenue generating ability will increase.

Q: What is the basis for the belief that there is ample room for elasticity in tourism demand?

A: During the pandemic, Airbnb's business model was the most suitable for the tourism industry. The company's business is global and loved by users of all age groups, offering almost all types of accommodations at different price points. Customers can adjust the type of accommodation flexibly according to their budget, which is something that hotels cannot do. Regardless of how tourism demand changes, Airbnb can adapt to these changes.

Q: Do hotel operators' plans to maintain high ADR and reduce labor costs provide Airbnb with an opportunity for flexible pricing and therefore increase market share? Considering consumer budget constraints, are there plans to change pricing structures and charge guests fees?

A: The company provides more tools for hosts to achieve dynamic pricing, and the competitiveness of hosts will increase, leading to an increase in the company's market share. There are no plans to change pricing structures at this time.

Q: How does the return of demand to cities affect ADR; changes in geographic combinations?

A: It has not yet returned to the level of 2019, and it may never do so. Non-urban demand is high, and of course, urban demand is increasing every quarter.

Cross-border is the same. In 2019, 48% of the total number of reserved nights were cross-border. The proportion of cross-border is currently gradually increasing, but it has not yet returned to the level of 2019.

Q: What is the reason for the good performance of free cash flow profit margin, and is it sustainable? When is Categories expected to be widely adopted?

A: 1. The reason for the improvement in free cash flow profit margin is that the company has significantly reduced variable marketing expenses while slowing the growth of fixed costs. Next year, the growth rate of ADR may slow down, but with control over variable and fixed costs, the free cash flow profit margin is expected to continue to grow. One of the company's key tasks is to drive long-term revenue and profit growth.

Currently, Categories' pageviews have exceeded 300 million, and it will be upgraded in November and optimized every year thereafter. In the past, the first step was to determine the tourist destination, the second step was to book the flight, and only then did the reservation of accommodation take place. The goal is to make Airbnb the first step.

Q: The situation of withdrawing from China

A: The China business has always been a key focus due to its higher ADR.

Currently, not many people are leaving China, but the company is well prepared for it: first, to continue to invest in Airbnb's brand image in China, and second, to ensure the supply of housing upon arrival in the country.

Q: Changes in recruitment plans under a weakening macro economy

A: Prior to the outbreak, the company could only achieve a balanced income and expenses, with EBITDA losses of less than USD 250 million. During the epidemic, it lost 80% of its business and decided to streamline the team into a small elite team. At the beginning of this year, the team numbered around 6,000 people. Before the economy worsened, plans were made to hire 7%-8% more employees, and there are no plans to change recruitment plans in the next 12-18 months.

Due to the small team, marketing expenses are significantly lower than those of competitors, and the company can flexibly adapt to different changes in the economic situation.

Q: AirCover's long-term strategy

A: The beauty of the Airbnb model is that it has the widest selection of accommodations, but the challenge is that room supply is not controllable. The goal is to have users choose Airbnb to book when the same house appears on both Airbnb and another website. In the future, a paid version or membership plan may be introduced.

Q: Are rumors of a decline in booking volume true? Is there any basis for confidence in increasing the proportion of long-term stays?

A: Overall, from the Q3 performance, booking volume is increasing. The basis for increasing the proportion of long-term stays is that flexible hybrid work-life models will continue to exist in the next few years. It is expected that as the company optimizes and upgrades tools and functions, market share will further increase.

Q: Why continue to spend on advertising in a poor macroeconomic environment?

A: Advertising spending in 2022 will be the same as in 2021, and will be dynamically adjusted based on revenue. In fact, the pace has already slowed down.

Brand marketing is important, and currently, advertising is being conducted for Categories and AirCover, and marketing methods will continue to be optimized to improve efficiency.

Q: In the case of a decrease in the total number of booked nights, will landlords lower their prices or will the company give hints to lower prices to landlords?

A: Indeed, many landlords adjusted their prices during periods of generally lower prices in the industry, but less frequently than hotels. As more pricing tools are established and launched, more dynamic changes will be provided to increase price competitiveness. <正文完>

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