Airbnb: 2Q also plans to increase investment, focusing on overseas markets and new businesses

The following is a summary of Airbnb's first quarter financial report conference call in 2024. For financial report analysis, please refer to " Airbnb: Another Weak Guidance to Blame? "

1. Review of Core Financial Information:

2. Detailed Content of the Financial Report Conference Call

2.1. Key Points from Executive Statements:

1. Financial Highlights:

Strong Cash Flow: Free cash flow reached $1.9 billion in the first quarter, the highest in history. Over the past 12 months, free cash flow was $4.2 billion, with a free cash flow profit margin of 41%.

Stock Repurchase: Repurchased $750 million of stocks in the first quarter, with a newly expanded repurchase authorization of $600 million by the end of the first quarter.

1. Business Highlights:

a. Mainstreaming Hosts: Making host activities as popular as travel activities by enhancing hosts' awareness of benefits, providing better tools, and helping hosts offer high-quality accommodations.

b. Enhancing Core Services: Introduced over 430 new features and upgrades in the past few years to enhance service reliability, launched the "Guest Favorites" series showcasing top listings based on ratings, reviews, and reliability.

c. Expansion Beyond Core Business: Continued investment in immature markets during the quarter to unlock more growth potential. Introduced a new category called "Icons," offering extraordinary experiences provided by celebrities from music, film, sports, etc., generating over 8100 global media reports within a week of launch with positive feedback.

d. Supply Growth: In the first quarter, despite removing thousands of listings that did not meet guest expectations, active listings for accommodations increased by 17% year-on-year, with nearly 40% growth in active listings in Paris and double-digit supply growth in all regions.

2.2. Q&A Analyst Interactions

Q: You mentioned that we are more inclined towards some less mature markets. Could you please provide a bit more detail on which countries and markets these are?

A: We are strengthening our investment in less mature markets. Airbnb operates in 220 countries and regions, with the most mature markets being the United States, Canada, Australia, France, and the United Kingdom. Promising markets include Mexico, Brazil, Germany, Italy, Spain, as well as Switzerland, the Netherlands, etc. Asian markets such as Japan, South Korea, China, and India are also of great interest, especially in Asia, once awareness is established, Airbnb often resonates to the same extent because young travelers there tend to be more inclined towards social media, where we have a greater influenceQ: The download volume of applications in the United States increased by 60% year-on-year. What drove this growth? Any explanation?

A: The download volume of applications in the United States increased by 60% last year, rising from 49% of bookings to 54%. This growth is mainly due to our focused execution of our strategic roadmap. Our brand is almost known to all Americans, but we have never truly focused on optimizing app downloads. These numbers represent organic growth rather than the result of paid advertising. Through various optimization measures and different touchpoints, we encourage users to download our app at the right time. We have proven that as long as we focus on a goal, we can achieve improvements in metrics.

By the way, the work of app downloads is actually just a part of optimizing our core business. We have found that not all customers are using our app, even though the app provides a better user experience compared to the website. Therefore, this is part of a series of measures aimed at improving and perfecting the core experience.

Q: You predict that the growth in room nights in the second quarter will remain unchanged. What factors in the second quarter may constrain growth? What should we expect for the rest of the year?

A: Last January showed strong performance, which was well known as we entered 2024, so we anticipated a decline in growth from the fourth quarter to the first quarter in the guidance provided in February. Since then, we have seen relatively stable growth, indicating the stability and resilience of leisure travel demand so far this year. We have noticed some differences compared to last year: this year's bookings and stays are more stable, advance booking times are basically the same as a year ago, and the level of fluctuations is lower. Therefore, our second quarter guidance reflects the continued stability of bookings. While we certainly hope to accelerate the growth provided, our guidance reflects the trends we have observed so far.

Q: In terms of profit, the guidance for the second quarter is slightly weaker than market expectations, including some calendar effects. Does this include the growth investments you mentioned? Or are these investments more likely to be implemented in the second half of the year?

A: Regarding the question about profit margins in the second quarter, we achieved a significant year-over-year expansion in profit margins in the first quarter, with a large part of it attributed to the timing of Easter. However, this profit margin expansion faced challenges in the second quarter as the Easter timing effect reversed, putting pressure on revenue growth and overall profit margins. In addition, we received some one-time credits in payment processing last year, which will not recur this year, and we slightly adjusted the timing of marketing expenses in the second quarter to exceed the growth rate compared to the same period last year.

Q: Regarding ADR, it seems relatively stable. Can you provide us with an update on progress in value initiatives?

A: We are always committed to providing better value. We believe that Airbnb is more attractive in terms of price compared to hotels, which has always been our core value proposition. To ensure this, we have taken a series of measures: firstly, total price display, which allows consumers to clearly see the total cost they will pay. Secondly, we offer monthly and weekly discounts, and we have introduced a comparison tool for listings to help hosts better price their propertiesThe result is that Airbnb's prices are more competitive compared to hotels. Additionally, with the growth rate of supply exceeding demand, prices have also decreased, easing some pressure.

Q: The growth in supply is very strong. Can you talk about the growth trends of supply and occupancy rates?

A: In terms of the relative growth rates of supply and demand, we do not expect the growth rates of supply and demand to be completely consistent every quarter, but in the long term, they usually grow relatively consistently. Currently, we are very satisfied with the continued strong growth in supply for the following reasons: firstly, unique and differentiated supply is the key attraction of Airbnb, so supply growth is crucial for us. Secondly, supply growth helps provide more affordable price choices. Finally, supply growth exceeding demand growth provides us with the opportunity to continuously improve service quality. In this quarter, we made a one-time supply reduction to ensure that the quality of service we provide meets the community's expectations.

Q: Regarding the situation of Airbnb searches, talk about the improvements in search and conversion rates, and your views on the future development of search?

A: We pay close attention to our conversion rates, and we have a team dedicated to the search experience. In the past year, through optimizing the search process, we have likely seen at least a few percentage points of growth as we have gained so much traffic. We have made many improvements, such as mobile app downloads, improved filters, and search box inputs. By optimizing the end-to-end customer flow of our core business, I have seen hundreds of basis points of growth, which is very exciting.

Q: Regarding the inventory quality issue we just discussed, talk about the process of ensuring a continuous influx of high-quality listings onto the platform and any other ideas?

A: Regarding inventory and quality, last year we introduced the "Customer Favorites" feature, which has received better feedback than expected, with 100 million nights booked through it. We found that the conversion rate for non-"Customer Favorites" is only one-fifth to one-tenth of "Customer Favorites". In March, we introduced "Quality Highlights", through which we identified the top 1%, top 5%, and top 10% trophy categories, which have been well received by guests. We have removed many low-quality listings and continue to increase more high-quality supply while providing more feedback and tools. We are also trying to provide more information by displaying the quality distribution in percentiles. Overall, we believe that quality and reliability are long-term focuses, and we can expect significant updates every year.

Q: When it comes to your key investment focus in 2024 and beyond, can it be divided into three aspects: demand generation, supply growth, and long-term platform and product innovation?

A: Perhaps I can provide you with a slightly different framework. I divide our resource deployment into three aspects: core business, international expansion, and expansion beyond the core business. In the core business aspect, we mainly focus on quality and reliability, affordability, and user experience. These efforts usually have quick results as they are software changes that affect all users. International expansion involves supply, demand, and platform, and we are committed to localizing products and developing global marketing strategiesAt last, expanding the core business of accommodation involves transforming the company from an accommodation business to a multi-vertical or multi-category company. These three aspects together constitute our investment focus.

Q: In terms of platform and product innovation, what is your opinion on the experience gained from testing and applying artificial intelligence on the platform, and how it reduces friction in user experience in the long term?

A: In the past 12 months, we have made a lot of progress. Firstly, we trained a computer vision model that can process 100 million photos, making it easier for hosts to use and increasing conversion rates. Secondly, we introduced an AI-driven quick reply feature that helps hosts prepare questions or answers for guests in advance, which is very helpful. Lastly, through booking screening technology, we have significantly reduced party activities on Airbnb. Now, we are placing more emphasis on generative artificial intelligence, especially in customer service. I believe this is a very important direction because Airbnb is a global platform, and AI can help address challenges such as multilingualism and cultural differences. Our long-term goal is to apply artificial intelligence to more areas and ultimately provide a comprehensive concierge service driven by artificial intelligence.

Q: Although specific data is not yet determined, the average room rates for Marriott and Hilton have increased by 2% to 3%, and our average room rates have also shown similar growth. Have you identified other factors that make our prices more attractive?

A: We compared the average prices of hotel rooms globally and one-bedroom listings on Airbnb. In March, the average price of one-bedroom listings on Airbnb decreased by 2% to $114, while hotel prices increased by 3% to $148. It is worth noting that the changes in our average prices are also influenced by the mix of room types. As more travelers opt for group travel, we see a tendency for people to book larger accommodations, reflecting a shift towards travel in larger groups. This trend is particularly prominent in North America this quarter. While ADR has increased in absolute terms, it remains unchanged when excluding the impact of mixed factors.

Q: In other service sectors, an oversupply often leads to price reductions, increasing consumer demand. Do you think a similar situation may occur in the home accommodation industry?

A: Overall, supply growth usually promotes demand growth, meaning that providing more choices when people search for accommodation on specific dates will be advantageous. However, growth rates in different markets are not always equal at the same time. Unlike other industries, our business model has lower activity frequency and longer lead times for bookings.

Q: If we consider Icons as a redefined leading indicator of experience, could this be too radical?

A: Your idea about Icons is not radical. Our company has gone through several stages: first creativity, product-market fit, then hypergrowth, followed by corporatization and shareholder returns, and finally redefining ourselves to offer more products. Brands like Nike have successfully achieved thisAirbnb faces the challenge that people perceive it only as a lodging provider, but we aim to expand the brand to let people know we offer more than just accommodations. Icons are part of our brand positioning and investment. Although there are only 4000 tickets, they have helped us attract more attention and encourage people to think about richer experiences. This paves the way for our future development.

Q: You mentioned the Olympics and the European Cup, which may attract some non-sports fans travelers who might choose to avoid cities like Paris and Germany. Could you share some information about the additional value these two events may bring to the business?

A: Special events have always been a great opportunity to showcase the charm of Airbnb, promote brand awareness, and drive supply growth. During past events such as the Olympics, World Cup, and Super Bowl, we have seen a large influx of listings on the platform. While not all listings will remain, a significant portion will. These events also demonstrate the beneficial impact of Airbnb on cities, allowing for increased supply in an organic and easy manner without the need for unnecessary hotel infrastructure. In Paris, we will provide significant assistance to visitors of the matches, as existing infrastructure cannot handle such a large influx.

Q: Let's talk about considerations for investment levers and how they have shaped our EBITDA margin guidance of over 35% for the year. Can we expect these levers to have a greater impact this year?

A: Let me briefly explain why the target is 35%. Since our IPO, our performance has been strong. Pre-IPO, our EBITDA margin was negative 5%, and last year, three years post-IPO, our EBITDA margin was close to 37%, clearly demonstrating the strong profit-generating ability of our business model, including GAAP net income and free cash flow. Currently, we see significant growth opportunities. Therefore, after initiating and reviewing our opportunities at the beginning of the year, we identified several areas where we want flexibility to drive growth beyond current levels.

So, how do these investment levers specifically manifest in the income statement? There are two main aspects. First is marketing. Over the past few years, we have been very disciplined, with our marketing intensity far below that of anyone else in the industry. However, we have identified some incremental opportunities to moderately invest in high ROI channels. The second aspect is product development. In many cases, our product development team is our most valuable asset, and we have a large roadmap that we hope to accelerate implementation on. Therefore, we have the opportunity to add some manpower to our product development line to speed up our roadmap. Overall, we maintain financial discipline but have made investments in areas where we believe we can accelerate growth.

Q: In the May update, you added some small new features to user profiles, such as photos and travel stamps. Is this the first step in improving user profiles and community features as you mentioned before? Where does the development of new community features stand?A: I am excited about the results we have achieved in group travel. All indicators of group travel functionality are very positive. In particular, we found that the average number of passengers per booking is two, but usually one of the passengers does not link their account to Airbnb. Therefore, it is very important for us to acquire more accounts, especially when we want to sell more than just homes. We hope that every passenger has an account, not just the booker. We see more and more accompanying travelers creating Airbnb accounts and filling out personal profiles. So yes, this is just the beginning of a larger plan.

When we founded Airbnb, although vacation rentals already existed, we introduced some innovations such as personal profiles, payments, two-way reviews, and messaging features, unlocking new categories. Therefore, we will invest more resources to enhance the personal profile feature, including optimizing account structure, strengthening identity verification, encouraging users to fill out more comprehensive personal profiles and preference information to better understand them. This is very strategic because as user trust increases, we can provide more features for them. In the future, personal profiles will be at the core of the Airbnb experience, and families will be one of the many categories.

Q: Can you talk about the percentage of low-quality supply removed from the total supply? After removal, have you found this to be a way to encourage hosts to provide higher quality listings without actually removing them?

A: Our global occupancy rate is much lower than hotels, even when searching for specific dates and locations, our occupancy rate does not change significantly with increased global demand . Most of the listings we removed either had low bookings, low conversion rates, or high prices with low conversion rates. Although we removed a large number of listings, this did not have a fundamental impact on global bookings. We found that many hosts are receptive to feedback and will relist after improvements. We also issue warnings, which are often very effective in improving platform quality. We are committed to continuously improving quality standards and will continue to invest in host education.

Q: I remember you mentioned that the ROI on performance marketing channels is good, can you explain how this was achieved? Also, did the DMA lifting in Europe in March, as well as the changes in Google search at the end of March and early April, have any impact on this?

A: Regarding the first question, we have seen a high return on investment in marketing channels, mainly due to continuous testing and improvements over the past year. We expanded the target audience, increased keyword coverage, and improved landing pages, all of which have had a good effect, allowing us to increase spending while maintaining high efficiency.

As for the second question, whether the launch of the European DMA has affected us, I have to say that we have not seen any significant impact. This is mainly because 90% of the traffic comes from direct or unpaid channels, so we have not noticed any significant impact at the moment.

Q: There have been recent adjustments to the Extenuating Circumstances Policy, could this raise the threshold for canceling orders?A: We are just trying to clarify and make policies fairer for our guests and landlords over time, but it has not had a substantial impact on the business.

Q: In terms of underpenetrated international markets, have key KPIs such as occupancy rate, ADR, and profit been met in developing these markets? How will these changes in combination affect the entire company?

A: The occupancy rates in our various markets have not changed significantly, with lower average ADR in many markets. As our penetration rates increase in these markets, global ADR may decrease, but all bookings still have growth potential, and we have demonstrated the ability to achieve strong financial performance at various ADR levels. Therefore, expanding into markets with lower average ADR is advantageous.

Q: Regarding the re-acceleration from the second quarter to the third quarter, has there been an extension of the booking window this year? How are your current bookings for the third quarter, and what impact does this have on your confidence level?

A: Overall, our lead time for bookings has remained relatively stable this year, without the early trends mentioned by other industry participants. Looking ahead, the order backlog for the third quarter is very strong, which gives us confidence that revenue in the third quarter will exceed expectations set in the second quarter.

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