Operator:

Ladies and gentlemen, good afternoon, and thank you for joining Airbnb's Earnings Conference Call for the Second Quarter of 2024. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Airbnb's website following this call. I will now hand the call over to Angela Yang, Director of Investor Relations. Please go ahead.

Brian Chesky:

All right. Good afternoon, everyone, and thanks for joining. Q2 marked another strong quarter for Airbnb. We had 125 million nights and experiences booked. Revenue increased 11% year-over-year to $2.75 billion. Net income was $555 million representing a net income margin of 20% and we generated $1 billion of free cash flow. Our total trailing 12 month free cash flow was $4.3 billion, our highest ever, and our strong cash flow allowed us to repurchase $749 million of our shares in the quarter. And as of the end of Q2, we had $5.25 billion remaining on our share repurchase authorization program. Now during Q2, we continue to make progress on our three strategic priorities, which again are making hosting mainstream, perfecting our core service and expanding beyond the core. So I’ll share a few highlights on each. First, we are making hosting mainstream. Last year, we shared a commitment to make hosting just as popular as travelling in Airbnb. We've been focused on raising awareness around the benefits of hosting and providing better tools for hosts. In Q2, we surpassed 8 million active listings driven by continued growth across all regions and market types. We're not just growing supply and we're also committed to ensuring that it's high quality supply. Since launching our updated host quality system last April, we’ve removed over 200,000 listings that failed to meet our guests expectations. And we'll continue to raise the overall quality of listings on Airbnb so we can consistently deliver high quality stays. Second, we're perfecting our core service. We remain focused on making Airbnb more reliable, affordable and a overall better service for hosting guests. We’ve rolled out hundreds of new features and upgrades over the past two years to do this. This includes launching major reliability initiatives like guest favorites which make it easy for guests to find the best listings in Airbnb. Now since launch, last November, we've seen over a 150 million nights booked at guest favorite listings. We've also made dozens of smaller changes that have led to improved usability and booking conversion. These include things like simplified set up and login, improved map, clear cancellation policies and so much more. Now we've made tremendous progress and we'll never stop improving Airbnb. We're going to continue this commitment. And finally, perhaps most excitingly, we are expanding beyond our core. We continue to drive growth by investing in underpenetrated markets. In Q2, growth of gross nights booked on an origin basis in our expansion markets significantly outperformed our core markets on average. Our core markets again are US, UK, France, Australia and Canada. This is largely due to the success of our global expansion playbook which includes a more localized product and marketing approach. We're also expanding Airbnb’s brand positioning beyond travel accommodations with the launch and roll out of Airbnb Icons which is a new category of extraordinary experiences that we launched in May. Now since launch, we see nearly 40 million views of Icons on our site. Helping people understand that Airbnb offers more than accommodations will be critical as we expand our offerings in the coming years. Now, looking back to Q2, we saw a number of positive business highlights. First, guests are increasingly booking on the Airbnb app. We've continued to optimized our mobile website’s app downloads and we believe our approach is working. Nights booked in our app during Q2 increased 19% year-over-year. Now these bookings now comprise 55% of total nights booked and this is up from 50% in the prior year period. Now in addition to our success of mobile downloads and bookings, we're continuing to see growth of first-time bookers on our platform with the highest levels of growth seen in the youngest age demographic. Second, Airbnb is uniquely positioned for special events where continuously more guests choose Airbnb for major holidays and events. The week of July 4th for example represented our single highest week of revenue ever in North America and we saw similar trends in Europe. Now in anticipation of the Olympics which is in Paris, nights booked in Paris through Q2 were more than double what they were this time last year. Additionally, cities hosting matches during the recent Euro Cup in Germany saw an average of more than 20% year-over-year increase in nights booked. And supply has increased to meet the higher demand. So we have 37% increase in active listings in Paris in Q2 compared to the year ago. And these events, what they really do is they highlight Airbnb’s unique ability to disperse travel and spread economic benefits by allowing people stay in local neighborhoods where there are no hotels. Finally, supply growth is improving on Airbnb. We made huge strides for supply growth, we remain just as focus on supply quality. As we improve quality, we believe more people will try Airbnb unlocking even more growth. We have two major initiatives underway to help us do this. First, we're removing low quality supply. As I shared earlier, we've removed over 200,000 listings since April of last year. Second, we're making it easier for guests to find the best stays on Airbnb. We launched guest favorites as well as top listing highlights, which show the top 1%, 5% and 10% of eligible homes on Airbnb. These new features make it easy for guests to find the highest quality homes on Airbnb. In Q2, we also saw active listing managed by Superhosts, some of our highest quality hosts, increase 26% year-over-year. We're proud of our Q2 results. Now, turning to Q3, we're looking forward to another record summer travel season. We're encouraged by the excitement around the Olympics and the Euro Cup and we're also encouraged by the relative strength of Latin America and Asia Pacific which continue to be our fastest growing regions. However, we are seeing shorter looking lead times globally and some signs of slowing demand from US guests and our Q3 outlook incorporate these recent trends. We are watching these trends closely along with the impact any macroeconomic pressures might be causing. And we're continuing to execute against our growth strategy by improving our service, expanding in less penetrated markets and introducing new offerings. We believe this growth strategy will over the long term offset any transitory macro trends. So with that, Ellie and I look forward to answering your questions.

Ron Josey:

Great. Thanks for taking the question. I have two please. Brian, just with your last comments on slowing lead times and what not in North America. Can you tell us a little bit more about that when you saw those trends sort of first hit. And then, how it offsets the strength from the Olympics and UEFA and everything else? And that's question one. And maybe a bigger question when we think about expanding beyond the core and perfecting the core service. Post summer release, posts winter release we've seen a lot of key improvements across Airbnb with Guest Favorites, with Icons and the list goes on and on, , how does - when we think about the coming winter release and throughout ‘25 and everything else, how are these newer services helping to influence call it the Airbnb of tomorrow? Thank you.

Ellie Mertz :

Yeah. Yeah, absolutely. So let me double click a little bit in terms of the trends for lead times since the beginning of the year. In both Q1 and Q2, what we saw with that lead times were basically equivalent with what we had seen in 2023. So there wasn't really any timing shift behavior in terms of when guests were booking. What we’ve seen more recently and in particular in July is a shrinking of the lead times and in particular what we've seen is that there continues to be very strong growth of the shorter lead times. So anything from same day to next week to a couple of weeks from now. But what we're not seeing the same level of strength is in those longer lead times. So two months from now, what you’re booking for Thanksgiving what you’re booking for Christmas, and so it's that I would say softness in terms of longer lead times as a big factor in terms of the outlook that we've provided. What I would say additionally is that, over the last couple of years as we emerge from covid, there were several periods where we saw some volatility in terms of overall lead times and in particular some hesitancy for consumers to book those longer lead time trips. I suspect that's what we're seeing right now and the - I would say the silver lining with regard to the trends that we see right now, it's not that consumers are not necessarily going to book that trip for Thanksgiving or Christmas. It just appears that they have not booked it yet. So we're closely following all of the trends on lead times, but it is a factor that informs the outlook that we provided for Q3.

Brian Chesky :

Sorry, sorry.

Brian Chesky :

Sorry, there was a second part of the question. So, Ron, to answer your question about expanding beyond the core business. Where we are is we spent 16 years building a business that's approaching $80 billion in gross booking value that's basically one category, which we call Airbnb which is short term accommodation. It's been pretty amazing how far this single product has gone. And we haven't really charged other than like essentially travel insurance, we haven't really ever really expanded beyond our core business and we do have long-term stays which are [17%] (ph) of nights. We haven't done very much. We began before the pandemic preparing to expand Airbnb. And then when the pandemic hit, we cut back a lot of our resources. We got focused, went back to our roots and really focused on rebuilding our platform, becoming lean, becoming a functional organization and we now have essentially the same amount of employees as before the pandemic and double the revenue and that explains why we have 41% free cash flow margin, one of the most profitable companies in tech. We're now beginning to prepare the next chapter of Airbnb. And I want Airbnb to be one of the most important companies of our generation and to do that, we're going to do more than one thing. We're going to do multiple new things. We're going to have to have multiple new products and multiple new services. This fall, this October, we're going to be launching a new host service which is really important. It's essentially a co-hosting marketplace. So, there are people that have homes but they don't have time. There are other people in the world that have time but they don’t have a home. And so, there's a Venn diagram of people today who have both that get host. But what if we can match those two people together? That would unlock a lot more inventory. That's what we're going to be launching later in October. Then next year we're going to begin to expand Airbnb truly beyond our core business. And we're going to be launching - we're going to relaunch Experiences. I've been asked about Experiences probably every earnings call since we’ve been public, rightly so, because it's very exciting. We've learned a lot of lessons from Experiences. They need to be more affordable. They need to be more unique to Airbnb when you think so you can only find on Airbnb. They should be merchandised, videos not photos. They should be discoverable in the app and we should market them. If we think we do these five things, we think we'll have a hit on our hands and we're working on that. We also have new guests services and new host services that we're launching next year that we're working on. And then every year starting next year, we're going to launch new products and services. I look at Apple, I look at Amazon. Apple at one point was selling iMacs, Amazon was only selling books. We've gotten bigger than either of those companies just selling short-term rentals. But we're ready to go beyond short term rentals. So, the new Airbnb, to answer your question Ron, will be about a lot more than short-term rentals. It's going to be about long-term stays. It's going to be our guest services, host services and many new offerings and you'll begin to see that next year.

Doug Anmuth :

Thanks for taking the questions. Ellie, just to follow up on I know you talked about the shorter booking window. Are you seeing any change in activity around pricing or class of property? And is there anything to call out across cohorts or income levels? And then, Brian just circling back on expanding beyond the core, are there any expansion markets in particular that you would call out where you're seeing particularly strong traction? Thanks.

Ellie Mertz :

Yeah. so Let's talk a little bit generally about ADR, so question was like what are people are actually purchasing on the platform. I would say, generally, so far this year what you've seen is a little bit of ADR appreciation globally. In particular, obviously, but more recently in North America. And what we see there is a big driver of the ADR appreciation is big shifts, which you can assume is what it sounds like people choosing more expensive or larger properties. And I think part of the read through from that can be oh, people are choosing more expensive listings. Therefore, you are seeing stronger demand from higher economic demographics. I think that is one read through. I think another read through is that, if you think about the value proposition of Airbnb, it's that we offer these larger properties and on a per guest basis, they can be quite affordable and frankly more affordable than a hotel. So I think part of that ADR mix shift appreciation that you see is frankly people gravitating to where we actually have some great value, which is the larger Airbnb that that do provide value on a guest level.

Operator:

And your next question comes from the line of Richard Clarke with Bernstein. Your line is open.

Ellie Mertz:

Yeah, thanks Richard. So, obviously, that that energy is balanced on - on the balance sheet gives you some indication of the backlog. I would not take those balance sheet items as a one for one read through in terms of the revenue that will be recognized over the course of the quarter. A couple of deviations in terms of why they might not match. One is obviously a good portion of the bookings that we will recognize in a particular quarter are still to be booked within the quarter? That's one aspect. The second is the balance sheet items will reflect the timing of the payments, the - whether it’s pay less upfront or the entirety of the payment and so they're just not a one for one guide. All they do, they do obviously give a time stamped point in time view of the backlog that we have.

Eric Sheridan:

Thanks so much for taking the question. Maybe I can ask a two-parter coming back to the booking window. When you've – what you’ve seen over the last couple of years in terms of the booking window evolving from where it was pre-pandemic to where it is post-pandemic how much differ just that booking window look today versus maybe 2019 as opposed to today versus one in two years ago. And when you think about what that shift looks like, how much of that do you think in terms of a shortening booking window are elements of demand-driven Dynamics where the consumer might want to spend less money and be more discerning. Or just elements of normalization that are working in the way back into global travel? Thank you.

Operator:

[Operator Instructions] Your next question comes from the line of Brian Nowak with Morgan Stanley. Your line is open.

Ellie Mertz :

Yeah, so, Brian, let me let me talk a little bit about our marketing spend. Let me just back up before I talk about Q3 and remind you of the full year guide that we provided back in February. What we shared in February is that, for the full year we were looking to deliver an EBITDA margin of a minimum of 35%, which was obviously down slightly from the nearly 37% we delivered in ‘23. And the intent on guiding to margin compression on a year-over-year basis was to allow us the flexibility to invest in growth. And what you've seen so far this year is that for H1, marketing as a percent of revenue was effectively flat with where it was in ‘23. But we do intend to lean into those growth investments in the back half of the year starting in Q3, and that's obviously what informs the EBITDA guide that that you saw in the letter. In terms of where we are leaning in on marketing in particular and the confidence around the various channels, let me just talk about a couple of the components of the increase in marketing. So first, consistent with the conversation Brian Chesky just had on international markets. What you'll see in Q3 is that we will be layering on a handful of incremental markets that we will be targeting and effectively turning on our global playbook. In particular, you'll see us try or intend to extend our success that we've seen in Latin American countries like Brazil and Mexico to other markets in that region. Places like Peru, Colombia, Chile, Argentina so there will be some layering on of those incremental markets. We feel like we have had pretty good success there. Obviously it takes time in terms of investments in a market both from a product perspective as well as a marketing perspective to reaccelerate growth. But as the results have shown in terms of the differential between growth rates in our expansion markets and our core markets we feel like our expansion efforts have been successful and so, rolling them out to incremental markets will be helpful over the medium term. In terms of incremental performance marketing, what we've shared with you today that has continued into Q3 is that based on a lot of optimizations that we've made to our performance marketing efforts. We've been able to maintain extremely high efficiencies and so where we see those we do lean in and have quite high confidence in terms of returns.

Operator:

And your next question comes from the line of Justin Post with Bank of America. Your line is open.

Ellie Mertz :

Yes, so let me talk. Let me talk a little bit about what we're seeing in both, North America and EMEA. I would say I would go back to my prior comments in terms of just the lead times. That that commentary is true globally so it applies to both northern - North America and EMEA. I would say EMEA has been relatively stable quarter to-date. And so it is not necessarily part of the broader moderation story that we have shared. In terms of North America, there's a handful of components. One is the shorter lead times I would say. A second is North America has a concentration of our long-term stays, nights and what we've seen over the last year is that short term days have grown more quickly than long term stays. And so, the LTS to growth rate is a drag on the average that has an outsized impact on North America and we've just comped with the changes that we made a year ago in terms of our LTS fees which is a bit of a headwind for LTS generally on the platform, but in particular in North America The one other thing I would add in terms of just providing some color on what's happening in the US is couple of regulatory comments. One in particular that we're watching is that in California, the total price display and cancellation grace period, regulations went in went into place on July 1st and we think that's been a little bit of a headwind to our California business. Our California business if you include both guests who reside in California as well as guests who are travelling to California, which is what the new rule is applied to is about 10% of our GVV. So it’s an area that we're watching quite closely just see how quickly consumer behavior normalizes after these regulations have been put into place. And into the comments I made earlier on ADR, I would say we haven't really seen a material move towards trade downs much of the contrary people continue to book our larger more expensive listings. And then in terms of shorter trips, the average from playing has gone down, but that is really a function of the mix shift between short-term rentals growing more quickly than long-term rentals. Less so people choosing a three day trip versus a four-day trip. So I don't think we've seen that the type of tree down behavior that that you're likely asking about. In terms of the second component of your question, market share. When we look at market share, we look at the market of night stays across accommodations. And so that obviously includes all the hotel nights that are either booked directly through hotel or booked through an intermediary. And when we look at market share on that basis is what we see is that, in Q2, consistent with prior quarters, we continued on a year of your basis to gain market share in terms of total nights stayed over the universe of hotel and other travel accommodations. That is also true on a regional basis. We feel like we're doing quite well. As we across the world continue to gain market share.

James Lee:

Great. Thanks for my questions. Two here please. First on experiences. What are some of the frictions and difficult problems you're trying to resolve here. It seems like you have plenty of supply, plenty of listings. So that doesn't seem to be that issue. Can you help us understand something key paint points for both suppliers and customers? And second, I once again noticed in North America and EMEA, you have call out that to see a mix shift to non-urban markets and just want to get some more color on that. Urban markets in general, are you seeing weaker demand or seeing increased competition in the hotels? Thanks.

Ellie Mertz:

And James, to your second question, in terms of the mix shift to non-urban market. We call it on the letter because it is a differential in terms of the respective market segments, but there isn't – it’s not a major shift what we are seeing is that growth in non-urban markets continues to be slightly higher than that of urban. I think what that tells you is we have a - I would think differentiated offering in non-urban. And I think the interesting thing about that portion of our business is, it has maintained a - I would say meaningful larger share of our business demand four years post covid than it was previously. And I think over the last four years has been a broadening awareness of the variety of markets that Airbnb is available that hotels simply don't exist and we continue to see great demand for those markets.

Justin Patterson:

Great. Thank you very much. Ellie, I appreciate your comments on margins and real flexibility to invest this year. Could you talk about how long we should see this investment cycle persist and when we could start seeing more meaningful returns? Thank you.

Operator:

And you're next question comes from the line of Kevin Kopelman with TD Cowen. Your line is open.

Ellie Mertz:

Yes. thanks, Kevin. So I would say, first, we're not going to provide outlook right now for Q4, but when I when I give you that color on the lead times, I think it's pretty informative from the perspective of, it's not that people are not definitively booking over the long term, if they may not have booked yet. And so, as I shared previously, we have seen some. some movement in lead times over the last couple of years and in many cases people have come booked. They just come and booked at a later time period and so that's certainly something that we will be on the eyes out for in terms of Q4 and beyond. I think also just thinking about how the comps play out for the balance of the year. As you'll recall where we were last year September and October were quite soft and then November and December had a bit of a rebound. So those are the comps that we'll be lapping as we approach the end of the summer heading into Q4.

Nick Jones :

Hey, thanks for taking my question. Maybe just another one on an expenses and philosophically how you're thinking about it. There's plan to relaunch experiences, Brian it sounds like there's not a lot of incremental investment required there, but earlier you kind of talked about launching new products and services every year. So I guess can you speak to how nimble you plan to be with the investment cycle to if demand may be continues to get weaker or versus kind of bouncing back, how should we be thinking about kind of the level of commitment to invest in and what sounds like a lot of new and exciting products and services?

Operator:

And your next question comes from the line of Jed Kelly with Oppenheimer. Your line is open.

Brian Chesky :

Hi, Jed, so, essentially, I think people come to Airbnb because they want to get something unique. That's what customers think of when they think of Airbnb. That's why we're a noun and a verb. We're one of the only brands in the world like Kleenex or Xerox, that's a noun and verb and it means you can - it's something that didn't really exist before we created this category at a wide scale. That being said, for everyone who books in Airbnb, about 9 people book a hotel. And so, if we can get just one of those guests to book on Airbnb, that's currently booking on a hotel platform we would go from nearly half a billion nights a year to a billion nights a year. And there's two ways to do that. One is the increased reliability of homes in Airbnb, because the number one reason people tell us they book hotels is they are typically more reliable. They know what they're going to get they have a front desk. The other is adding hotels in Airbnb and we're not philosophically misaligned with adding hotels, if we were we would never bought hotels a night before the pandemic. We just haven't prioritized hotels. We think of hotels as a filling in network gap during high occupancy nights. We generally think our if there's an incredible home at a low price, they're always going to choose that but when occupancy goes up they are going to go towards hotels. There are also some use cases where hotels are better and Airbnbs are better. If you need to stay for one night, you're travelling alone, you are business travel and you plug in you plug out a hotel is better. If you're traveling with a group you are travelling for more than three nights and you're travelling in the non-urban area, Airbnb is better. And then, if you're doing something between then you're going to have choices. So, we do think between filling in a network gap and getting more of those one night business travel stays, there is an opportunity to offer hotels in Airbnb and we have a lot of hotels. We have hundreds of thousands of boutique hotels and non-home inventory on Airbnb and we're going to continue to expand that over its years to come. And so there's no philosophical misalignment to add commodity inventory. The philosophical misalign would be if that becomes the majority of our marketplace and people - consumers stop thinking of Airbnb as unique and local. If they start thinking about us that changes the brand then that would be a philosophical misalignment but I don't see that happening anytime soon.

Mark Mahaney:

I just wanted to ask a question about Paris and the learnings you've had from this. I assume this is the biggest event for Airbnb and a massive popular event in your largest city. So just if that’s true and I think that is, just step back and talk about the learnings of being able to make sure you had enough supply working with local regulators and agencies and in terms of getting messages out to opportunities out to guests as well like this big event that you've pulled off. Just talk about the lessons you've been able to draw from that that'll you know help you set you a better for the next FIFA World Cup and the next World Cup, next Olympics et cetera?

Operator:

And your next question comes from the line of Stephen Ju with UBS. Your line is open.

Brian Chesky :

Thanks. Yeah, the reality is the biggest issue with Airbnb rooms it’s just a small percent of our business. It's a very small percentage. So even if it - even no matter how fast it grows it's often very small base. It's how Airbnb started by providing a room and a house. It's very affordable. It's very popular for Gen Z, but it is off a very small base and so you're not going to see a major change to the growth rate of the company based on that. I think the thing but maybe just broad zooming out though, two points I’ll make. The first point is Airbnb is one of the most diverse businesses in the world. We have bedrooms and homes up to tens of thousands of dollars a night luxury villas in Airbnb. We allow you to travel by yourself or with the large groups of up to 16 people. We're in every country nearly in the world, every continent in the world including at one point in article and so we're a very - we're in urban areas. Where in the decades arounds this nations we're off to be impact. So our general philosophy is that something for everyone to have the most diverse array of inventory in the world. The other point I'll just make is an area down the road that would really help Airbnb rooms is continuing to invest in our system of trust. The biggest obstacle to people staying in a room is just the discomfort with staying at a house with a stranger they don't know. One of our core inventions with a system of trust and as more we invest in system of trust, I just gave a lot more of these businesses where strangers to live in the others. So I do think it's still a big long term opportunity for us. But it's often but smaller base and it's never going to be as big as entire home and everything.

Lee Horowitz:

Great, thanks. New on one our nights and on pricing. So Ellie you're talking about putting more investments into place in the second half of this year as a means of accelerating growth. Can you help us better understand sort of the payback periods that you tend to expect on these dollars and over what timeframe you may assess the ROI on these investments in terms of accelerating total company growth rates? And then maybe one on ADRs. You guys are highlighting sort of some building demand pressures in North America, all sign the pointing towards people trading up the whole homes and persisting ADR growth for your entire business again despite weaker growth in your highest ADR region, North America. I guess when we think about. the sustainability of ADR growth beyond the 3Q as you mix away from North America and perhaps see the overall travel demand environment continue to soften, how do you think about your ability to continue growing through that kind of a scenario? Thanks so much.

Operator:

And ladies and gentlemen, that will conclude our question and answer session. I will now turn the conference back over to Brian Chesky for closing remarks.

Operator:

And ladies and gentlemen, that concludes today's call and we thank you for your participation. You may now disconnect.

Operator:

Good afternoon, and thank you for joining Airbnb's Earnings Conference Call for the First Quarter of 2024. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Airbnb's website following this call. I will now hand the call over to Angela Yang, Director of Investor Relations. Please go ahead.

Brian Chesky:

All right. Good afternoon, everyone, and thanks for joining. Airbnb had a strong start to 2024. We had 133 million nights and experiences booked in Q1, marking our highest first quarter ever. Revenue of $2.1 billion grew 18% year-over-year, primarily driven by continued strength in travel demand and the timing of Easter. Net income was $264 million, representing a net income margin of 12%. For Q1, our free cash flow was $1.9 billion, our highest ever. And for the trailing 12 months, our free cash flow was $4.2 billion, representing a free cash flow margin of 41%. Our strong cash flow allowed us to repurchase $750 million of our shares in the quarter. And at the end of Q1, we had $6 billion remaining on our repurchase authorization. Now, during Q1, we made significant progress across our three strategic initiatives, which are making hosting mainstream, perfecting our core service, and expanding beyond the core. First, we're making hosting mainstream. We remain focused on making hosting just as popular as traveling in Airbnb. And to do this, we're raising awareness around the benefits of hosting, providing better tools, and helping hosts deliver high-quality stays. As we grow, we're also taking action to rapidly improve the quality of stays on Airbnb. In Q1, we removed thousands of listings that failed to meet our guest expectations. And excluding these removals, active listings for accommodations grew 17% year-over-year. And we also saw sustained double-digit supply growth across all regions. This year, we'll continue to raise awareness around hosting and improve the overall host experience. Second, we are perfecting our core service. Over the past few years, we've rolled out more than 430 new features and upgrades to improve our service. In November, we took another huge step forward on reliability with the launch of Guest Favorites, a collection of the top homes on Airbnb based on ratings, reviews, and reliability. Now, since launching Guest Favorites, there have been more than 100 million nights booked at these listings. And we will continue to make it easier for guests to find high-quality and affordable stays. Finally, we're expanding beyond our core. During the quarter, we continued investing in less mature markets to unlock more growth. And in Q1, growth nights booked in our expansion markets grew twice as fast as our core markets. And we're also focused on expanding beyond our core business. Now, this will be a multi-year journey, and we've already begun laying the foundation. Last week, we introduced Icons, a new category of extraordinary experiences by the greatest names in music, film, sports, and more. Icons mark an important next step in helping people understand that Airbnb offers more than just travel accommodations. Now, before I share a few business highlights, I just want to provide some context on why we actually introduced Icons, because they deliver on three key objectives. First, Icons keeps Airbnb's brand relevant and top of mind. With new Icons launching throughout the year, we can introduce more people to Airbnb and highlight what makes us unique. Second, while Airbnb's brand is already recognized around the world, there are specific segments where we want to accelerate growth. And with a broad range of Icons spanning various geographies, demographics, and fan bases, we'll be able to reach key segments in a more targeted way. And third, Icons helped change the way people think about Airbnb and what we offer. And this is going to be critical as we expand beyond accommodations in the coming years. Now, it's still early, but we're really excited about the response we've seen to Icons so far. In just one week, the Icons launch has generated over 8,100 pieces of global media coverage and 371 million social media impressions. And the coverage has been overwhelmingly positive. Now, just to put this into perspective, Icons has already generated more for us than our IPO. It's clear Icons are resonating with people. Now, looking back to Q1, we saw a number of positive business highlights. First, mobile downloads are accelerating. So, to quickly zoom out, nights and experiences booked in Q1 increased 9.5% year-over-year, despite a hard conference this time last year. And we were particularly encouraged by the growth of app downloads. In the U.S., app downloads increased 60% in Q1 compared to a year ago. And global nights booked in our app increased 21% year-over-year. And they now represent 54% of nights booked during the quarter. And this time last year, mobile bookings represented only 49%. So, it went from 49% to 54%. So, we're seeing some really, really good traction. Second, Airbnb is uniquely positioned for special events. Special events is really how we started Airbnb. We really started it to provide housing for conferences and events. And in April, we had over 500,000 guests stay on Airbnb during the solar eclipse in North America. And interestingly, we saw more than twice as many nights stayed on Airbnb along the direct path of the eclipse compared to the year prior, with many of these locations in areas that don't even have hotels. Nights booked in Paris during the summer's Olympics are five times higher than this time a year ago. And Germany is also seeing a similar trend for the Euro Cup this summer, with nights booked nearly double compared to a year ago. Now, supplies also increased to meet the higher demand, including nearly 40% more active listings in Paris in Q1 compared to a year ago. These events highlight that Airbnb's unique ability to disperse travel and spread economic benefits by allowing people to stay in local neighborhoods where there are no hotels. And finally, supply growth remains strong. Now, as mentioned earlier, in Q1, we removed thousands of listings that failed to meet our guest expectations. And excluding these removals, active listings for accommodations grew 17% year-over-year. We continue to see double-digit supply growth across all regions, with the highest growth in regions with the highest demand. Urban and non-urban supply increased at about the same rate, and we saw relatively similar supply growth among individual and professional hosts, with the majority of new listings exclusive to Airbnb. We're really proud of our strong Q1 results, and we're looking forward to another record summer travel season. So with that, Ellie and I look forward to answering your questions.

Mark Mahaney:

Thanks. You talk about these kind of leaning into these kind of less mature markets and this doubling of growth rate in some of those expansion markets versus your core markets. Could you give a little more color on which countries and which markets that is? Which countries, I think in the past, you may have mentioned Brazil, but which ones you're leaning into this year? And then secondly, that U.S. app downloads increase of 60% year-over-year. That's an extremely high number for what you would think would be a reasonably well-known app and brand. So what drove that? Do you have any whys behind that? Thank you very much.

Mark Mahaney:

Thank you, Brian.

Mark Mahaney:

Thank you, Ellie.

Operator:

Your next question will come from the line of Richard Clark with Bernstein. Please go ahead.

Ellie Mertz:

Yes, thanks, Richard. Let me just talk a little bit about the trends that we've seen here today to help answer your question. So first, as you point out, as we were heading into 2024, we were widely aware that last January was particularly strong. And so the guide that we've provided back in February included a step down in growth from Q4 to Q1 that was reflective of that hard comp from a year ago. We did experience it. And then since then, we've seen relatively stable growth, which I see as frankly, a really strong statement in terms of both the stability and resilience of leisure travel demand so far this year. I think, something that we've seen this year that is contrasting to last year there was a lot of volatility in terms of the timing of when people booked relative to their check-ins. And so far this year, it's been, frankly, much more stable. Lead times on our platform have been, frankly, generally in line with a year ago, and it just hasn't been at the same level of volatility, again, that we saw a year ago. And so heading into Q2, our guidance reflects this continued stability of booking. Obviously, we'd like to deliver higher growth and stable growth, but our outlook obviously reflects the trends that we have seen quarter to date. To your question on Q2 margins, obviously, we guided, the Q1 results reflect a pretty meaningful year-over-year margin expansion. A big portion of that is due to the timing of Easter. So Easter is not only a benefit to revenue growth in Q1, but it's obviously also a benefit to margin expansion. Those two factors reverse in Q2. It is a headwind to revenue growth, and it is a headwind to overall margins. Two other components in terms of what's putting pressure on margins in Q2. One is just some one-time credits that we had in payment processing a year ago that will not recur this year. And then third, we shifted slightly the timing of our marketing spend, a little bit heavier in Q2 than in Q1, and that will be reflected in terms of marketing as a percent of revenue growing in the quarter on a year-over-year basis.

Operator:

Your next question will come from the line of Jed Kelly with Oppenheimer. Please go ahead.

Brian Chesky:

Yes. Hey, Jed. Why don't I take the first one on value initiatives, and I'll let Ellie take the second one. So on providing value, when we started Airbnb, our original tagline was a cheap, affordable alternative to a hotel. And the majority of the primary reason people came to us is because it was a better value than a hotel. And we still think that's a core value proposition that we have to offer. Now, a year and a half ago, we noticed that, there was a lot of concern about Airbnb prices increasing. And so we created a whole team to identify a series of initiatives to modulate our prices, and they're working. And I'll go down the list. One is total price display. So as you know, in travel, especially online travel, there's a lot of progressive fee disclosures. And we decided to have a toggle right on the homepage that you can turn on to show the total price display. Since we've done that, not only do consumers -- not only are consumers going toward the best total value, but it's begun to change behavior in our host community because 300,000 or 300,000 listeners, say, have removed or lowered their cleaning fee as a result. So that was the first thing we did. The next thing we did is we started offering monthly and weekly discounts and much more robust tools for that. Now, this is important because, nearly half of our nights booked are for stays of a week or longer. And now more than two-thirds of our hosts offer a monthly or weekly discount. We also noticed that a lot of hosts that weren't getting booked weren't getting booked because their prices were too high. And they just didn't have really good concepts. So we created a tool called the Compare Listing Tool where people can see how much other people are charging the neighborhood. And they can actually see people who are getting booked, not getting booked. And no surprise, the people getting booked generally have lower prices. We have nearly 2 million hosts that now use the Compare Listing Tool. So those are just a few of the initiatives we've done. We actually have many others as well. The net of all of it is that hotel prices are up year-over-year and Airbnb listings on a like-for-like basis are down. So today the value of Airbnb versus a hotel is better than it was a year ago. And I think that trend line is going to continue given all of our efforts. And maybe the only other thing I'll just say on this is, as we know, loss of supply and demand, as supply grows faster and demand prices go down a little bit. And supply is growing faster in demand. I think that's also relieving some pressure. Ellie, over to you.

Jed Kelly:

Thank you.

Ron Josey:

Great, thanks for taking the question. Brian, I wanted to ask you about search on Airbnb, just following the strength and the benefits of guest favorites. I wanted to better understand sort of, talk to us about post-guest favorites, how search and really conversion rates have improved and really how you feel search can just evolve over time. And then as a follow-up to what we were just talking about around inventory quality, we'd love to hear just the process to ensure that quality listings continue to come on the platform. I think we've talked about verified listings and trophies, but any other thoughts there would be helpful. Thank you.

Ron Josey:

Thank you, Brian. Super helpful.

Eric Sheridan:

Thanks so much for taking the question. Maybe coming back and putting a finer point on some of the topics we've talked about already, Brian. When you think about your top investment priorities for 2024 and beyond, how would you categorize those investments if we put them in buckets such as demand generation, supply growth, and platform and product innovation over the long-term? And in that last bucket, how should we increasingly think about what you're learning about testing and deploying AI across the platform and how it might reduce friction over the longer term? Thanks so much.

Eric Sheridan:

Great. Thank you.

Operator:

Your next question will come from the line of Brian Nowak with Morgan Stanley. Please go ahead.

Brian Chesky:

Yes. Why don't I take the second question? And I think, Brian, either you or I cut out. We didn't hear the first part of your question.

Brian Chesky:

Ellie, you want to take the first one, and I'll take the second one?

Brian Chesky:

And Brian, I'll take the like-for-like question. So specifically, the data we're citing is global like-for-like basis. So what we're comparing is the average price of a global hotel room to a one-bedroom listing on Airbnb in March. And in March, our prices were down 2% and hotel prices were up 3%. So our prices were, again, one-bedroom globally on Airbnb in March was $114, down 2%. Hotels were $148, up 3%. So that's what we're talking about, one-bedroom global. When our ADRs move, obviously the other thing to take into consideration is mix shift. Oftentimes our ADRs do go up because people increasingly, more and more of our travel is group travel. 81% of our trips now have two or more guests and increasingly we're seeing people booking more space, larger homes, just as travel's mixing towards larger groups.

Ellie Mertz:

And Brian, that was particularly the case in North America this quarter. On an absolute basis, ADRs were up, but if you exclude the impact of mix, they were flat.

Operator:

Your next question will come from the line of James Lee with Mizuho. Please go ahead.

Ellie Mertz:

I would say generally speaking, when we see growth in supply, it is additive to demand. It means that, when people are searching for a particular night in a particular city, if we have more that we can provide them, it is obviously net beneficial. I think I would just, repeat the prior comments that we don't always see kind of in period equivalence by market in terms of the respective growth rates. And that I would say that, there's a primary difference in terms of our business model relative to some of the others that you mentioned in that the frequency of the activity is simply lower and the lead time is also much longer.

Operator:

Your next question comes from the line of Stephen Ju with UBS. Please go ahead.

Brian Chesky:

All right, Stephen. Well, that was, you are absolutely not overreaching on Icons. So let me give you a sense. You can think of a company as going through a few phases, especially to start a company. You have an idea, you get product market fit, that's phase one. Phase two is you try to go into hyper growth. We've done that. Phase three, you become a real company, you go public, you generate a return for shareholders. And then the fourth frontier, and very few companies have ever done this, is you reinvent yourself and you go from offering one thing to many things. And a lot of the big tech companies have done this. But one of the companies that I think is a really interesting one to look at is Nike. In the late 70s and early 80s, my recollection, I was born in 81, but my recollection is, I remember, Nike was mostly a running shoe company. And then the 80s, they became more popular with basketball and other things. But at the time, people didn't really think of Nike as a serious basketball shoe. And so they had to not only create a great product for basketball, but they had to actually stretch the brand and open up in people's minds what Nike stands for. And a lot of brands have had to do this. I mean Apple had to do this with the iPod. And I think Airbnb, one of the strengths of our brand also is something that we have to manage which is Airbnb is a noun and a verb. It's synonymous with a category, kind of like Kleenex or Xerox. People say, I'm going to get an Airbnb. I'm going to Airbnb my place. Literally, the name Airbnb has the name B&B in it. So one of the challenges is that people open our app to expect to see stays. And so what we want to do in addition to bringing back experiences, you are totally right, is we wanted to expand Airbnb's brand positioning to include more than just a place to stay. And one of the things you'll notice is when we launched Icons, we said these are extraordinary experiences. We didn't say these are extraordinary stays. We positioned them as experiences. And so you can almost imagine Icons is like we are a car company, but we are starting with a Formula 1 car. And very few people can experience a Formula 1 car, but it captures the magic. It captures the demand. It really expands the brand and increases our permission to be able to go into experiences. And then you kind of move down market. And one of our goals is going to be to bring the magic of Icons to everyone. So I can't probably say too much more about experiences, but absolutely it's not a leap or a stretch whatsoever. Icons is primarily a brand positioning and a brand investment. It obviously wasn't a business. There's only about 4,000 tickets. But we are seeing some really encouraging signs in the last week, a big bump in traffic. It's a lot more top of mind. A lot more people are opening our app. And I just think we are being positioned as more aspirational. And I think people are now starting to think of us for experiences. So I think we've really paved the way for next year. Ellie, do you want to take the Olympics in your own?

Stephen Ju:

Thank you.

Unidentified Analyst:

Hey, this is Dave [ph] on for Doug. Thanks for taking the questions. One for you, Ellie. Can you talk about how you're thinking about the investment levers that provide flexibility and shape your 35% plus EBITDA margin guide for the full year? And can we expect to see these levers get pulled more through the year?

Unidentified Analyst:

Yes, and how you're thinking about investment levers.

Unidentified Analyst:

Thank you for the detailed response.

Kevin Kopelman:

Great, thanks a lot. I had a question on the May release. You added a couple of small new features to the user profiles, I think on the photos and the travel stamps. Can we see that as a first step towards some of the profile enhancements and community features that you've talked about being interested in in the past and where does kind of building out potentially new community features stand in your priority list? Thanks.

Kevin Kopelman:

Great, thanks so much.

Nick Jones:

Great, thanks for taking the questions. I guess maybe going back to supply and your effort to remove low quality supply. I guess, can you speak to the percentage of the supply that you've removed over time? I think you said 100 to 1,000 that I guess maybe take the removal and I guess the learnings and come back and try to list and provide a kind of a higher quality or better experience. I guess as you continue to remove lower quality supplies, it's becoming a tool to kind of nudge hosts into the behavior you're looking for without actually having to remove them.

Nick Jones:

Thanks for the color, Brian.

Naved Khan:

Yes. Hi. Thanks a lot. Maybe a clarification from Ellie. I think, I heard you say you saw really good ROIs on the performance marketing channels. I wanted to understand better where that came from. And maybe on a related topic, was there any effect from either the rollout of the DMA in Europe in March, or maybe changes to Google search in late March and early April? And then I have a follow-up.

Naved Khan:

Okay. And then, yes, I know it does help. So, maybe just on the changes to the extenuating circumstances policy, I wanted to kind of understand better what kind of led to that change and what kind of impact we can expect from the outside looking in?

Naved Khan:

Sorry, the changes to the extenuating circumstances policy, I think it was tweaked recently to kind of maybe raise the bar on the cancellation.

Naved Khan:

Yes, I agree.

Conor Cunningham:

Hi everyone. Thank you. Just on the under-penetrated international markets, as you develop those, I'm just curious if they're producing the, what you'd expect in terms of key KPIs from, take rate ADR profits, just trying to understand how the mixed changes are going to impact the overall company. And then just one on the 2Q to 3Q re-acceleration. I would assume that the booking window is a little bit more extended this year, given some of the events. Just curious on where you're booked into 3Q right now, just trying to understand the confidence interval there. Thank you.

Conor Cunningham:

Appreciate it, thank you.

Brian Chesky:

All right, well, thank you all for joining us today. And I just wanted to say before I wrap up, this was Ellie's first earning call as CFO and the transition has gone incredibly well. Her, Dave and I are really, really focused on this next chapter of growth. So to recap, revenue was $2.1 billion, this is 18% higher than a year ago. Net income and adjusted EBITDA were both Q1 records and our trailing 12 month free cash flow was $4.2 billion, representing a free cash flow margin of 41%. Now we've made a tremendous amount of progress over the past few years. And with the launch of Icons, we're now laying the foundation for our plan to expand beyond our core business. This is just the beginning. Thank you all and we'll see you next quarter.

Brian Chesky:

For business. This is just the beginning. Thank you all and we'll see you next quarter.

Operator:

Good afternoon, and thank you for joining Airbnb's Earnings Conference Call for the Fourth Quarter of 2023. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Airbnb's website following this call. I will now hand the call over to Angela Yang, Director of Investor Relations. Please go ahead.

Brian Chesky:

All right. Thank you, and good afternoon, everyone. Thanks for joining. I am excited to share our results with you. We wrapped 2023 with another strong quarter. We had 99 million Nights and Experiences Booked in Q4, marking our highest fourth quarter ever. Revenue of $2.2 billion grew 70% year-over-year. Net loss was $249 million. But when excluding nonrecurring tax items, adjusted net income was $489 million, representing an adjusted net income margin of 22%. For the full year, our free cash flow was $3.8 billion, our highest ever. Because of our strong cash flow and balance sheet, we repurchased $2.25 billion of our shares during 2023. And I'm excited to announce that today, our Board of Directors approved a new share repurchase authorization of up to $6 billion of our Class A common stock. Our strong results in 2023 were driven by our focus on 3 strategic priorities, making hosting mainstream, perfecting our first service and expanding beyond the core. First, we're making hosting mainstream. We've been focused on making hosting just as popular as traveling in Airbnb. Our results show that our approach is working. In Q4, our host community grew to 5 million hosts around the globe. Active listings exceeded $7.7 million by the end of 2023, increasing 18% year-over-year. And we also saw sustained double-digit supply growth across all regions. All in all, in 2023, host earned more than $57 billion. This year, we are going to continue to raise awareness from hosting and improve the overall host experience. Second, we're perfecting our core service. Over the past 3 years, we've launched more than 430 new features and upgrades to our core service. We've made significant improvements to make Airbnb a more affordable and reliable option, and we are already seeing a positive impact. For example, post cancellations have decreased by 36% in Q4 of 2023, and this is compared to the same period a year ago. And now two thirds of our host offer a weekly or monthly discount. We will never stop perfecting our core service. In the year ahead, we'll remain focused on improving the quality and reliability of stays. Finally, we are expanding beyond the core. Airbnb is at an inflection point. We spent the last 3 years perfecting our core service, and we are now ready to embark on our next chapter. We're focused on unlocking more growth opportunities by investing in underpenetrated international markets, and we're seeing some great results. Following the success that we've seen in recent quarters in Germany, Brazil and Korea, we're now rolling out our playbook in other countries, including Switzerland, Belgium and Netherlands. But this is only one piece of a much bigger strategy because we've always believed that Airbnb was destined to offer more than just a place to stay. And now is the time for us to expand beyond our core business and reinvent Airbnb. And there are a few reasons why. I mean, first, we want people to love our core service before offering them something new. And with hundreds of improvements we made over the past 3 years, the Airbnb service is now better than it's ever been. Second, we've been able to attract some of the best talent in the world, and we now have the capabilities to do so much more. And third, there is a new platform shift with AI, and it will allow us to do things we never could have imagined. While we've been using AI across our service for years, we believe we can become a leader in developing some of the most innovative and personalized AI interfaces in the world. In November, we accelerated our efforts with the acquisition of GamePlanner.AI, a stealth AI company led by the Co-Founder and original developer of Siri. With these critical pieces in place, we're now ready to expand beyond our core business. Now this will be a multiyear journey, and we will share more with you towards the end of this year. Now looking back on Q4, we also saw a number of very positive business highlights. First, we surpassed 5 million hosts in the platform and saw meaningful supply growth across all regions. We added nearly 1.2 million listings in 2023, ending the year with over 7.7 million active listings. Q4 supply growth grew 18% year-over-year. Now this is a real highlight. And we saw the highest growth in regions with the highest demand. So obviously, there's a real strong network effect happening here. We also continue to see relatively similar supply growth among individual and professional hosts with the majority of these listings exclusive to Airbnb. Now second, we continue to see strong demand on Airbnb. Now this is especially true amongst first-time bookers, which is particularly encouraging. Nights and Experiences Booked grew 12% compared to a year ago and following some volatile in October, Nights Booked actually accelerated throughout the remainder of the quarter, and Q4 also marked the highest quarterly growth rate of the year for first-time bookers. And additionally, we also gained momentum in app downloads and app bookings. 55% of gross Nights Booked were on our app. This is up from 50% a year ago. And finally, we're driving affordability for guests. Throughout 2023, we introduced several features to make Airbnb every more affordable from new pricing tools for hosts to increased pricing transparency for guests. Since launching these features, we've seen 1.4 million hosts use similar listings, which lets host compare to price or listing to others in the area. Nearly 300,000 listings have removed or lowered their cleaning fee. And by year-end, nearly 40% of our active listings didn't charge a cleaning fee at all. So our work around affordability is paying off. In December, the average nightly price of a 1-bedroom listing on Airbnb was $114 [ph] a night. This is down 2% from the same period last year, while hotel prices rose 7% to $149 over the same period. Now before I turn to Q&A, I want to share the latest on two executive updates we announced at the end of last year. To start, Dave Stephenson is now Airbnb's first Chief Business Officer. Over the past 5 years, Dave has done an incredible job as CFO, and our business is stronger than ever. One of the qualities that is so remarkable about Dave is that he's not just a world-class finance leader. He's also a world class operator. And whenever I need someone to quickly drive a complicated series of operations together to clear outcome that doesn't compromise our values, I turn to Dave. As we expand beyond our core, it will be paramount to have an executive dedicated to our long-term growth plans, and there is nobody better than Dave to do this. Dave will continue to drive growth across existing and new businesses, and this includes driving international expansion, growing global host supply and leading all business and corporate development activities at Airbnb. Now as Dave takes on this position, I am thrilled that Ellie Mertz will be our CFO. You see Ellie has been my right hand for 11 years, and many of you already know here and are well aware of impressive track record at Airbnb. She led our IPO during one of the most pivotal moments in our company's history. And for the past several years, Ellie has overseen Strategic Finance and Analysis, Corporate Development and Investor Relations. And under her leadership, our company grew from adolescent to adulthood with revenue growing over 100x. I am thrilled that she's stepping into this role. Dave has already started as Chief Business Officer; and Ellie will officially transition to CFO on March 1. So next call, you will hear from Ellie. Before we go to questions, I'd just love to hand over to David to share a few thoughts. Dave?

Operator:

[Operator Instructions] Your first question comes from the line of Ron Josey from Citi. Your line is open.

David Stephenson:

Yes, absolutely, Ron. Thanks for asking the question. So let me start with AI. So I think to talk about AI, it would be good to zoom out, just lay out the landscape. One way to think about AI is let's use a real-world metaphor. I mentioned we're building a city. And in that city, we have infrastructure like roads and bridges. And then on top of those roads to bridges, we have applications like cars. So Airbnb is not an infrastructure company. Infrastructure would be a large language model or obviously, GPUs. So we're not going to be investing in infrastructure. So we're not going to be building a large language model. We'll be relying on, obviously, open AI. Google makes a great model, meta great models. So those are really infrastructure. They're really developing infrastructure. But where we can excel is on the application layer. And I believe that we can build one of the leading and most innovative AI interfaces ever created. And maybe one way to make this real is if you were to open, say, ChatGPT or Google, though the models are very powerful, the interface is really not an AI interface. It's the same interface as the 2000s in the sense or 2010s. It's a typical classical web interface. So we feel like the models in a sense, are probably underutilized. Here's another way of saying it. Take your phone and look all the icons on your phone. Most of those apps have not fundamentally changed since the advent of generative AI. So what I think AI represents is the ultimate platform shift. We had the Internet. We had mobile, Airbnb really rose during the rise of mobile. And the thing about a platform shift, as you know, there is also a shift in power. It's a shift to behavior. And so I think this is a zero, zero ballgame, where Airbnb, we have a platform that was built for one vertical, short-term space. And I think with AI, generative AI and developing a leading AI interface to provide experience that's so much more personalized than anything you've ever seen before. Imagine an app that you feel like knows you. It's like the ultimate concierge, an interface that is adaptive and evolving and changing in real time, unlike no interface you've ever seen before. That would allow us to go from a single vertical company to a cross-vertical company because one of the things that we've noticed is the largest tech companies aren't a single vertical. And we studied Amazon in the late '90s, early 2000s when they went from books to everything, or Apple when they launched the App Store. And these really large technology companies are horizontal platforms. And I think with AI and the work we're doing around AI interfaces, I think that's what you should expect us. We're not going to talk specifically on this call about the specific products and services we're going to be offering, but you will see some very big announcements later this year. And as you know, we did an acquisition of GamePlanner.AI. It was from the creator Siri. And that was just accelerating the efforts we are already endeavoring on.

Ron Josey:

And then...

Ron Josey:

My question was...

Operator:

Your next question comes from the line of Eric Sheridan from Goldman Sachs. Your line is open.

Brian Chesky:

So again, what we saw exiting 2023 was interesting, right? When we were on this call a quarter ago, we've seen some softness in demand in October. And then what we - and so we guided to that kind of expectation. And then what we saw is accelerating demand in November and December. And then as we come into - from that strength, 17% kind of revenue growth and 12% nights growth in the fourth quarter, we're seeing really stable demand coming at the start of the year. You have to actually rewind the tapes and remind yourself that we were just exiting kind of Omicron and there's a lot of pent up demand in January of last year, which makes for some harder comps in Q1, but against those harder comps, we continue to see strong demand for travel. I think that we continue to see a very robust demand for people staying on Airbnbs versus just necessarily kind of buying other things. So the experiences over things continues to be a big trend. And we're excited to see the growth that we're continuing to see in our established businesses in North America and Europe and even greater growth in Latin America and Asia Pacific. So as we do things, as I said on the last question about doubling down and making sure that we invest in these expansion countries where we're underpenetrated, I think that's going to continue to drive growth for us for the rest of the year.

Justin Patterson:

Hi. Thank you very much. There's been a lot of investor interest around the cross-currency fee. How should we think about that phasing in over the course of the year and the potential financial impact from that? And then further, could you talk about just why you viewed now is the right time to pull that lever? So maybe this is a sign that you'll take pricing actions where there's a value disconnect more regularly than in the past? Thanks.

Operator:

Our next question comes from the line of Brian Nowak from Morgan Stanley. Your line is open.

Brian Chesky:

Yes. Why don't I start, Brian? So you could think of probably like 3 really big buckets of work that are going to drive conversion of Airbnb. One is our work on affordability. The next is really product optimization. And the third is really quality and reliability. So let me talk about all 3, and I'll start with affordability. A couple of years ago, we noticed that there was quite a lot of, call it, a feedback we're getting from our guests that Airbnb was getting more expensive. And so last year, we really hunkered down and rolled out a suite of tools for guests and host to make Airbnb more affordable. Starting with total price display, where you now can turn on a toggle and see the total price upfront, including taxes and cleaning fees and services. Now this tool is really important because now we are pushing more demand to listings at better prices. We've also seen some really positive knock-on effects. For example, 300,000 listings have now reduced or eliminated their cleaning fee and 40% of listing go [ph] we don't even have a cleaning fee. The next thing we did is we encourage more hosting to provide discounts for weekly or monthly stays. As you know, 19% of our month - of our nights are monthly stays and more than 40% are weekly. Well, now two out of three hosts have a monthly or a weekly discount. So this has been a huge, huge improvement. And we also launched a product called Compare listings. One of the things we noticed is that hosts are more likely to have a competitive price if they see what other similar listings are charging in their neighborhood and then they can see whether they're getting booked or not. Well, since we rolled out that tool, 1.4 million hosts have turned the tool on, and this means they'll provide more competitive listing. The result of which, Brian, is that our prices year-over-year for one bedroom apartment globally are down 2% where hotels are up 7%. That's a 9% swing. The next is product optimization. Here's a simple way to think about it. We did $9.9 billion of revenue last year. So let's round that to $10 billion for really simple numbers. All we have to do is increase our nights booked by 100 basis points, and that's $100 million of revenue. And if we can increase $100 million of revenue, it'd be $100 million of very like high-margin revenue because we're converting presumably traffic we already have on the website. And so there's a number of things we're doing on product compensation to increase conversion rate. One of the big things, as you noticed, is I'm flexible, here's a simple way to think about it. We are never close to sold out in Airbnb. If we can just point demand where we have supply by getting people to be more flexible off their dates or a little more flexible off their radius or the location, that'd be massive. We also made some optimization to get more people to download our app. And now we are very typically a top 50 application in the United States and now 55% of our bookings are now on a native application. So those are some of things that non-profit [ph] product limitation. The last thing I'll talk about is reliability. We launched Guest Favorites. Guest Favorites, the reason we launched this is for every person who stays in a hotel, 9 people stay in an Airbnb - sorry, for every person who stays in Airbnb, 9 people stay in a hotel. What if we could get just one of those people who stays in a hotel to stay in an Airbnb? We would quite literally double the size of our business. So when you ask people book hotels, why they don't book Airbnbs, there's two reasons. One, well, it's habitual. They've always booked hotels. And the other is they are comforted by the reliability, the consistency of the hotel experience. And we asked, what if we had a product that was as consistent as a hotel from a quality standpoint, but had all the unique advantage of the Airbnb? It was more affordable, it was more unique with more character, and it was better equipped. And that's exactly what Guest Favorites are. They're 2 million of the best listings on Airbnb based on rating, review and reliability data on 500 million trips in Airbnb. Since we launched that product in November, we are seeing a shift in bookings towards Guest Favorites. That's of course good because number one, they get fewer customer service contacts, so customer service costs go down, they have this higher five star rating trips, so we have better repeat bookings. And we think this will attract people to Airbnb that never considered us before. So those are just some of the things we're doing. The last thing I'll say before I hand it over to Dave, is that, that's just what we did last year. We had 200 - about 200 upgrades last year, 430 in the last 3 years, but we are just getting started, and we're going to have significantly larger upgrades this year. Dave?

Operator:

Your next question comes from the line of Doug Anmuth from JPMorgan. Your line is open.

Ellie Mertz:

Thanks, Doug. I was actually going to start next quarter, but thanks for pointing it to me. So what you saw in the guidance language that we provided is that we are basically giving ourselves a floor in terms of the 4 year [ph] EBITDA margin guidance. As we said, we will hold or provide a minimum of 35%, which is slightly down from what we delivered in 2023. The intent here is really to ensure that we have flexibility over the course of the year to continue to invest in a variety of growth opportunities as they appear. So what might those be? So first, we have a pretty robust budget in terms of our international expansion, but there's certainly opportunities at the margin to continue to invest in newer markets. Second, there's always opportunities in terms of looking at our high ROI marketing channels and adding marginally at the top. Third, what we note, given the ambitions around our product development road map is that obviously often constrained by our resources there. And so we may look to add incremental product resources to increase the throughput of our overall product team. And then finally, obviously, we haven't said much with regard to what the platform extensions will look like in the back of the year, but we also want to give ourselves flexibility there to ensure that we're able to share something broadly and meaningful by the end of the year.

Justin Post:

Great, thank you. Just want to ask about room nights. We all know there's a tough comp in Q1, but - and that was partially due to the reopening. But we're kind of over COVID now. And just kind of thinking about where you are in the room night cycle going forward? And what are the key drivers for nights? Is it growing supply and just getting that conversion level better. The big picture just saying, it looks like a tough comp in Q1, but how do you think about the rest of the year and where nights can grow over the medium term? Thank you.

Operator:

Your next question comes from the line of Kevin Kopelman from TD Cowen. Your line is open.

Brian Chesky:

Yes. In terms of headcount, we grew headcount last year about 1%. We're planning to grow at maybe slightly more than that. It could be kind of mid single digits, low to mid single-digit percent. As kind of Ellie mentioned, I think we will see depending on what our product development needs are, but it's not going to be above overall kind of revenue growth. And then in terms of marketing, margin, we're going to keep marketing costs as a percentage of revenue largely the same as what it was in 2023. In some ways, we probably could see additional leverage on marketing, but what we've seen is such great success with our brand marketing efforts in our core markets. We're actually expanding to 20 countries around the world. So that's already included in this. And then we'll see as there are other investments to support the newer business areas. But to the extent that there may be any incremental marketing, it's not going to be a materially larger percentage of revenue than it was last year.

Lee Horowitz:

Hi. Can you maybe spend some time talking through sort of the competitive dynamics and your expectations for the competitive set in the U.S. in 2024, particularly as some of your larger competitors look to lean into share gains. Are any of these investments aimed at holding share or any of this type of investments sort of aimed at defending share against a more competitive environment? Thanks so much.

Brian Chesky:

And I'll just add that, we have a lot of competition for people choosing places to stay. Our main competition are hotels, first of all. And we're so much smaller than hotels. For everyone who stays at Airbnb, nine people stay in a hotel. So I think the bigger opportunities for us to take market share, because again, all you need is one of them to come to Airbnb and we've now doubled the size of our business. I think we are only scratching the surface. We grew in every region. We maintained or grew share in every region. As Dave said, we have - we are the brand in this category, a noun and a verb used all over the world. We are the only ones with a custom built platform. And we're going to continue to strengthen our advantages, including like Guest Favorites, the only one to offer that. The only one to offer custom built tools on the host side. So the best game we can play is to continue to focus on executing ruthlessly. And if we continue to do that, we're going to continue to take share.

Jed Kelly:

Hey, great. Thanks for taking my question. Just a couple - just one. Can you talk about how we think - we should think about demand and supply starting to converge? I know you've had great supply growth up 18%. Should we start to see room nights catch up to that demand? And then can you just give us an update on the how for the U.S. short-term rental market, how you're thinking about that going into this year after what was the softness in a lot of those core vacation rental destinations last year? Thanks.

David Stephenson:

Yes. I think what's also interesting is, if you actually back up and look out over multiple years, you go back 4 years or so and look at the total amount of supply growth versus the total amount of nights growth, it's actually fairly consistent. So there are times that supply leads demand and times that demand leads supply. But I think as Brian mentioned, over time, those things equalize out and the greater supply definitely helps our overall performance. I'd say in terms of U.S. very specifically, a couple of things. We're just - we're seeing overall very stable growth in the U.S. We're seeing strong inbound cross-border growth in nights. And I think unlike others that we're seeing in the U.S., we've seen very healthy growth in the non-urban markets, right? Urban markets have been traditionally our areas of strength, not only grew substantially kind of during COVID and coming out of COVID, we've continued to hold really great share and growth in the non-urban areas, and now urban is coming back stronger, and that has been our additional area of strength. Maybe a last area is our long-term stays. So 19% of our stays were 28 days or longer in the last quarter. So it was even up a little bit from 18% prior to that. I think there's been a lot of critique of, well, long-term stays, that's a post-COVID benefit that's going to go away. Well, it's still materially bigger than it was back in 2019 when it was closer to 13%, 14% of our nights growth. So we're seeing really great strength there. So that's what we're seeing in North America.

Nick Jones:

Hi. This is Nick Jones on. You talk a lot about focus on international expansion and then kind of underpenetrated in many of these markets, you're rolling this playbook out, I think it was Switzerland, Belgium, Netherlands. Is this kind of the cadence we should expect the playbook to kind of continue to expand into additional countries, it's kind of 3 or 4 at a time? And I guess how are you balancing rolling this playbook out to more countries - to more countries with kind of these new initiatives that we're looking forward to hearing from later in 2024?

David Stephenson:

And I'll just add that, I think that there's some massive opportunities in front of us, especially with Asia. We really did focus on Korea, but I think the point that should be made is if you look at our penetration, and say, U.S., Australia, Canada, France and to maybe a lesser extent, United Kingdom, they're significantly higher than other parts of the world. In fact, in the United States is more than an order magnitude higher penetration than Asia. There is no reason why we cannot get to today's U.S. penetration and the equivalent penetration in most of the major tourism markets around the world. And we think we're only scratching the service in our more mature market - more mature markets. So again, we are going to continue to add these countries one by one. But the other thing is we're just getting started in Korea. We're just getting started in Germany. We're just getting started in Brazil. Brazil is now double the size it was pre-pandemic, but it's going to double again. And so we're going to continue. We have multiple phases of this playbook and the first phase is playing out in Korea, Japan and Brazil. But we're going to go on to the next phase as we continue to add more countries.

James Lee:

Great. Thanks for taking my questions. My question is about booking window. I think in 1Q last year, booking window was extended as consumer tried to lock in high prices for accommodation. And just curious what you are seeing this quarter so far. Are you seeing any differences booking window by region also? That would be helpful. Thank you.

Operator:

Your next question comes from the line of Bernie McTernan from Needham & Company. Your line is open.

Brian Chesky:

Yeah. Hey, Bernie, I think that Airbnb can go far beyond travel in the coming years, but I think we're going to start with our core. So I think what we're going to do is start with travel and then down the road we can move beyond travel. So you should start by seeing us do the things that are the most logical extensions of what we already provide, and then we will move further and further out from our core as the things we launch are successful. And then what was the second part of the question?

Brian Chesky:

Yeah, I mean, I'll just highlight a few things in addition to what Dave said. First of all, our traffic and our top of funnel results are really good. And one of the reasons why is, we've, number one, we're having a really successful advertising campaign. As you know, we have a very different approach to marketing than our competitors. We're not really typically trying to buy customers through foreign [ph] marketing. We generally, as Dave mentioned, have a full funnel approach and we think of advertising more as education than sales. And one of the things we noticed was that we want to educate people about how there are some trips that are really just always better in Airbnb. If you're staying with - if you're traveling your family, if you're traveling your groups, be able to share a house and have your own bedroom and save money, rather than getting separate hotel rooms or crammed in one hotel room, makes complete logical sense. And so we have this campaign running, it's called Get an Airbnb, it's the most successful digital advertising campaign we've ever done, and it's now running on television. We also are tapping into the biggest moments of pop culture. Last year, for example, the Barbie movie came out, and we partnered with Mattel to turn a mansion and Malibu into Malibu Barbie DreamHouse. That became a phenomenon on social media, and it got more press, more articles than our IPO. In fact, three times as many articles were written about the Barbie Malibu DreamHouse as Airbnb's IPO, just to give you a sense. So we have a lot of traffic coming to Airbnb. We're going to continue to hopefully stay relevant within culture. And if we can then convert that traffic, as Dave said, through product optimization, reliability efforts, improve customer service, then I think there's a lot of opportunities. And again, we have an entire road map where you can imagine hundreds of basis points of conversion of a nice growth increase through some of these efforts. So we've got a pretty big arsenal of levers.

John Cantone:

Great. Thanks for taking my question. Just looking across your regions, EMEA is where you've sort of seen the biggest moderation, incremental Nights and Experiences this year. I know there's some big travel markets where you're still underpenetrated like Germany and now Switzerland, Belgium and the Netherlands. Maybe you could talk to why consumer adoption has lagged in some European markets versus others? And any key areas of investments you still need to make to help drive adoption rates higher in that market? Thanks.

Operator:

Your next question comes from the line of Ken Gawrelski from Wells Fargo. Your line is open.

Brian Chesky:

Yes, absolutely. So I think one of the great things about Airbnb is that most of our innovation in most of our business is developed organically. And that just becomes from our DNA. Like Airbnb was started by three product and then just product, people and engineers, two designers an engineer. And we created Joni [ph] and I created this company from nothing with really no capital whatsoever to speak of. So I think build and the organic growth is in our DNA, and it's always going to be our predisposition. That being said, with the scale that we have, the scale we have, having nearly 2 billion guest arrivals and more than $70 billion GBV, that is a huge asset to be able to partner. And a number of brands have reached out to us telling us they want to partner Airbnb not just because of the traffic we have, but also because of the strength of our brand. So we think that there's a myriad of opportunities of partnerships. Now on in the buy [ph] we're going to be -- we're going to have a very high bar for ROI for acquisitions. We've done a number of acquisitions in the past. Some have been very successful. And with our free cash flow, we have generated $3.8 billion of free cash flow. We absolutely have the cash and obviously, the currency of our stock to make acquisitions, but we're going to be very, very thoughtful and there's always going to be build, then partner then buy probably in that order of prioritization.

Mark Mahaney:

Let me try two questions. There's some discussion in your shareholder letter about take rates. Just take rates have been relatively consistent in the last couple of years. Is there any reason to think that, that pattern won't change going forward or will change going forward? Is there a reason why take rates would actually go up? And then secondly, Brian, you talked about the ability to really expand in Asia. And I don't know - and I understand the momentum that you've got in Korea. Asia, it seems like it's generally been a tough market for a lot of Internet companies that tried to expand there, and there's - China seems to be relatively off-limit. So just talk through a little bit more about why you see grounds for optimism in that region. And I know there's a lot more to Asia than just China, but I wanted to ask that question. Thank you.

David Stephenson:

And then, Mark, in terms of take rates, no, there should be consistent. There's no real reason why they should be going up on kind of a time-adjusted basis. We have not materially changed our pricing as a percentage of GBV when you adjust for the timing. So we are testing a cross-currency themes, as we mentioned earlier in the call, but you shouldn't count that as a major expansion of fees this year. In Q1, the implied take rate revenue over gross booking value is going to be higher, but that again, that's largely due to timing, right, a little more revenue coming in Q1 largely due to the Easter timing. So now longer term, I am excited about the opportunity for revenue driving with our experiences and services and that ability to drive incremental revenue and incremental margin. So over a longer period of time, I think our margin expansion will absolutely come from hosting guest services and experiences. But here in the short term, there's no real change on time-adjusted basis towards these.

Alex Brignall:

Good evening. Thank you very much for taking the question. First one would just be on the Q1 guide. Just trying to understand what you're implying on the take rate expansion because there's obviously one comment which is Easter timing, which is 1% to 2% of revenue, but it seems like the comment of notably higher take rates would be more than just 1% to 2% extra on the revenue. So if you could just piece that out and then obviously, it feeds back into the room nights. And the second one, just in terms of a little bit more detail on the cross currency. It sounds like what you're saying is that it now is another lever that you have, which is fantastic, but it's something that you're going to test with. Is there an amount of friction that you expect when you add it, do people have the chance to not pay the fee, where will it be displayed to consumers? And your last comment, Dave, on the take rate not expanding, but presumably, that means that in terms of its contribution to take rate, it's going to be relatively immaterial? Thank you so much.

Operator:

We have reached the end of our question-and-answer session. I will now turn the call back over to Mr. Brian Chesky for some closing remarks.

Operator:

This concludes today's conference call. Thank you for your participation. You may now disconnect.+

Operator:

Good afternoon and thank you for joining Airbnb's Earnings Conference Call for the Third Quarter of 2023. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Airbnb's website following this call. I will now hand the call over to Elli Mertz, VP of Finance. Please go ahead.

Brian Chesky:

All right. Well, thank you, Eli and good afternoon, everyone. Thanks for joining. I'm excited to share results with you. Q3 was another strong quarter for Airbnb. We had over 113 million Nights and Experiences Booked. Revenue of $3.4 billion grew 18% year-over-year. Net income was $4.4 billion. Now this includes a onetime income tax benefit from the release of a valuation allowance of $2.8 billion. But even excluding this tax benefit, adjusted net income was $1.6 billion, our highest ever and represented an adjusted net income margin of 47%. And free cash flow for the quarter was $1.3 billion. In fact, on a trailing 12-month basis, our free cash flow was $4.2 billion which is also our highest ever. And because of our strong cash flow and balance sheet, we repurchased over $500 million of our stock. Now during the quarter, we saw a number of positive business highlights. First, we have added nearly 1 million active listings this year. Our supply grew 19% in Q3 compared to a year ago. We once again saw double-digit supply growth across all regions with the highest growth in regions with the highest demand. Urban and nonurban supply increased at nearly the same rate and we saw relatively similar supply growth among individual professional hosts with the majority of new listings exclusive to Airbnb. Second, Q3 was a record travel season on Airbnb. Nights and Experiences Booked grew 14% in Q3 compared to a year ago. We saw an acceleration of nights growth across all geographies and we are particularly encouraged by the growth of first-time bookers during Q3 and we saw more nights than ever booked in the Airbnb app with 53% of gross nights booked in the app compared to 48% in the same period last year. And finally, international expansion markets are gaining momentum. Cross-border nights book increased 17% in Q3 compared to a year ago. In Asia Pacific, our business has fully recovered to pre-pandemic level. And we're seeing significant growth in Asia Pacific markets such as Taiwan, Thailand and Indonesia, all experiencing year-over-year nights growth above 30% on an origin basis. Now we've been able to achieve these results by continually making progress on our 3 strategic priorities. First, we're making hosting mainstream. We've been focused on making hosting as popular as traveling and our Q3 results show that our approach is working. We ended the quarter with the highest number of active listing and we saw strong active listings growth across all regions of the market types. And hosts are benefiting. During Q3 alone, Airbnb host earned more than $19 billion. We'll continue growing supply by raising awareness around hosting, making it easier to get started and improving the overall experience for a host. Second, we're reflecting our core service. We've collected millions of pieces of feedback on how to improve Airbnb. And 2 years ago, we started doing twice a year of product releases to address this feedback. And since then, we've launched more than 350 new features and upgrades across our entire service. And in the past year alone, this has included things such as improved customer service, total price display and new tools to help host set more competitive prices. These upgrades are paying off for both guests and host. For example, we redesigned our tool and we made it easier for hosts to add discounts and promotions. And now almost 2/3 the host offer weekly or monthly discount. We also added a new feature called similar listings that let hosts see listing prices in the area, so they know what to charge. And since we launched the similar-listings tool, nearly 1 million hosts have used this feature. In mid-September, we shared progress we've made to help lower cleaning fees, reduce prices and improved search and reliability. We have even more improvements coming as part of our November 8 winter release next Wednesday where we'll introduce dozens of new features aimed at making Airbnb more reliable. And finally, our third strategic priority is expand Airbnb beyond their core. Now we made significant progress in the past few years in building a strong and profitable business. And in addition to laying the foundation for new services and offerings, we've been focused on international expansion. We are investing in underpenetrated international markets and we're seeing great results. Following the success, we've seen in recent quarters in Germany and Brazil, Korea has now become one of our fastest growing countries compared to 2019 with gross nights booked 54% higher than they were in Q3 2019 on origin basis. As international travel continues to recover, we're building greater momentum for Airbnb in underpenetrated markets. So those are results for Q3. With that, Dave and I look forward to answering your questions.

Mark Mahaney:

And I have 2 questions. You talked about some of these improvements you've seen in markets like Germany, Brazil and Korea. Could you just spend a little bit more time on that opportunity going forward? And is it the expectation now that Germany and Brazil are already optimized, you just keep optimizing other ones? Or is this take a while to add to monetize those? And then secondly, in terms of future services that you could offer to sellers, any update on when we could see those particularly things like sponsored listings for sellers for host, I mean.

Operator:

We'll go next to Eric Sheridan at Goldman Sachs.

Brian Chesky:

Eric, I mean, just to step back, the last few years, I think we've really, really benefited by being focused. When the pandemic occurred, we felt like we had to hunker down, get really lean, get really focused and we went from basically a breakeven company to now a company doing obviously cash flow margins of around 44% of revenue. So we've really benefited from this focus and really benefited from focusing on our core business. To your point, Eric, I think we are now getting ready to re-expand Airbnb beyond its core. It was always our attention to do much more than just short-term housing for travelers. We're always intended to do more of that. So we're working on making Airbnb more of an extensible platform. And I think, ultimately, there are actually quite literally dozens of services, guests and hosts that we could build on top of the Airbnb system. I think a lot of it comes down to making the platform extensible so we can offer these services. I think at the end of the day, we're really thinking about are a couple of big ideas. First, I think that we are thinking about generative AI as an opportunity to reimagine much of our product category and product catalog. So if you think about how you can sell a lot of different types of products and new offerings, generative AI could be really, really powerful. It can match you in a way you've never seen before. So imagine Airbnb being almost like the ultimate travel agent as an app. We think this can unlock opportunities that we've never seen. Additionally to that, there's a lot of opportunities on both the guests side and the host side. And so we're going to be thinking through a lot of this. So you'll see hopefully some updates in the coming years.

Brian Nowak:

I have two. First one, maybe on the guide a little bit. I know there's a lot of moving pieces between the revenue comments and the ADR comments and the take rate. Just sort of wanted to confirm, are you guys sort of looking to guide room night growth in sort of the high single, low double-digit range in 4Q? Is that the right way we should be thinking about with take rate and things? And then the second one, Brian, I know you, you have a lot of innovation, you have 350 features and upgrades, etcetera. Can you just sort of give us 1 or 2 of them that you think could be most impactful to accelerate that room night growth as we go into '24 and '25?

Brian Nowak:

Well, either way you want to go. Yes, if you have one that already shipped that would be great. If you have other ones you want to tell us about next week, that would be good too.

David Stephenson:

And then in terms of the guidance, Brian, for the fourth quarter, we have our revenue guidance between $2.13 billion and $2.17 billion. So that's revenue growth between 12% and 14%. And remember that in Q3, our revenue growth, excluding the impact of foreign exchange is about 14%. So -- and we're not anticipating the same level of FX impact on the fourth quarter. So broadly, our revenue growth is relatively comparable between Q4 and Q3. In terms of the nights guide, we're just seeing some variability in our nights demand here early in the quarter and so we're just being cautious with that guide. And so we're not being specific on it but anticipate nights to be a few points below -- nights growth to be a few points below Q3.

Lee Horowitz:

Can you maybe help us think about how you guys are tracking towards expectations on occupancy or utilization moving forward? As you guys extend beyond the core into newer markets, do those markets come with occupancy or utilization headwinds that we should be thinking about? And holistically, how you guys think about how occupancy or utilization may track next year? And then, maybe just one high level one. Sticking beyond the current cycle, we've seen a lot of other remote travel models, sort of hit this low teens to high single-digit growth rate and decelerate from there or not be able to reaccelerate their business as a meaningful like. Can you maybe take a step back and help us better understand how you think that maybe Airbnb may be a little bit different than prior ratios that we've seen and could perhaps sustain sort of that double-digit revenue cadence over a longer period of time than what we're used to in the market.

David Stephenson:

In terms of occupancy, we've actually seen it be pretty stable in terms of kind of on a global basis. I mean, if you actually step back, you got to remember that the vast majority of our hosts on Airbnb are individual houses. They're not looking to drive 100% occupancy of all their listings. And what they want to do is earn enough money to usually hit some certain amount of financial goals. So as we continue to grow our inventory, we're continuing to see strong occupancy levels overall. Clearly, we grew our inventory at 19% which is ahead of kind of revenue growth in the current period. But if you actually step back and look over like a 4-year period, go back all the way to 2019, the growth in our overall listings have actually been relatively similar to our overall growth in night. So that occupancy over an extended time period tends to be fairly stable while in any short-term time period, it can have a little bit more volatility. But overall, again, we don't focus on occupancy as a primary driver, we monitor it on local by local because what really matters is that we have great available listings in a specific market on a specific date.

Operator:

We'll go to our next question from Doug Anmuth at JPMorgan.

David Stephenson:

Yes. It's hard to completely pin down the root cause of any kind of softness or volatility. I think it is just broadly, what we're seeing is a little bit of softness in our overall kind of demand relative to Q3, we call out kind of the macroeconomic and geopolitical just because that is what's, I think, driving any volatility that's out there. It's early. I think I am clearly confident about our revenue growth for Q4 being 12% to 14% growth. And the fact that, that remains stable with Q3, I think is really promising. Our early visibility into 2024 is -- again, it's too early to tell. I think I'm feeling great about our overall playbook and plans, as kind of Brian has mentioned. I think I am most excited about the additional efforts we're making to get greater penetration in our international markets. And overall, I'm seeing solid demand for Airbnbs, like people are still prioritizing travel over buying things so I'm very bullish in the long term.

Jed Kelly:

Okay, great. Can you just give us further update on the regulations you talked about in the shareholder letter. And then Google announced a new update to their vacation rentals where they're essentially letting property managers show their price. So can you talk about how you're seeing some of the changes Google is making.

David Stephenson:

Yes, I can take this. I mean we're not going to respond directly to any kind of specific thing that Google is doing. I think if you do step back though and remember that the vast majority of host on Airbnb or individual host, approximately 90% of them, that the majority of those listings are unique to Airbnb and you can only get them here. I think that, that is one of the larger kind of defensible moats that we have which is if you want to have an amazing stay, if you want to have the unique listings, you come directly to us and we're really not seeing the impact of the competition taking additional share from us. In fact, we continue to take or increase our relative share of listings in the market, continually. And this is why we're continuing to grow at faster than the overall kind of travel market. So I don't have much more to say beyond that.

Operator:

We'll move next to Nick Jones at JMP Securities.

Brian Chesky:

Nick, let me start with pricing and then I'll talk about the general offering. When we started Airbnb, our original tagline was a cheap affordable alternative to a hotel. And the primary reason people chose Airbnb the early days was price. Now once they used it, we used to say money as the hook but the experience is the reason you keep coming back. Because it also turns out when you stay in Airbnbs, you're often typically in a real neighborhood, not a hotel district. You have this really cool space. You can make a meal, you have a lot more of a much more quick home. Sometimes there's a local connection to the community, that's what you're looking for. But affordability has always been one of the most important benefits that we have in Airbnb. And I do feel like we still have opportunity for our prices to be even more competitive. There's a really interesting thing we discovered. Within reason, generally, when host lower the prices, they tend to make more money. And this is typically not true of hotels, right? Because if you're running at 80% occupancy and you lower your prices per night, you typically don't have a lot more room to make up the lower prices with higher occupancy and you'll typically lose money. But many of our hosts run at low enough occupancy and they always have that if they lower the price just a bit, they can sell more nights. And so we think there's a win-win where if we continue to encourage host to offer more competitive pricing, it's a win for guests but it's also a win for many of the host. And I would also just point out that in addition to pricing tools, you need to have ample supply. Supply, I just want to highlight again, is growing 19% year-over-year. This was a huge question by the way 18 months ago. Could Airbnb re-accelerate to nearly 20% supply growth and we are approaching 20% supply growth. I think that is really, really key. So to answer your question, we've made huge progress in last year but prices are up quite significantly from pre-pandemic for Airbnb and hotels. We're both up a lot. And my hope is whether or not prices come down on Airbnb further in the next year or 2, my hope is while hotels will almost undoubtedly keep increasing year-over-year, our prices will continue to be a little bit more -- they'll be more moderated. And that goes to the next question. We actually think there's a very high correlation of relationship between ADR and night growth and the higher the ADR, typically the lower the nights growth and the lower the ADR, typically the higher the nights growth. So there's a trade-off there. And so we think that as we continue to be more affordable, we'll continue to stimulate more demand. Now the interesting thing about Airbnb is that we're not really one type of offering, right? Southwest is a budget brand. Louis Vuitton is a luxury brand. Apple is kind of like a luxury brand for like a lot of different people but they do have like premium prices. Airbnb's offering really is one of the most unique and resilient models. I mean we are one of the most popular brands for people under 30 in travel, probably the most popular band for people under 30. We're also very much a family travel brand because homes accommodate families much better than typically hotels. We're not just an urban brand. We're a rural brand and vocational brand. We're not just a North American brand. We're a global brand. So one of the things we highlighted in the public is that we literally have something for everyone. But as we continue to get more affordable, I think that's going to continue to drive a lot more growth for us.

Ron Josey:

Great. Brian, I wanted to ask a little bit about your comments on first-time bookers. I'm just trying to understand a little bit more on the drivers that are attracting these new bookers. Are they doing this directly through the brand, Airbnb, through the app and just trying to understand a little bit more as you're expanding the pie and getting more supply and how users are coming to the site, point number one. And second question, just on probably with Experiences, there's any update there?

Operator:

We'll go next to Kevin Kopelman at TD Cowen.

Brian Chesky:

Kevin, yes, I think -- let me just explain what I even mean by a travel community. I think one of the biggest visions that we have as a company isn't just to be a marketplace to become but to build literally quite literally a global travel community where you can get homes and experiences and a variety of other services, all in one place. So we can provide a lot of offerings for guests and hosts. And that we can use an emerging technologies like generative AI, like take the Where the Airbnb app can be like the ultimate travel agent. So to do this, there's a number of things that we've been investing in. The first thing is identity and account structure. So on most travel companies, you can book as a guest and they don't even have account information. And you can sign up with an account but you can also check out as a guest and they don't have the same robust account information that we do. On Airbnb 100% of the bookers and 100% of the host have to have a verified ID on -- associated to their account. They have robust profiles. About 70% of people on the guest and host side leave reviews to the other people. So this really does demonstrate how Airbnb is a little bit of a different community. We think that if we continue to invest in the profile and we can continue to invest in our system of trust, then as we learn more about guest and host, we can then match them for more types of offerings on Airbnb. And so this is, I think, really what we're starting to see. And the reason that AI is so powerful is I'll just cover 2 opportunities. Number one, I think that AI is going to affect -- this is an obvious statement, I think, digital business is more than brick-and-mortar businesses. So Airbnb and OTAs are probably going to benefit more quickly from AI than, say, a hotel will just because Airbnb and OTAs are more digital. And so the transformation will happen at the digital surface sooner. One of the areas that we're specifically going to benefit is customer service. Right now, customer service in Airbnb is really, really hard, especially compared to hotels. The problem is, imagine you have a Japanese host booking with -- hosting a German guest and there's a problem and you have these 2 people speaking different languages calling customer service, there's a myriad of issues, there's no front desk, we can't go on-premise. We don't understand the inventory and we need to try to adjudicate an issue based on 70 different policies that can be up to 100 pages long. AI can literally start to solve these problems where agents can supervise a model that can -- in second, come up with a better resolution and provide front desk level support in nearly every community in the world. But probably more importantly, Kevin, is what we can do by reimagining the search experience. Travel search has not really changed much in 25 years since really Expedia, Hotels.com, it's pretty much the same as it's been. And Airbnb, we fit that paradigm. There's a search box, you enter a date location, you refine your results and you book something. And it really hasn't changed much for a couple of decades. I think now with AI, there can be entirely different booking models. And I think this is like a Cambrian moment for like the Internet or mobile for travel where suddenly an app could actually learn more about you. They could ask you questions and they could offer you a significantly greater personalized service. Before the Internet, there were travel agents and they actually used to learn about you. And then travel got unbundled, it became self-service and it became all about price. But we do think that there's a way that travel could change and AI could lead the way with that. So these are some of the things we're thinking about and I think it's really, really exciting. And we're just at the beginning of this.

Justin Post:

Supply is up 19%. How do you think about that as a leading indicator for room night growth? And how do you maybe accelerate night growth to capture that? And then the second question is on ADRs. Is that supply coming in higher or lower, similar ADRs? And I don't know, Dave, if you can give us any thoughts on positive and negative drivers for ADRs next year.

Brian Chesky:

And maybe, Justin, I'll just say that like this is my intuition having done this for almost 16 years of my life. I think that supply is even more important than it seems on the surface. Ultimately, when you're tiny and no one ever hears about you, one of the big levers is awareness. But once you're a brand like Airbnb that's known as really [indiscernible] used all over the world, so supply growth becomes a very important like long-term leading indicator. And so long as we make sure we have healthy supply growth and then we continue to improve reliability and promote Airbnb globally around the world, then that is a very, very healthy long-term indicator. And we love for that number to be a bit higher.

James Lee:

Great. Two questions here, Dave. I remember at the beginning of the year when you were guiding ADR down about mid-single digits. You were talking about leverage and like variable expenses like payment and cloud. I was just wondering where you are in that process, how much up to unlock going forward? And secondarily, on sales and marketing, it looks like supply is creating demand right now. Is it fair to assume we're shifting more demand-side advertising going forward? And can you talk about the implications there?

Operator:

And we'll move to our next question from Lloyd Walmsley at UBS.

Brian Chesky:

No, Lloyd, that absolutely makes sense. And I think that's inevitability. Just to back up for a second, we are very much supportive having hotel inventory on Airbnb. And we acquired HotelTonight before the pandemic because we believe so much in it. Over the last few years, we had to make some decisions, especially when our business initially contracted and we made some decisions. We said, well, we have to really just get focused on our core. And our core were individual people renting homes, sharing homes. That is the most differentiated thing. It's inventory you can't find anywhere else. It's a thing that is most defensible, is the thing that attracts all the direct traffic. That being said, I mean, let's just take New York, for example. We still have a lot of traffic of people searching for New York and we now have a lot less inventory we used to have so there's a real opportunity for us to supplement what used to be homes with boutique hotels. They're already on hotel tonight and others and we can certainly put those in New York. And I generally think for sure, as Airbnb becomes a little more of a so-called like AI travel agent which is what I think all travel apps will trend towards to some extent. I think there's opportunity for us to do things in a differentiated way even with slightly less differentiated inventory. I think our bread and butter for combinations are always going to be home. I think that's where our heart and soul is. I also think that's where the biggest growth opportunity is but you should not think of our total supply -- addressable market of supply as only homes. We've had hotels. We've just been prioritizing homes because we wanted to be really focused.

Kenneth Gawrelski:

Appreciate it. Two questions, if I may. First, I want to go back to supply. I know you've talked a lot about it. The room nights up 19% with double-digit growth in all territories. Yet every week, we read about new STR regulations. At least in North America, could you help us reconcile this kind of this contrast for the financial market? Like what are we missing as investors here -- where is that supply growth really happening, especially in the kind of Western markets? And then my second question to be a bit more specific, I know you called out the volatility in room nights and on the demand side in 4Q. Are there any specific regions that you would call out? Or is it more broad-based? And just on the timing standpoint, did this start in October? Or did you see some of the volatility start in 3Q?

David Stephenson:

Well, I'll just start with the volatility in room nights. There's not a specific region where we're seeing it. I think maybe the biggest thing we've seen is that it's more broad-based on a global basis right now which is why we've kind of called out the macroeconomic and potential geopolitical issues as a potential driver to it. We saw maybe some of it just late September and it's kind of been early October. And again, it's just a little too early to tell how much volatility we see going into the rest of the quarter. That's why we continue to highlight the revenue growth that we're still expecting this year between 12% and 14% and our growth overall. And then on the regulation side, I mean, I think it's a lot of what Brian said earlier that 80% of our top 200 markets already have regulation. I think the headlines, they tend to make good headlines when people are highlighting kind of issues with short-term regulation. But in many ways, outside of New York City, I've never been -- felt better about our overall regulatory landscape on a global basis. We have really good partnerships with many cities around the world and things like our City Portal and other things has made us continue to collaborate extremely well with the vast majority of cities. So, I think those are outliers. But Brian?

Operator:

And we'll take our next question from Conor Cunningham at Melius Research.

Brian Chesky:

Yes, I can take the first one, Conor. On tools, generally, new host adopt new tools at a higher rate than existing host. And the reason why is like when you sign up, like we have this really great onboarding and you're immediately presented with all the tools. Now we do have a percentage of our host, maybe like, call it, 1 million hosts that are highly, highly engaged and they're going to be really engaged on a lot of these tools. But every new host, as far as they're concerned, every tool is like -- is exactly how you're supposed to use Airbnb, whereas an older host, there's an adoption where you have to get them on to the new tools and they're used to hosting a certain way. So we're generally seeing that new host would probably adopt new tools at a faster rate than existing host. That being said, the ADR-related new host might also be related to the mix shift. We're getting a lot of inventory in nonurban areas. They're larger homes. So there's a lot of different reasons I can explain that. Dave, I can hand over to you.

Conor Cunningham:

Yes. Just as you expand internationally, is there going to be a natural reduction in take rate overall as that kind of tracks over 50% of your overall rooms at some point?

Brian Chesky:

And you could -- theoretically, you could argue the inverse which is to say that as the expanded new markets, they might be more interested in new services that we can offer because hosting is newer to them. So as we expand in new markets and as we expand to new host services, we want to make sure that new host and new markets are percent of those opportunities.

Brian Chesky:

All right. Well, thanks, everyone, for joining today. Just to recap, revenue was $3.4 billion, 18% higher than a year ago. Net income and adjusted EBITDA were both Q3 records. And as well -- I just want to -- the last thing I want to highlight is our trailing 12-month free cash flow was $4.2 billion. And this represents a free cash flow margin of 44%. And so I just want to call out the real incredible hard work that the team has done over the last 3 years. We've been really, really disciplined to try to make this business a cash-generating machine and to be really focused. And I think the team has made some great progress. Next week, we're going to take a leap forward in making Airbnb more reliable with some big updates as part of our 2023 winter release. So I hope you can tune in. It's next Wednesday, November 8, to learn more and I'll see you there.

Operator:

Good afternoon, and thank you for joining Airbnb's earnings conference call for the Second Quarter of 2023. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Airbnb's website following this call. I will now hand the call over to Ellie Mertz, VP of Finance. Please go ahead.

Brian Chesky:

All right. Thank you Ellie. And Good afternoon, everyone. Thanks for joining today. I'm excited to share our results with you. Q2 was another strong quarter for Airbnb. We had over 115 million nights and experiences booked. Revenue of $2.5 billion grew 18% year-over-year. And when you exclude foreign exchange, our revenue increased 19% year-over-year. Net income was $650 million, representing a net income margin of 26%, our highest second quarter ever. And free cash flow for the quarter was $900 million, up 13% year-over-year. In fact, on a trailing 12-month basis, our free cash flow was $3.9 billion. And this represented a trailing 12-month free cash flow margin of 43%. And because of our strong cash flow and balance sheet, we were able to repurchase $2.5 billion of our stock in the last 12 months, which is more than offset the impact of shared dilution. Now, during the quarter, we saw a number of positive business trends. First, guest demand in Airbnb remained strong. Nights and experiences booked increased 11% in Q2 compared to a year ago. Active bookers grew in every region, and we had more first-time bookers compared to a year ago. In fact, we've now had more than 1.5 billion guest arrivals since starting Airbnb. Second, guests are traveling farther. Cross-border nights booked increased 16% in Q2 compared to a year ago. And we are especially encouraged by the continued recovery of Asia Pacific, where inbound international travel increased 80% compared to this time last year. And we also saw cross-border nights booked to North America increase 20% year-over-year. And finally, the third trend we're seeing is that guests are staying longer on Airbnb. Millions of people remain flexible about where they live and work, and we see this reflected in our bookings. In Q2, long-term stays remain 18% of total nights booked. And throughout the quarter, we saw an acceleration in year-over-year growth in bookings for month these days. Now, while the ability to travel and work remotely has been an important part of long-term stay growth, people are also extending their typical weekend stays by an extra night or two. In fact, in the past six quarters, long stays, long weekend stays have been the fastest growing trip type on Airbnb. I think this is just evidence of the incremental flexibility people have post-pandemic. Now, given that we're halfway through 2023, I just want to provide a very quick update on the progress we made across our three strategic priorities. First, we are focused on making hosting mainstream. With supply growth stagnated at the beginning of COVID, we developed a new strategy to recruit more hosts. Since then, we've been focused on raising awareness around hosting, making it easier to get started, and improving our tools for hosts. And our strategy is working. In Q2, supply growth is 19% year-over-year, and this is actually up from 18% in Q1. In fact, in every quarter since we've gone public, we've seen an acceleration in total active listings growth. And we're continuing to see strong supply growth across all regions, all market types, and all price points. In fact, we added a record number of new listings in Q2, and we ended the quarter with more than 7 million total active listings. Second, we're perfecting our core service. We want people to love our service, and that means obsessing over every detail. Millions of people have given us feedback on how to improve Airbnb. We've listened. On May 3rd, we introduced over 50 new features and upgrades as part of our 2023 summer release. Now many of these new features and upgrades were aimed at addressing affordability, starting with new pricing tools for hosts. Hosts told us that our pricing tools are difficult to use. So we redesigned our tools, and we made it easier for hosts to add discounts and promotions. They also told us that they had trouble setting competitive prices. So we added a new feature called similar listings to help them see listings in their area so they know what to charge. Now we received very positive feedback from our hosts, and the changes are already having an impact. Hosts have started lowering their prices, and and with more of them offering weekly and monthly discounts. And as more hosts adopt these tools, we believe we'll be able to drive greater affordability and value for guests. We also rolled out more affordable monthly stays. Guests are staying longer in Airbnb. So we took steps to make longer stays more affordable. We significantly reduced fees for stays longer than three months. We started offering U.S. guests the option to save money by paying with their bank account, and we made it easier for hosts to offer monthly discounts. And as a result, the percentage of our new active listings to offer monthly discount jumped from 22% to 50%. Now we took another step to address affordability with the launch of Airbnb rooms. Airbnb rooms takes us back to our founding ethos of sharing, and it's one of the most affordable ways to travel. Airbnb rooms have an average price of only $67 per night, significantly lower than the average hotel room. Given the increased price sensitivity for many guests, especially the next generation of travelers, this is going to remain an important category for Airbnb. And finally, our third strategic priority is to expand beyond the core. We spent the past few years perfecting our core service. We've rolled out hundreds of new features and upgrades. And today, our core is stronger and more profitable than ever, but we're not stopping there because we have some big ideas for where to take Airbnb next. And we're building the foundational capability for these new product and services that we plan to launch in the years to come. Now, before I turn to Q&A, I want to tell you about a recent campaign that highlights what makes Airbnb unique. Airbnb is known for one of a kind listings. As I'm sure you know, the Barbie movie just came out in theaters. And in celebration of the premiere, we partnered with Warner Brothers and Mattel to transform a home into the Barbie Malibu Dreamhouse. And we launched it as part of our Only on Airbnb campaign. Only on Airbnb caps in the global pop culture moments, inspiring guests with some of the most iconic homes in the world. The Barbie Malibu Dreamhouse has been a sensation, and it is now Airbnb's most popular listing ever. We saw 13,000 press hits and more than 250 million social media impressions since it was announced. And to give you a sense of how much that is, that is twice, more than twice as many press hits as were generated from our IPO. Only on Airbnb campaigns are an effective way to introduce Airbnb and our unique inventory to new guests, and they'll be an important part of our playbook going forward. So those are the results that we have to share for Q2. And with that, Dave and I look forward to answering your question.

Mario Lu:

Great. Thanks for taking question. So the first one is on the third quarter ADR guide. You said it's upward pressure in the quarter. Can you help explain what you mean by the listing type mix shift that's kind of listing up ADRs?

Mario Lu:

Okay, got it. And then in terms of your section on the operational take rate, you guys mentioned that you're offering a lower take rate, especially for stays after the third month. Does that mean, over time, should we expect this number to come down? Or are there kind of offsets that you're going to provide to keep the operational take rate flat? Thanks.

Mario Lu:

Great. Thank you.

Jed Kelly:

Hey, great, great. Thanks for taking my question. Just following up on the listing pipe, are you still adding more of that like vacation rental single unit inventory versus some of like call it the smaller units and urban vacation and urban areas? And then can you just give us an update on how we should think about your marketing into the back half? Thank you.

David Stephenson:

Yes, on the marketing back half, I mean, our marketing expenses as a percentage of revenue we expect to remain relatively flat year-over-year on a total year basis from 2023 over 2022. We did pull forward more marketing to the first half of the year relative to the second half this year. We've been really pleased with the results. So I mean, remember that 90% of our traffic remains direct or unpaid. I think that's an important differentiator versus others. And then when we do things like the Barbie dream house and other big, events like that, we're able to kind of drive more awareness about Airbnb about the uniqueness of our offerings. And this is a powerful strategy for our marketing.

Jed Kelly:

Thank you.

Douglas Anmuth:

Hey, this is [indiscernible].. Thanks for taking the question, but I have two. So first one through this affordability. Are you actually seeing that consumers are coming to your platform seeing that the prices are high and walking away and do you feel like that's an opportunity that you guys aren't capturing? Or is it just the case that people are okay with higher prices on the platform right now? And the second thing on the other side for the full year, where does it see the outside to raise your point?

Douglas Anmuth:

Yes, sorry, on your full year guidance for adjusted EBITDA where did you see upside to give you the confidence to raise it?

David Stephenson:

And then in terms of profitability, I'm just really proud of our continued progress of increasing our overall margins over time. We made some hard choices in the midst of COVID to reduce our fixed costs, get back to the core, and focus on our overall profitability. The major shifts of things like our marketing expenses that we just talked about, where 90% of our traffic remains direct or unpaid, it gives us a lot of leverage for improving our overall profitability. And we're going to continue to do that this year. We continue to make great improvements in our overall variable costs, things like operations and support costs, or community support, infrastructure costs, etc. And then we've just been doing an excellent job of being very judicious with our fixed cost growth. So we've moderated our headcount growth overall. We're growing modestly, and we're investing behind the things that matter most for our guest center hosts. And I think that focus is actually enabling us to deliver even more innovations, as Brian talked about on the call, like, and we've had over 500 improvements to Airbnb in the last several years. And so we're going to continue to manage our fixed costs closely, focusing on the things that matter. So for the back half of the year, we feel confident we're going to be able to exceed our EBITDA margins over the prior year.

Douglas Anmuth:

Okay, thank you.

Stephen Ju:

Okay, thank you. So Brian, the shareholder letter is teasing us a little bit with the commentary about Expand Beyond the Core, but there really isn't much there beyond the statement itself. So in addition to experiences, and please share any updates in terms of what you may be doing there, but what could be some of these new directions you might be thinking about that might be products and services for either the host or the consumer. Thanks.

Stephen Ju:

Thank you.

Bernard McTernan:

Great. Thank you for taking questions. Maybe just start just – if you could just discuss the booking trends throughout the quarter where April is up 10%, going to June plus 15%, anything that you saw that was driving that better performance throughout the quarter. And then on pricing, you mentioned the new pricing tools focused on affordability. Are we seeing the full impact of that in 3Q, or how should we expect that to trend throughout the coming quarters?

Bernard McTernan:

Great. Thanks, Dave.

Unidentified Analyst:

Hi, this is Jacob in for Kevin. Thanks for taking my question. We've been getting a lot of questions from investors on potential initiatives that Airbnb could do moving forward to increase take grade, which could maybe include letting advertisers bid on a platform. I was wondering if you could write any details there. Also, you discussed a bit in this call that you had already rolled out expansion tools in Germany and Brazil. I was wondering if you could comment on any of the results that you're seeing so far. Thanks.

Brian Chesky:

I think you hit it. Well, I'll just reinforce a couple of things. I mean, step one in 80s markets is make sure that we well localized the product. Usually the product can be very consistent globally, but often payment methods are areas where we need to make sure that we're being very localized. And then this full funnel approach is key. Making sure that we have all of the elements, social, NPR, celebrity and brand and search engine marketing. We often start in some of these markets with just the search engine marketing, but that's too narrow and we need the full funnel to see the effect. And I think when we have that full funnel approach, you get the results that we're seeing in Brazil and Germany. That's why we're expanding that on to Asia for both like Japan and South Korea. And then I'll even go back to the potential initiatives for loan because I think it's important to double click on the fact that you have to remember that the majority of our hosts are individual hosts and the things that we need to build are for those individuals So for example, adding advertising, we have to be mindful that we don't just add something like that that can disproportionately benefit professional hosts over individuals and take the balance of the marketplace out of balance. And I think it's really important to do that because that's what's unique and different about Airbnb. We're not built on the backs of professional hosts. We're glad they're there. We're glad they're part of the ecosystem, but it's even more important that we support our individual host community.

Operator:

We'll go next to Brian Nowak at Morgan Stanley.

David Stephenson:

Yes, I think what we're seeing in the near term for Q3 is what we've included here. We're anticipating it to be up year-over-year driven by foreign exchange and the mix shift of larger homes and geographic mix. I think over time, because we're seeing things like Latin America growing nicely, Asia growing nicely and more of cross-border travel, you could see some moderation of our ADRs over time, but again, we're talking moderation, we're talking a percentage point in our here or there. We have better visibility into Q3 right now, which thinks it's going to be up year over year, longer term, it could be flat-ish to maybe moderately down over time, but at the same time, we keep predicting that ADRs are going to decrease and each quarter, it's been amazingly resilient throughout the last few number of quarters, so I don't have much more to say beyond that.

James Lee:

Great, thanks for taking my questions. Two here, one on ADR, you guys talk about, obviously, North America decreased by one percent. I was wondering if you can maybe unpack between life alike and maybe next shift, so we can better understand the dynamic. And also secondly, maybe can you talk about the price elasticity as you're allowing hosts to use the tools to adjust the pricing? What do you see from consumer out there, travelers out there, in terms of reacting to those price changes? Thanks.

James Lee:

Okay, I have one more question here, Dave. A lot of investors are asking about maybe student loan forgiveness, expiration. I was wondering how you think about this issue, anything that's contemplating into your guidance for FY23. Thanks.

James Lee:

Okay, great, thank you.

Ken Gawrelski:

Hi, thank you. I want to come back to the ADR issue. And Brian, if you could talk about-it was very helpful detail on the 4% kind of like for like in North America, but how do I square Dave's comments that you see overall ADRs kind of flattish over the medium term with your comments that you want to continue to drive affordability? I know you've introduced some tools and you're seeing some impact there. And maybe the follow-up to that is, how will you know when the marketplace is in balance and where you've kind of reached equilibrium and the ADRs in the right place? Thank you.

James Lee:

Thank you.

Tom Champion:

Hi, good afternoon. Looks like you've built some tools to stimulate or offer long-term stays. And I'm just curious what you think that will ultimately do to the rate, which is kind of hovered around the 18% rate for room nights to the last couple quarters now. Where do you see that going over time? And then Dave, I guess a question for you. Another very strong quarter for EBITDA margins. What do you see the long-term margin potential of the business over time? Just curious if you've updated that. Thank you.

David Stephenson:

Yes, thanks for the question, EBITDA margins I am really proud of our progress towards it. We've made some substantial progress based on things like the change in our marketing approach, improvements in variable costs or fixed cost leverage. Also remember that the higher average daily rates have helped our overall margins and kind of accelerated overall profitability. That said, we are in growth mode. I'm really not focused on optimizing margins. I'm proud of the fact that we can grow well and drive great profitable growth, but we are focused on growth. I think the extent that we'll expand our margins over time, I think the biggest opportunity to be with some of the services that Brian mentioned earlier in the call, as we add guests to our host services, I think that will increase the lovers of revenue that we can gain and much of that revenue will flow through to kind of higher overall profitability. But all that said, I don't have a new long-term target. I'm just proud of the fact that we've been able to deliver the profitability we have as quickly as we have.

Brian Chesky:

Thank you.

Mark Mahaney:

Okay, I wanted to ask Dave, I wanted to ask a financial question on the impact of AI and Gen AI. And I want to ask it this way, which is, as you think about the P&L impact of these investments over time and applications, do you think it's more likely to lead to improved monetization or improved cost efficiencies? And I'm sure you're going to answer it's both, but if you would lean more on one way or the other, which one would it be? Thanks a lot.

Brian Chesky:

Yes, I'll just share a few things. I mean, I think, obviously as Dave said, probably efficiency in the short term, growth in the long term. Before I talk about the long term, let me just double click on one part of the near term that Dave referred to, which is customer service. So customer service, the strength of Airbnb is that we're one of a kind. We have seven million active listings, more than seven million listings, and everyone is unique, and that is really special. But the problem with Airbnb is it's one of a kind, and sometimes you don't know what you're going to get. And so I think that if we can continue to increase reliability, and then if there's something that goes unexpected, if customer service can quickly fix or mediate the issue, then I think there will be a tipping point where many people that don't consider Airbnb and they only stand hotels would consider Airbnb. And to give you a little more color about this customer service before I go to the future, there are so many more types of issues that could arise staying in Airbnb than a hotel. First of all, when you call a hotel, they're usually one property and they're aware of every room. We're nearly every country in the world. Often guest host will call us, and they will even potentially speak a different language than the person on the other side, the host, the guest and host. There are nearly 70 different policies that you could be adjudicating. Many of these are 100 pages long. So imagine a customer service agent trying to quickly deal with an issue with somebody from two people from two different countries in a neighborhood that the agent may never even have heard of. What AI can do, and we're using a pilot to GPT-4, is AI can read all their policies. No human can ever quickly read all those policies. It can read the case history of both guests and hosts. It could summarize the case issue, and it can even recommend what the ruling should be based on our policies, and it can then write a macro that the customer service agent can basically adopt and amend. If we get all this right, it's going to do things. And in your term, it's going to actually make customer service a lot more effective, because agents will actually be able to handle a lot more tickets than many tickets. You'll never even have to talk to an agent, but also the service to be more reliable, which will unlock more growth. Now, this of course leads to the bigger question. What can we do with AI? And I just wanted to offer a minute or two of thoughts, and I've shared this last earnings, but it's worth repeating. If you were to go to ChatGPT right now, and you ask it a question, and I were to go to chat GPT and ask it a question, we're going to get mostly the same answer. And the reason why is it doesn't know who you are, and it doesn't know who I am, so it does really go with like a mutable truth, like how far's the Earth, the Moon, or something like that. There's no conditional answers to that. But it turns out in life, there's a whole bunch of questions. And travel is one of these areas where the answer isn't right for everyone. Where should I travel? Where should I stay? Who should I go with? What should I bring? Everyone of these questions depends on who you are. And so we're not going to be building like large research labs to develop these large language models. Those are like infrastructure projects, building bridges, but we're going to build the applications on top of the bridges, like the car. And I think Airbnb is best in class at designing interfaces. I think you've seen that over the last few years. And we can design, I think, a breakthrough interface for AI. I do not think that the AI interface is Chat. Chat, I do not think is the right interface, because you want to interface that's multimodal. It's text, it's image, and it's video. And you can, it's much faster than typing to be able to see what you want. So we think there's a whole new interface. And also, I think it's really important that we provide a lot of personalization, that we learn more about you, that you're not just a unanimous customer. And that's partly why we're investing more and more on account profiles, personalization, really understanding the guests. We want to know more about every guest in Airbnb than any travel company knows about their customer in the world. And if we do that, we can provide much more personalized service and that our app can almost be like an AI concierge that can match you to local experiences, local homes, local places all over the world. And I think the last thing I'll just say about AI is I think the companies that will best succeed in AI, well, think of it this way. Which company's best adopted a mobile? Which company's best adopted the internet? It was the companies that were most innovative, the most product-led. And I think we are very much a product-led, design-led, technology-led company. And we always want to be on the frontier of new tech. So we're working on that. And I think you'll see some exciting things in the years to come.

Operator:

And that does conclude the question and answer session. At this time, I'd like to turn the call back over to Brian Chesky for closing remarks.

Operator:

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator:

Good afternoon, and thank you for joining Airbnb's earnings conference call for the First Quarter of 2023. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Airbnb's website following this call. I will now hand the call over to Ellie Mertz, VP of Finance. Please go ahead.

Brian Chesky:

All right. All right. Good afternoon, everyone. Thanks for joining. I'm excited to share our Q1 results with you now. We had a strong start to 2023. We had over 120 million Nights and Experiences Booked in Q1. This was a record high [Technical Difficulty] change. Our revenue increased 24% year-over-year. Net income was $117 million, making this our most profitable Q1 on a GAAP basis. And free cash flow for the quarter was $1.6 billion. In fact, on a trailing 12-month basis, our free cash flow was $3.8 billion. This represented a trailing 12-month free cash flow margin of 44%. Because of our strong balance sheet, we were able to repurchase $2 billion of our stock in the last 9 months. And today, we're pleased to announce that our Board just approved a new repurchase authorization for up to $2.5 billion of our Class A common stock. Now during the quarter, we saw a number of really positive business trends. First, more guests are traveling on Airbnb than ever before. Knights and Experiences Booked increased 19% in Q1 compared to a year ago, and we've seen our highest number of active bookers ever despite continued macroeconomic uncertainties. During the quarter, we also saw guests booking trips further in advance, supporting a strong backlog for Q2. Second, more guests are traveling overseas and returning to cities. Cross-border gross nights booked increased 36% in Q1 compared to last year. Now we were especially encouraged by the continued recovery of Asia Pacific as nights booked in Q1 increased more than 40% year-over-year. And we saw international travel from other regions to Asia Pacific increased 160% during the quarter compared to this time last year. Additionally, cross-border nights booked to North America increased once again, with 34% of year-over-year growth in Q1 relative to 31% last quarter. And we've also seen high-density urban nights booked increased 20% year-over-year. Third, guests are continuing to use Airbnb for longer stays. In Q1, long-term stays were 18% of total gross nights booked. And over the past 3 years, we've seen new use cases emerge as guests across all regions and age groups use Airbnb for long-term stays. And finally, supply growth continued to accelerate. In Q1, we grew supply 18% year-over-year, and this is up from 16% in Q4. We saw double-digit supply growth around the world with the fastest growth in North America and Latin America. Urban and nonurban supply growth, in fact, both grew 18%. Now looking ahead, we remain focused on our 3 strategic priorities. First, we're making hosting mainstream. We want hosting to be as popular as traveling on Airbnb. And to do this, we're raising awareness around hosting, making it easier to get started and providing even better tools for our hosts. And our approach is working. In fact, in every quarter since we went public, we have seen acceleration in the year-over-year growth of our total active listings. Second, we're perfecting our core service. We want people to love our service, and that means obsessing over every single detail. Last week, we introduced over 50 new features and upgrades as part of our 2023 Summer Release. Everything we launched was based on direct feedback from our guests and hosts. This included pricing tools, transparent checkout instructions, faster customer service and more. And we also responded to input on rising prices, with the rollout of Airbnb Rooms, an all-new take on the original Airbnb. Now I'm going to share a little bit more about what will be launched in a moment. And finally, we're expanding beyond our core. We have some big ideas for where to take Airbnb next. We're building the foundation for new products and services that we plan to launch in 2024 and beyond. At the same time, Airbnb is still underpenetrated in many markets around the world. So we're increasing our focus on these less mature markets, and we are already seeing positive results. So let me just give you 2 examples. In Germany and Brazil, we rolled out our expansion playbook for accelerated growth. And as a result, we are now 2 -- they are now 2 of our fastest-growing markets. And this playbook has, in fact, worked so well. So we are now expanding it to other markets around the world. Now before we go to questions, I want to talk a little bit about our 2023 Summer Release. Last week, we introduced the most extensive set of improvements ever to Airbnb, and it was all based on feedback from our community. We took a design-driven approach to perfecting our core service. We created a blueprint of the entire experience

Eric Sheridan:

I want to come back to the Summer Release from a couple of days ago and come back to the concept of room. Can you help us better understand what you think that will do in terms of generating supply growth and coupled with it generating demand and new traveler growth to the platform as you look out over the next 12, 18 months?

Operator:

Next, we'll move to Justin Patterson at KeyBanc.

Brian Chesky:

Great. Well, why don't I start, Justin, with AI. This is certainly the biggest revolution and test since I came to Silicon Valley. It's certainly as big of a platform shift as the Internet, and many people think it might be even bigger. And I'll give you kind of a bit of an overview of how we think about AI. So all of this is going to be built on the base model. The base models, the large language models, think of those as GPT-4. Google has a couple of base models, Microsoft reaches Entropic. These are like major infrastructure investments. Some of these models might cost tens of billions of dollars towards the compute power. And so think of that as essentially like building a highway. It's a major infrastructure project. And we're not going to do that. We're not an infrastructure company. But we're going to build the cars on the highway. In other words, we're going to design the interface and the tuning of the model on top of AI, on top of the base model. So on top of the base model is the tuning of the model. And the tuning of the model is going to be based on the customer data you have. And I'll just paint a picture for you. If you were to ask a question to ChatGPT, and if I were to ask a question to ChatGPT, we're both going to get pretty much the same answer. And the reason both of us are going to get pretty close the same answer is because ChatGPT doesn't know that it's between you and I, doesn't know anything about us. Now this is totally fine for many questions, like how far is it from this destination to that destination. But it turns out that a lot of questions in travel aren't really search questions. They're matching questions. Another is, they're questions that the answer depends on who you are and what your preferences are. So for example, I think that going forward, Airbnb is going to be pretty different. Instead of asking you questions like where are you going and when are you going, I want us to build a robust profile about you, learn more about you and ask you 2 bigger and more fundamental questions

Operator:

We'll go next to Mark Mahaney of Evercore ISI.

Brian Chesky:

Yes, sure. Dave, why don't you take the first one?

Brian Chesky:

Yes. And Mark, I'll just share a little bit about Brazil and Germany. So Airbnb is one of the most international companies in the world. We're in 220 countries and regions. And many years ago, we developed a playbook to expand internationally outside the United States. And that playbook included PR, included having some people on the ground, although generally, in many these markets only need that. It included a brand marketing campaign and made sure that our product was adequately localized. And it's just a really full funnel approach. And now we've added social media and influencers as well. So recently, over the course of the pandemic, we were not as focused on international expansion. And that's because we're mainly focused on recovery and some of the new travel segments like longer-term stay. Over the last 3 years, obviously, as you know, we've gotten really, really focused, back to basics and our company is significantly more profitable. Now we've done over $3.8 billion in trailing 12-month free cash flow. So we feel like now is a really good time to focus on international expansion. So we started with Germany and Brazil. And again, it was full funnel. It involved a lot of PRs. It involve brand marketing, bringing our marketing ad campaigns to pricing in the United States to these markets, localizing our product and working with local influencers. So it's a pretty full funnel approach. The results have been incredibly positive. These are now 2 of our fastest-growing markets. So we're now looking at bringing this playbook to other markets around the world. And I'll give you a couple of examples. Number one is Asia Pacific. We think there's a huge opportunity in Asia. We're massively underpenetrated. This is going to be probably the fastest-growing market internationally over the next 5 years. And the problem with Asia historically over the last few years is Asia market, as you know, is a very much cross-border market. And with the borders being historically kind of locked down and there hasn't been as much travel, the recovery in Asia has been delayed. Now people are starting to travel, and Asia disproportionately has a lot of young travelers. And Airbnb, as you know, is very popular among the young travelers. So we think Japan, Korea, China, India and Southeast Asia are going to be huge opportunities for growth. Next is Europe. We're very big in France. We're very big in the U.K. We're now seeing great growth in Germany. But there's a lot of markets in Europe. We haven't ever really run robust brand marketing campaigns. Now we're getting more aggressive in Italy. We're getting more aggressive in Spain, and we're now looking at other markets in Northern Europe. And I think there's actually a lot of greenfield in Europe because we've really only focused on a few of the really big markets. And when we see we focus the big markets like France and U.K., we are now really strong. And I think we can have similar penetration in other countries in Europe. And then finally is Latin America. We're seeing a lot of growth in Brazil, and we're now going to bring it to some other really large markets, like Colombia and some other markets within Latin America. So I think international is going to be a pretty big boom to growth over the next 2, 3 years. The one thing I've learned about Airbnb is no matter how different every country is, the playbook doesn't have to vary that much. It works quite well in every market. And especially, it works with Airbnb because it's very much a cross-border network effect business.

Operator:

We'll move next to Richard Clarke at Sanford Bernstein.

Brian Chesky:

Yes. Richard, why don't I start at a high level? I think our long-term growth is going to only be as strong as our supply. If we were to back out, what happened in 2020, 2021, as that demand grew faster than supply. And initially, this was a great thing. But the problem is when demand grows faster than supply and there's supply constraints, prices generally go up. And as prices have risen, while that's been good for the bottom line, affordability in this economy is a major issue. And so one of the most important things we can do to make Airbnb affordable is to make sure we have enough supply in the platform. And so a year ago, we identified supply growth as a major strategic initiative that we really needed to accelerate, and we created an initiative called Mainstreaming Hosting. The idea is we wanted hosting to be as mainstream as traveling. And we did a number of things. We said, in order to mainstream hosting, we need to make it safe, easy and cool. So we launched AirCover, which is top to bottom protection. No one else offers it. They're going to be set up, and we did some marketing campaigns for the first time in many years. We've since seen, as you know, 900,000 incremental listings. It's now accelerating every single quarter since the IPO. And I think what's going to happen is all the supply coming out of the market will keep prices from going up. My hope is that while the hotel CEOs have said, they expect demand to drive prices up this summer, we want to actually have prices moderate. We think that's going to bring in a whole new generation of travelers to Airbnb. So ultimately, I think that like -- that's a very, very important consideration of the marketplace. The more affordable we are -- just like Amazon, the more affordable we are with a wider selection, the more people will come to Airbnb. So that's the high level. Now with regard to total price, this is primarily a U.S. issue. But in the U.S., as you know, there was a bit of an issue where some hosts had higher cleaning fees. And we heard a lot from guests. And I think what the total price display is going to do, it's going to push demand to listings that are -- have an overall better value of a total price. And when people turn on the price toggle, we see that people are booking listings with lower cleaning fees or no cleaning fees. And I think this is going to have a really good practice in the marketplace of driving the demand to the best value listings, rewarding those hosts and making sure every single host remains competitive. So it's just beginning. We set a pilot in December. It's now available to everyone, so we'll have to see how this plays out in the coming months. But what my expectation is based on our release last week, we launched a lot of features around affordability. We have many more -- much more affordable monthly stay products. Hosts now have monthly stay discounts, weekly stay discounts. We allow hosts to set more competitive prices. We're going to continue to add supply. And hopefully, this is going to continue to address the number one request of travelers, which is affordable offer since.

Operator:

We'll take our next question from Brian Nowak at Morgan Stanley.

Brian Chesky:

David, do you want to take the second, and I'll get on with the first?

Brian Chesky:

And I can just take the first question, which is what we're seeing, Brian, is that people are most price sensitive, at least currently in North America, especially United States. And in the United States, the lowest price listings have the highest occupancy. So yes, people do want low price listings. And we expect that as Airbnb rates continue to normalize, and hopefully, our rates do not increase as fast to hotels over the next couple of years that we're going to see continued increase in occupancy for more listings in Airbnb and also is partly why we're so bullish about the prospect for Airbnb Rooms, not just to bring people to Airbnb that want affordable options, but really new travelers that have never really traveled very much before, especially Gen Z.

Ronald Josey:

Brian, you talked about expanding the core. And I wanted to ask a little bit more about new ideas for products or the vision for the Airbnb economy overall. I think we've mentioned in the past the marketplace for local host services and other sponsored listings and other ideas. So any insights on sort of how you think about expanding the core and the vision for the Airbnb economy? And then just a quick follow-up, too, on just the experiences rebuild, that recent calls on experience, just talk to us a little bit more about how you feel that product is progressing?

Operator:

We'll go next to Mario Lu at Barclays.

Brian Chesky:

Dave?

Mario Lu:

Got it. And then the second question is on competition. One of your competitors is launching a loyalty program in July in the U.S. Just curious if you think that is a potential threat to the business since you don't have one? And any data points you can share with regards to what percentage of things are exclusive to your platform?

Operator:

We'll take our next question from Nick Jones of JMP Securities.

Brian Chesky:

Nick, I can start. So I mean, I think part of our secret sauce is our ability to really try to elegantly balance supply and demand. One of the great things we've seen is the marketplace has a natural equilibrium that it finds in itself. For example, the fastest-growing markets of supply are also turned out to be the fastest-growing market for demand. So if demand creates supply, what ends up happening is a lot of these individual hosts get booked. They start making a bunch of money, obviously. The vast majority of them get booked within days of listing. And what ends up happening is they tend to open up more nights. They tell their friends about it and then supply increases. But we've also found a number of tactics. In fact, performance marketing is a very important way that we balance supply and demand. Other companies tend to use it as an arbitrage business to buy a lot of customers. We have never thought of it that way. We think of supply performance marketing really as a laser, to laser in on balancing supply and demand in markets all over the world. And frankly, the more supply we add, the more we think we're going to have really great value listings that will ultimately attract more demand. So I think we're able to balance this out throughout the coming year.

Jed Kelly:

Just going back to the comment in the Shareholder Letter of your current backlog of nights being approximately 25% stronger than it was a year ago, can you just reconcile that with the 2Q guide? And how should we expect normal seasonality trends going forward? And then my second question, Brian, is you've done a great job with apartments and rooms growing supply in the U.S. Can you take that apartments' initiative and implement it in Europe and other regions of the world?

Brian Chesky:

And Jed, just to clarify question. When you say apartments, are you referring to the Airbnb-friendly apartment?

Brian Chesky:

With landlords and they'll take offers?

Brian Chesky:

Yes, Yes. 100%, yes. We believe that this can be expanded all over the world. We wanted to use United States as a proof of concept. Obviously, that was we thought the first place to start. We started with about 175 buildings. We now have, I think, over 250 buildings. We have Greystar and some of the biggest real estate developers in America on the platform. And that's been our proof of concept. But assuming this works, and all indications are it is going to work. If response has actually exceeded our expectation, at least from landlords, then yes, we'd love to bring this to Europe, Latin America and Asia.

Justin Post:

Great. A couple of questions. I guess the first thing about competition. As you move into Europe, you might see a big competitor in booking. Can you talk about your model where you charge both the host and the guest versus there's more heavily weighted to the host? Do you think that works well in Europe? And how do you think about the differences there? And then maybe for Dave, on the marketing spend, it definitely seems like the timing is different. How do you think about marketing ROIs this year versus prior years? How should we think about that?

David Stephenson:

Sure. No, the marketing ROIs, I mean, again, I'm very pleased with our overall marketing strategy. I'm happy that our 90% of our traffic remains direct-run paid and that does great returns. And the brand marketing returns on -- that we've seen have been quite strong, which is why we're expanding into some of the markets. Also, the return on our search engine marketing has been quite good, and we're maintaining high ROIs there and making sure that where we have opportunities to drive incremental profit, we do so. So I feel really good about the investment we're making. I like the improved timing that we have here in 2023. And I like the overall approach to this full funnel marketing that Brian is talking about. We add amplify our brand and search engine marketing with things like social and PR, and we have that full funnel approach that works really well and that's kind of success we're seeing in Brazil and in Germany.

Operator:

[Operator Instructions]. We'll go next to Stephen Ju at Credit Suisse.

Brian Chesky:

Yes. So I'll talk. One of the things -- I mean, what you'll notice is a lot of our updates last week were based on affordability. So we announced a partnership with Klarna, which is pay over time. we can pay in as many as 4 installments. I also want to add, we also announced a partnership with Stripe, where you can pay by bank account for monthly stay. This is really important because it means you don't have to pay for credit card to pay basically what is essentially rent and then also would increase conversion by lowering costs. So we're really focused. And a lot of what we're focused on is starting these payment services in the United States, kind of similar to Airbnb-friendly apartment. And assuming these partnerships work, no doubt we're going to be spanning these to markets all over the world. And you're correct, a lot of countries, people pay in installments more than even in the United States. So yes, Brazil end markets, emerging markets over the world, I think this will absolutely be a very compelling offering. We just like to get the product right in our more like established markets, like the United States before expanding it globally. But all indications are this is going to be very successful. Now as far as expanding our audience, yes. I mean, ultimately, the biggest market opportunity for any company is always the next generation. I mean the great thing about young people is more of them every year. And if you can continue to be the most relevant brand for a young audience, then you're going to continue to be able to ride that growth. And that's going to definitely be a boom for first-time bookers. And the great thing about young people is 15 years ago, I was 26, and my friends and I didn't have a lot of money. Now many of us have families and we're much older, we have more money. And so what we want to do is capture the next generation of travelers, and then they'll grow with us. And I think that Airbnb Rooms is a Gary entry-level product. It's a great way to introduce people to Airbnb. I noticed, for example, when I used to talk [indiscernible], he said that like diapers was a very important entry product to Amazon for families, right? You buy diapers and then I will see you need other things. This is maybe an extreme example, but I think Airbnb Rooms is a great way for new travelers to come to Airbnb. And if you think about it, between Airbnb Rooms allowing the pricing tool for hosts that price more affordably, total price, which should see the cleaning fees down and other discount products, I think we're going to have really one of the most affordable products in travel, bar none.

John Colantuoni:

Active listings has expanded more this quarter than the recent quarters. When you look at the profile of these new active listings, overall, how do these listings compare to your existing portfolio? What portion of the hosts are individuals, urban versus suburban versus vacation destinations, et cetera? Then on sales and marketing with front-end loaded spending on brand investments, can you just sort of walk through the shape of marketing throughout the year?

David Stephenson:

Sure. I think we talked about the shape of marketing during the year that we are bringing in more front-end loading on our brand marketing spend, especially here into Q1 and Q2. So it's several hundred basis points higher in Q2 than it was in Q2 last year. And then for the full year, total marketing costs will be roughly the same as they were in the prior year. So I don't have much more to say on kind of the shape or marketing beyond that. In terms of active listings, I think this is what's been really continued strength in our business, which is that we are focused on individual hosts. And individual host were 90% of our hosts, that continues to be the case. The new host that we're bringing on because we cater our tools to the needs of those individual hosts, so that's making sure that it's easy to list. And we give them AirCover for hosts. They know that their home is well protected. We give them the great payment capabilities, the customer support that they require. All those things make it easier for individuals. And what's been great to see is that our mix of individual for -- and professional host has remained very stable through that. The other thing that's been interesting about just our listings growth overall is it tends to grow where we have the biggest demand. And so the areas -- as urban come back, our urban growth has been kept in line with that kind of growth. And so as we keep expanding and increasing our business around the world, the listings come right along with it.

Douglas Anmuth:

I just want to ask about long-term base if it kind of moves down versus recent periods. I know you talked about some of the changes in payments and fees coming up. Are long-term stays slowing more with normalization in the economy or really just more of a mix shift issue towards shorter stays?

Operator:

We'll move next to Lee Horowitz at Deutsche Bank.

Brian Chesky:

All right. Yes. Lee, I'll start with the first one, competitive environment. I think it's important to note that Airbnb is more than double the size. And most of the travel industry is only a little bit larger than they were before the pandemic. So there's been a major mix shift share towards Airbnb. I think we're starting to see some of the old ways of traveling recover, specifically urban and cross-border. But ultimately, we're really focused on innovating. We're focused on playing our own game, and I think that we're going to continue to focus on a few areas. We're going to continue the Mainstream Hosting. And we think we're going to be adding more supply of homes than any other company. Next, we're going to be focused on perfecting our core service. I think there's potentially down the road to tipping point, where a whole new cohort of people could be comfortable using Airbnb. The biggest obstacle to Airbnb historically has been reliability and consistency. As I said, the biggest strength we have is we're one of a kind. The biggest weakness we have is it's just hard to be as consistent as a hotel. But again, with AI, being able to supplement and augment customer service and with many of our other initiatives to perfect the core service, I think we can introduce a whole new category of travelers to Airbnb. And this doesn't even include many of the opportunities we have with younger travelers, with new markets and new products and services that are only on Airbnb. I also just generally would just say, one of the big guiding principles I have is to focus on the things only Airbnb can do. And if we focus on the things that only Airbnb can do, then in a sense, you're going to come to Airbnb and we're going to have a lot of demand, a lot of exclusive traffic. And Airbnb Rooms is just one of many examples of something that only Airbnb offers. And so we're going to continue to be competitive, but we're also going to focus on things that only we offer. Dave?

Operator:

And that does conclude today's question-and-answer session. At this time, I would like to turn the conference back over to Brian Chesky for closing remarks.

Operator:

And that does conclude today's conference. Again, thank you for your participation. You may now disconnect.

Operator:

Good afternoon, and thank you for joining Airbnb's earnings conference call. for the fourth quarter of 2022. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Airbnb's website following this call. I will now hand the call over to Ellie Mertz, VP of Finance. Please go ahead.

Brian Chesky:

All right. Well, thank you very much, Elie, and good afternoon, everyone. Thanks for joining. Before I share our results, I want to tell a quick personal story. As you may have seen, I've started hosting again. Last November, I listed my guest room on Airbnb. My listing is called Beyond the Airbed. And the run guests is a histologically themed around the early years of Airbnb. There's memorabilia in the walls. From the receipt for the original airbed to old photos and me hacking boxes of Obama Os and Cat McCain breakfast cereal. When guests arrive, I have welcome basket waiting for them. And the first night we make dinner together, followed by desert. We bake [indiscernible] Chip, chocolate chip cookies from my cherished family recipe that I got off Google. The next day, we tour the airbnb office with my golden retriever, Seltenova, and I tell the story of building Airbnb. Now why am I doing this? Well, because I love hosting. Joe and I were the first host on Airbnb 15 years ago. And having guests staying at your home with you is the original idea behind Airbnb. It's been an amazing way to connect with people. But I also believe that companies that makes the best products make products for themselves. And Airbnb will only be as successful as our host. And the best way to understand our host is to be one. Since I've resumed hosting, I've got new first-hand insights that have informed some of the new products we'll be releasing, including some exciting updates this May as part of our 2023 summer release. Now before we get into our quarterly results, I want to recap the full year of 2022. While we're 3 years out from the start of pandemic, we are still living with this impact. We've also seen high inflation, recessionary fears and the war in Ukraine, all of which we're still dealing with in 2023. And yet, through all this, people continue to travel, and 2022 was a record year for Airbnb. Revenue of $8.4 billion grew 40% year-over-year. And when you exclude foreign exchange, our revenue increased by 46% year-over-year. Net income was $1.9 billion, which marks 2022 as our first profitable year -- full year on a GAAP basis. And finally, free cash flow was $3.4 billion. And this $3.4 billion of free cash flow represented a free cash flow margin of over 40%. And because of our strong balance sheet, we are able to begin buying back stock last year, and we repurchased $1.5 billion in shares in just the past 5 months. Now during the height of the pandemic, we made some very difficult choices to reduce our spending making us a leaner and more focused company, and we've kept this discipline ever since. In over each of the past 2 years, we've only modestly increased our headcount. In fact, compared to 2019, our headcount is actually down 5%, while our revenue is up 75%. In every single quarter in 2022 outperformed past comparable periods. In Q4, net income was $319 million. Now this is $264 million higher than a year ago. Adjusted EBITDA was $506 million, which is 52% higher than Q4 of 2021. And we generated $455 million of free cash flow, and this is 20% higher than Q4 2021. During the quarter, we saw a number of positive business trends. First, guest demand at Airbnb remains strong. Nights and experiences booked increased 20% in Q4. We had our highest number of active bookers ever in Q4, demonstrating guest excitement of travel on Airbnb despite evolving economic uncertainties. During the quarter, we also continued to see guest booking trips further advance supporting a strong backlog for Q1. Second, guests are increasingly returning to cities and crossing border. And this is the bread-and-butter before the pandemic. Now both segments continue to accelerate while non-urban and domestic travel remains strong. Cross-border growth nights booked increased 49% compared to last year. High density urban nights grew 22%. And globally, we saw cross-border travel to all regions increased despite continued foreign currency volatility. Third, the guests continue to book longer stays on Airbnb. During Q4, long-term stays remained stable from a year ago at 21% of total gross nights booked in Airbnb. And finally, we saw tremendous growth in our supply on Airbnb. We ended 2022 with 6.6 million active listings. Now excluding all the Mainland China listings we removed in July, we grew supply by 900,000 listings, or 16% compared to a year ago, representing an acceleration in growth in listings relative to Q3. 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. Over the past 2 years, we've made it more attractive and easier to become a host. Just this past November, we introduced Airbnb set up where prospective host can connect with Super Host for free one-to-one guidance all the way through their first reservation. The number of new active hosts recruited with the help of our super House increased by more than 20% compared to prelaunch. But we are not stopping there. In 2023, we're focused on 3 strategic priorities. First, we want to make posting mainstream. If you're listening to this call, you've likely travel on Airbnb or you know someone who have. We want hosting on Airbnb to be just as popular and to achieve this, we'll continue to raise awareness around hosting, make it easier to get started and provide even better tools for hosts. Second, we are perfecting our core service. We want people who love our service. And that means obsessing over every single detail, and we've listened to our hosting guests and based on their feedback, we're making a large number of upgrades to our service this year, including improving customer service, making it easier to find the right home and delivering greater value and much, much more. And you'll see more of this in the forthcoming in the coming months, especially our release. And finally, third, we're expanding beyond the core. We have some pretty big ideas for where to take Airbnb next. And this year, we're going to build the foundation for future products and services that will provide incremental growth for many years to come. So with that, Dave and I look forward to answering your questions.

Jed Kelly:

Great. Great quarter and great execution. Just 2, if I may. Just one, can you talk about how your urban supply is trending and sort of some of the initiatives you're doing around apartments? And then, Brian, you did mention headcount. In Silicon Valley, there's obviously a lot of layoffs. You're one of the companies that are growing, having expanding margins. So can you talk about like your ability to attract top tech talent to execute on some of the initiatives you just talked about?

David Stephenson:

You covered really well because this has been a historic strength of ours has been kind of the urban part of the business, it's taken longer for that to kind of recover. It's now well above 2019 rates, and it's actually part of the areas that accelerated our growth in Q4. So we're very happy with where we're at with Urban. And as Brian said, the early days of Airbnb friendly apartments has been very well adopted, and we're excited about the potential in that part of the business.

David Stephenson:

Add to a couple of things. One is our headcount is actually still 5% below where it was in 2019. We have a revenue is 75% higher. So we're nearly twice as big as we were previously with fewer people. And I'd say the other is our Live and Work Anywhere approach, our approach to being very intentional about how we gather in person. We believe that actually working together in person is very important, just need to do it in a very coordinated way. So actually having people being back in the office on random days of the week is not very effective, but being -- doing it in a very controlled and planful way is respectful of employees' time and is more efficient for the company, and our employees love it. And I think that's also enabling us to attract great talent.

Richard Clarke:

Two, if I may. The first one, just around, I guess, some of the changes that might come over the coming years with regard to the distribution landscape. One of your rivals is going to wrap their vacation rental business into a loyalty program, lots of talk around conversational AI and what that can do to the distribution landscape. So just any comments to whether Airbnb needs to do anything further on the distribution platform? And then second one, a little bit more preset, but obviously, it looks like Q4 was a very good quarter for take rate. Have you done anything in particular there on take rate to achieve that result?

David Stephenson:

Yes. With take rate, there's nothing in particular that we've done with take rate there. Absolutely, on a time-adjusted basis, the amount that we take from each night's day has been very stable. And so any variation in take rate of revenue over gross booking value is just variation quarter-to-quarter. So nothing on take rate.

Richard Clarke:

The competitive landscape, competitive environment with regard to distribution, whether you see any threat or increased threats from loyalty program wrapping around your competitors and maybe the conversational AI that's coming into various other search platforms at the moment.

Operator:

Your next question comes from the line of Ron Josey with Citi.

Brian Chesky:

Yes. Awesome. Well, let me start with investments for 2023. So the good news is that -- though we're investing this year and some new products and services to expand beyond the core, I don't think you're going to see any material changes in the P&L. We kind of think like I started my in my 2 friends. We didn't have very many resources back then. And the great thing about Airbus business is we're essentially a global network. So I think that we can incubate new opportunities, products and services for a relatively low amount of investment. And as far as what you're going to see, I'd say there's going to be innovations on the guest and host side. On the host side, our general principle is that we want to always deliver more value for host number charging. And we have a 3% take rate on the host side, and we've been giving away a lot of products for free, like AirCover. And we launched aircover for host 2 Novembers ago. NPS for claims, reimbursement claims has gone up 70 points, so it's been pretty amazing. And our general view on host are we're going to primarily give away most of our product service and innovation to them. But we do think there's some opportunities for eco services that Host might pay for. On the guest side, we started very modestly. You might have seen that we launched travel insurance, which is now in 8 countries, and that's been really, really successful. But I think there's many more opportunities around the like services. Obviously, Airbnb experiences is something that we're beginning to really ramp up. And I think you're going to see a lot more traction in that product in the coming years. And I think there's going to be just a lot more around creating a step change in new service level and matching people to the right homes and experiences for them. So that's what I would say. Services on the host side, services on the guest side, there's going to be a lot of opportunities to revisit some of the end-to-end travel opportunities that we have, and you'll stay tuned for some cool innovation. Oh, I'm sorry, brand awareness, sorry. Yes, brand awareness. On the brand awareness, again, we generally try to -- as I said the last part, we generally focus on a full funnel approach. 90% of our traffic is now direct. It's sustained that since we went public, it's always been about 90%. We have extremely high efficiency on things like performance marketing. And generally, the way we approach our brand is that Airbnb is a pretty ubiquitous brand. So what we really want to do now is continue to invest in awareness around our different innovations. And there are going to be 2 things. Number one, we're going to be focused on educating people on our new services and offerings. So for example, there will be categories we've been running campaigns around that. And people have viewed 500 million -- people viewed listings, 500 million times for every categories. We're also continuing to raise awareness around hosting. We're going to grow as fast as we have host. Now as far as how much traffic is coming from new returning, I don't know, Dave, do you want to share anything about that on where branded?

Operator:

Your next question comes from the line of Mark Mahaney with Evercore.

Brian Chesky:

Yes. I mean I'll start, Mark. Yes. We've seen that third in Q4 2022, 36% of new available hosts who started out as guest in Airbnb. This is more than prior year. So this has been going up actually like year-over-year. So that number is going up. And it makes sense as Airbnb becomes more ubiquitous, but also it makes sense because a lot of people, they'll connect with a host, and they realize, wow, I can do this too. And the vast majority of our new listings are by individuals, not property managers. So there's this kind of interesting network effect where guest becomes host and then host becomes guest. As far as China, we expect the recovery to be pretty gradual in China. 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. I think they really want an authentic experience when they're traveling around the world. That being said, we are expecting a pretty gradual recovery in China.

Brian Chesky:

And Mark, And just 1 other thing, yes, you are right that the cohorts are trending up. So for example, I think in Q4 2021, 33% of guests became host. In 2020, 28%. In 2019, 23%. So it is picking up.

Brian Nowak:

I have two. Just the first one, and I'll talk about guests and hosts. Could you just sort of help us understand a little bit how fast did your new guests grow in 2022? And how are you thinking about sort of new guest growth in '23 sort of talk about EBITDA margins? Or what's your first cut and how fast guests could grow this year? And then the second one, just any update on metrics or quantifying adoption around unflexible or any of the other tools that you've rolled out to sort of better improve the load balancing between supply and demand.

David Stephenson:

Yes. No, sure. On the new guests, we don't disclose the exact number of the new guest growth. Like I said, I think the thing that I'm really pleased is that we've introduced Airbnb to millions of new guests since COVID and that they're performing similarly, not even stronger than kind of historic guests in terms of their rebooking rates. So I feel really good about the position we have for new guests. A big piece of it is some of the brand marketing that Brian kind of mentioned earlier, is just making sure we have a lot of awareness of Airbnb, but just to also make sure that we're getting strong consideration of Airbnb as a true option for them. And again, in this last several years, we've been able to introduce Airbnb to millions of new people that might not have thought about trying us before. So I think that's been really helpful. And I don't have a lot to say on flexible except that we have a very strong adoption of the feature that -- and we think that it's a great way for us to distribute demand to where we have supplied. And the flexibility features are a key benefit for Airbnb because we have this more difficult problem, as Brian mentioned earlier, of matching and trying to match the right guest to the right host and the flexible gives us the ability to do a better match.

Operator:

Your next question comes from the line of Lee Horowitz with Deutsche Bank.

David Stephenson:

Yes. Thanks on the ADRs. Yes, we were pleasantly -- there's 2 edges of the ADR. ADRs were up 5% year-over-year in Q4, excluding the impact of foreign exchange. Obviously, foreign exchange brings you down to kind of minus 1% when you bring back nights that come, say, from euro or our GBP-denominated nights. And what we forecasted for going forward is modest decline year-over-year in ADRs largely driven by changes in mix, right? People going back to cities, cities are accelerating more cross-border travel mix towards lower ADR regions. It's a double-edged sword, clearly for the financials. It's helpful to have the higher ADR rates because they drive greater revenue, greater flow-through and greater profitability. But obviously, also ADRs are 36% higher than they were in 2019. So it's more expensive for guests to stay on Airbnb and frankly, other places. I think the benefit that we've had is that even while ADRs are higher, we're providing great value. right? The ADRs on Airbnb still can provide a great location, maybe a fully stocked kitchen, a washer and dryer, all the reasons why you might want to stand at Airbnb versus other alternatives. And so as we look forward in the year, we just want to make sure that we continue to provide great value to our guests. And that's why we're building some of the tools that Brian's talked about, which are things like giving tools to host to make sure that they understand the prices that guests are paying and making sure that they are providing -- continue to provide great value to guests. So then the other thing we're doing is, even as ADRs might come down modestly through the year through -- largely through mix, and maybe some through pricing. It's just making sure that we're being really rigorous in our cost structure to kind of support declining ADRs, which is why we anticipate our EBITDA margins for the full year to be roughly the same as 2022 in that the headwinds from lower ADR rates will be offset by our efficiencies that we kind of drive internally.

David Stephenson:

Yes. Very proud of the continued growth in our supply. And we highlighted in the letter because it's super important that we do our best to get a -- have a balanced marketplace, right? If we get too much supply too quickly, then hosts aren't happy because they're not getting enough bookings. We don't get enough supply early enough, then guests are not happy because they don't get the kind of selection they want. And actually, what we highlighted in the letter is that we have grown our supply by 26% since 2019, and yet our nights and experiences booked have grown by 24%. So we've actually had a nice balance in that, and then I'm very proud of the fact that we've had 6.6 million active listings here in the last year and $900,000 more from the beginning of the year, which just shows the strength of Airbnb and why host want to come to where there is demand. And then we'll just make it easier for hosts to become host on Airbnb. So this will be a forever journey for us to keep providing supply where there is demand. And I think we've been doing it incredibly well for the last 10, 12 years, and we'll continue to do that.

Operator:

Your next question comes from the line of John Colantuoni with Jefferies.

Brian Chesky:

John, I'll start. On pricing and discounts, let's just take a step back. Airbnb, we started 15 years ago. And when we started, we started as an affordable alternative to hotels. And I think that affordability and great value is 1 of the key reasons that people use Airbnb, and we have to continue to make sure that we have that value. And as long as people feel like they have the best product at the best value for Airbnb, I think we're going to deliver a huge amount of growth in years to come. And so there's really 3 things that we're doing. The first thing is transparent pricing with all-in pricing display. In Europe, in many countries around the world, we actually do show total price. But in the United States, the convention for travel companies show a low base rate. And then when you get to check out, there's additional fees. But we spent a lot of time listening to our guests and hosts. And we've heard from our guests, it's not -- a lot of them want to be able to see the total price upfront. And we spent a bunch of time in December, we rolled out total pricing includes all fees before taxes -- Since we've rolled it out, the impact on our bookings has been neutral. Now I know there was a lot of -- we did -- there was a lot of speculation around what happened to show up on pricing. But I think that the response has been very positive. And we chose a very specific implementation and implementation we chose as a price toggle where you can turn it on or off. The basic idea is if people to control of how they want to see prices but also the active can the toggle on helps people understand why our prices are changing and why they might be displayed different than competitors. So again, the impact has been neutral on bookings in the short run, but I actually think the impact on booking in the long run is going to be very positive because it's just a better experience, and it gives people more control. The second thing is we are now prioritizing better value listing in search results. So in other words, we're going to take the total price in the total price into account when we're prioritizing bookings. And then the third thing we're going to be doing is we're building new tools, pricing tools for hosts so that they understand the final price that they're showing to guests. One of the things we learned when we talk to hosts, they don't know the final price guests are paying. And if they did, they modulate some of the fees. I think in the short run, it may have some modest impacts on ADR, but in the long run, I think what it's going to do is drive a lot more demand here at Airbnb, I don't know, Dave, do you want to add anything or take the second question.

Operator:

Your next question comes from the line of Mario Lu with Barclays.

David Stephenson:

Yes. I mean the real thing about listings is think about how all listings work. In any given year, we have brand new listings, we have reactivated listings and then we have deactivated listings and some combination of each of those 3. I'd say that the trends of each of those have been kind of up and to the right. In other words, I think we're showing improvement in fewer deactivations and strengthening of our new activations. And so the sum total of each of those is all contributing towards our growth, but I don't have any other more specific breakout to give to you. I mean I think the other -- maybe the only other highlight I would give is it wasn't in just kind of 1 region, like we were seeing broad-based growth of listings around the world and then even by listing type. It was like 1 of the earlier questions about how is the listing growth around urban again, in Urban was 1 of the accelerating areas. So we've seen really nice growth in the urban where that comes back. It just leads back to this marketplace dynamic that we have for Airbnb, which is we both work hard to get listings, proactively on our own and get them more organically where there's demand. and where there's not demand, that's also where you'll see deactivations or fewer listing growth. It tends to be self-healing over time.

David Stephenson:

Yes. We're really pleased with the European lead times coming up. Europeans will tend to book their summer travel here in the beginning of the year. and to see them booking even earlier on Airbnb relative to our historic rates has been really great to see. Just, I think, shows the optimism that they have to kind of travel this summer. And then broad-based, we are just seeing a slightly longer lead time more generally across Airbnb overall. So again, I just think that shows a nice optimism for people feeling confident that they can book for their summer travel season. So I think not much more to say than that.

Justin Post:

Great. I think you give it in the K, but can you give us the mix of Asia in '22? I don't know if you can now -- And then secondly, how do you think about the Asia recovery in China cross-border impacting results over the next 12 months?

Brian Chesky:

And maybe I'll just say that I think the Asia Pacific is a huge growth area for us going forward. And it's been a little bit of a slower recovery. And I think the reason why is Asia is historically more of a cross-border market. a lot of people in Asia is basically travel across countries. They don't have as big of a domestic market in any of these countries for the most part. And that's just been a slower recovery. But I think the one thing we've seen is that just means probably more pent-up demand, and Asia index is even higher on Gen Z travelers, which is a strong suit of Airbnb. So we're really bullish over the next few years on Asia.

Unidentified Analyst:

This is Chris on for Lloyd. Just can you start by helping us think about the range of outcomes for ADRs in the 1Q '23 guide? I guess as we kind of lay out your guidance saying that take rates would be very similar to 1Q '22 levels and gets you to, say, $20.7 billion potentially of gross bookings in 1Q, '23, and you assume maybe a slight detail on room nights. I could get to a situation where ADRs are potentially flat to better. I guess, is you're talking to ADRs being down slightly on a year-over-year basis. I guess, is -- what would need to happen here for ADRs to be flat to better on a year-over-year basis in 1Q?

Unidentified Analyst:

Okay. Got it. And just maybe 1 quick follow-up question on the product side as you guys were talking about really kind of expansion opportunities. How should we be thinking about hotel within that? Or should we be thinking about more of the expansion opportunities being related to the core business and experiences in '23.

Operator:

Your next question comes from the line of Kevin Kopelman with Cowen.

David Stephenson:

Yes. really pleased with our cash position, right? We ended with $9.6 billion of cash on the balance sheet at the end of the year. That is after buying back $1.5 billion of stock. We have $500 million left on the existing repurchase approval, and we anticipate that will be executing early in the year. But clearly, we're also in -- still in growth mode like we are using this balance sheet to make sure that we can invest in growth for the business in the future. Clearly keep enough cash for potential M&A opportunities, which could exist. And then to the extent that we can return stock and cash to shareholders through share repurchases that will be our primary vehicle that you would anticipate this year. We're going to have about $1 billion of stock-based compensation. We'll at least be offsetting that through share repurchases and -- but I don't have anything more to say beyond that at this time, but we'll continue to evaluate what the appropriate amount of cash is to keep and how much we should continue to return to shareholders. But remember, we are still heavily in growth. We want to be able to invest in the long-term growth of this business.

Stephen Ju:

So can you talk about the typical behavior from the new host when they're onboarded? Do they start making only a small number of days available. And as time goes on and they get more comfortable with hosting they maybe make more time slots available throughout the course of the year because it seems like we're really preoccupied with the total host number because honestly, as disclosed, but I'm wondering if the aggregate availability growth has historically been a number that's been much higher than the property host growth?

Operator:

Your next question comes from the line of Doug Anmuth with JPMorgan.

David Stephenson:

Yes. The way we anticipate our EBITDA margins for this year is that one of the headwinds is this anticipated ADR decline that we talked about earlier on the call, and that the ways in which we are going to be able to offset the margin impact of those declines will be through fixed cost discipline. We're going to continue to grow, but we're going to grow modestly. So think of our headcount growth being in the 2%, 3%, 4% range. So we'll keep having very good fixed cost discipline. We've already addressed marketing in a minute because we've already addressed a lot of the marketing reductions, but we're just seeing strong improvements in our variable cost reductions as well, everything from community support costs, cost of payments costs, infrastructure costs. All those areas are just important and ongoing efforts for us to drive profitability. As I mentioned earlier, we're still in heavy growth mode. I am not in profit maximization mode. I have a long list of things that we can invest in to drive further profitability. But I know that I can also afford with our headcount growth profitability improvements that can offset the ADR declines, and that's what we'll be investing in this year. And then we can keep working on the other variable cost improvements over time. And then in terms of marketing, we've had the major step change reduction in our marketing expense. That was actually a strategic change all the way back in 2019. That's proven to be incredibly effective from 2020 all the way through 2022. And what we've seen in 2023 is that marketing costs as a percentage of revenue for the full year will be about the same as what it was in 2022. But what we are doing is shifting some of the timing. We're just getting even earlier in the year to make sure that we're getting our message out to guests around the world. So they're ready to kind of make their bookings for kind of peak summer travel season, which is in the summer. And so I think it's just we're getting more efficient and effective at the timing. And we think bringing forward a little bit more marketing into Q1 as a more effective use of our dollars.

Nicholas Jones:

Can I go back to kind of the Airbnb friendly apartments. What does it look like to get property managers on board with this? And I guess, how much of the apartments that they're managing start to get unlocked? And I guess, what kind of runway do you see in these key markets to add on kind of meaningfully more property managers?

Operator:

Your next question comes from the line of Bernie McTernan with Needham.

David Stephenson:

Yes. On the 2 impacts, I mean, as you said, large forecast that we have for ADR moderation is due to the mix shift. Clearly, we want to make sure that we are giving tools to host to price effectively so that we have great value. We're not -- it will be -- time will tell how much change we're seeing ADR from those overall changes. I do have a fair amount of levers, as I said, over time, that I can pull in order to continue to improve the cost efficiency. And if ADRs come down more, then I may need to pull a few more levers, but I feel confident we can deliver our EBITDA margin neutral in the face of whatever ADR headwinds that we see this year. So I think that's the main end piece. And then your second question again?

David Stephenson:

Maybe we can follow up off-line on that. I mean it was a material probably several hundred million dollars, but we would have to give you the -- maybe we work off-line on a specific calculation.

Thomas White:

Any color or metrics you guys can provide on how cohorts of guests that you acquired during the height of the pandemic have been performing over the last several months kind of relative to customers acquired pre-pandemic. I'm just curious whether it looks like there might be any meaningful differences when it comes to, I don't know, frequency, spend levels, repeat rates, anything like that?

Operator:

Your next question comes from the line of Deepak Mathivanan with Wolfe Research.

David Stephenson:

Yes. Deepak, on the supply growth, I think the best measure to look at is you just look at the growth in supply that we had versus 2019 that we grew at 26% and our nights and Experiences book grew 24%, kind of largely in line -- we're not seeing any major shifts in overall kind of utilization rate that give us any concern. We feel like we continue to keep, in aggregate this nice balance of growing supply and growing demand, and we want to keep that relative balance, as I mentioned earlier in the call. If one gets out of whack too much than either the host aren't happy or the guests aren't happy. But I'm very pleased with the way in which we've been able to keep that balanced. And then in terms of long-term stays, I mean, if you actually rewind the tape all the way back to pre-COVID time. Q1 of 2019, our long-term stays were about 13% of nights. By the end of the year, it was maybe 16% at nights. So I think 13% to 16%. Last year, it was kind of 19% to 21% or so, 21%, obviously, in the fourth quarter. So it's been elevated and fairly stable. I think we see in Q1 this year is that we continue to see really strong growth in short-term stays and short-term stays kind of outpacing our growth a little bit in -- versus long-term stays here in the first quarter. So I anticipate it coming down just a little bit here in the first quarter on a mix basis, but it's largely just driven by the short-term acceleration that we're seeing and it's still remaining significantly elevated over 2019 rates.

Brian Chesky:

All right, everyone. Thank you for joining us today. To recap, we had another record year in 2022. Revenue and adjusted EBITDA were both record high and free cash flow was $3.4 billion. I'm really proud of these results. And before I go, I just want to say how proud I am of our team. If you think about what we -- what this team has been through the last 3 years, initially losing 80% of our business, kind of rebuilding the company from the ground up and now just becoming a much more focused, disciplined company. This is a lot of momentum inside the company. And looking forward, we're already seeing some really strong demand in Q1. Consumer confidence to travel remains really high. 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. So with that, thank you all, and we'll talk to you next quarter.

Operator:

Good afternoon and thank you for joining Airbnb’s Earnings Conference Call for the Third Quarter of 2022. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Airbnb’s website following this call. I will now hand the call over to Ellie Mertz, VP of Finance. Please go ahead.

Brian Chesky:

Alright. Well, thank you, Ellie and good afternoon, everyone. Thanks for joining. Q3 was another record quarter despite macroeconomic headwinds. We had nearly 100 million Nights and Experiences Booked, which is up 25% year-over-year. Gross booking value was $15.6 billion. This is up 31% year-over-year. Revenue grew 29% year-over-year to $2.9 billion, our highest ever. And when you exclude foreign exchange, our revenue increased 36% year-over-year. Now, we also had our most profitable quarter ever. Net income was $1.2 billion. And this is up $400 million from a year ago. Now, this represents a 42% net income margin. Adjusted EBITDA was $1.5 billion, also our highest ever and we generated $960 million of free cash flow. In fact, over the last 12 months, we have generated $3.3 billion in free cash flow. What our Q3 results demonstrate is that Airbnb continues to drive growth and profitability at scale. And even with the macroeconomic uncertainties, we believe that we are well positioned for the road ahead. Now why is this? Well, new use cases such as long-term stays and non-urban travel are here to stay. And this is because millions of people now have the flexibility that they didn’t have before the pandemic. At the same time, we have seen recovery in urban and cross-border travel, two of our strongest segments before the pandemic. And just like during the Great Recession in 2008, when everything started, people today are especially interested in earning extra income through hosting. Now during the quarter, we saw a number of positive business trends. First, guest demand on Airbnb remains strong. Globally, we exceeded 90 million guest arrivals during the quarter and this is another record. Now even with macroeconomic headwinds, Nights and Experiences Booked increased 25%. And during the quarter, we also continued to see longer lead times, supporting a stronger backlog for Q4. Second, guests are increasingly returning to cities and crossing borders. Both segments continue to accelerate. Cross-border gross nights booked increased 58% compared to a year ago. High density urban nights booked grew 27%. And now even as these two segments return, demand for domestic and non-urban travel remains strong. Third, guests continue to stay longer on Airbnb. Over the last year, we have seen many companies require their employees to return to the office. And at the same time, long-term stay remains 20% of our total gross nights booked on Airbnb. And finally, four, our host community continues to grow. We believe there are several factors that are driving this growth. The first reason is the demand drives supply. For instance, in Q3, as guests were returning to cities, we saw urban supply accelerate. Second, since Airbnb began in 2008, posts have consistently churned Airbnb to earn extra income. In fact, since 2008, hosts on Airbnb have earned $180 billion in our platform. Third, over last year, we made several product improvements to help onboard and support our hosts, but we are not stopping there. On November 16, we are going to introduce an all-new super easy way for millions of people to turn to Airbnb their homes as part of our winter release. We are also delivering a major upgrade to AirCover that provides even more top or bottom protection for every host. Now with these upgrades and more, we aim to unlock the next generation of hosts and improve the experience for more than 4 million people that are already hosting. So just to recap, we had a record Q3, Nights and Experiences Booked were our highest Q3 ever, revenue and adjusted EBITDA were record high, free cash flow was $950 million. And in the last 12 months, we have generated $3.3 billion in free cash flow. So with that, Dave and I look forward to answer your questions.

Lloyd Walmsley:

Thanks. Two, if I can. First, just the classic kind of macro question, anything you guys are seeing globally, any pockets where you are seeing weaker trends in bookings or ADRs that would be kind of early warning sign that you would flag heading into next year? And then second one you guys have talked a little bit about starting to invest again in Experiences. I guess if we step back, how should we think about the cost growth outlook heading into 2023? And are you – is there anything you are doing in light of just questions around macro to kind of keep a lid on costs heading into next year? Thanks.

Dave Stephenson:

No, I will just double click in a few areas. We are just doing incredibly well despite the macroeconomic environment. We saw continued strength in Q3. The Q3 nights experiences grew 25% year-over-year and our revenue grew 29% year-over-year. And as we stated, it’s actually 36% growth year-over-year, excluding the impact of foreign exchange. And what we are seeing in Q4 is not seeing any overall changes in booking behaviors from our guests. 4 weeks in this quarter, we are seeing really strong promising trends in cross-border, renewed interest in urban stays, stabilizing cancellations and just strong future bookings. And that we included in our guidance here. On our guidance for Q4, we are anticipating revenue growth between 17% and 23%. And that’s 23% to 29%, excluding the impact of foreign exchange. And maybe I will just take a minute to double click here, because one of the things we are seeing is the difference in the behavior that we had last year. If you actually go back to 2019 at historic rates, we are actually seeing stable to increasing demand for bookings here from Q3 into Q4. The decel that we see from Q3 into Q4 is really a hard comp on Q4 last year, where we had really strong demand after Delta and before Omicron. And so this is really kind of a hard year-over-year comp. And if you go back and compare back to 2019, we are seeing stable to increasing demand across the globe. And have actually aimed areas to highlight and you see it in our letter, is that APAC had some of the stronger growth, 65% growth in APAC. And excluding China, APAC is now kind of above 2019 level. So, that’s been kind of the last major region to kind of return to 2019.

Operator:

We will move next to Naved Khan at Truist Securities.

Brian Chesky:

Yes, Naved. Why don’t Dave – you take these, I can round out the answers.

Naved Khan:

Great. Thank you.

Nick Jones:

Great. Thanks for taking the questions. I guess first, I guess when we look at kind of U.S. to international travel, is the strength in U.S. dollar maybe helping drive more interest in going overseas? And then the second question on durability of kind of ADRs, as elevated home prices may be making host less likely to lower the rate at which they are willing to take kind of from here. I mean, are these going to be maybe more durable than we think? Thanks.

Dave Stephenson:

Yes. Again, as I just said, on the U.S. international, we clearly do have a strong U.S. dollar, which enables Americans to travel abroad quite well and we are seeing nice strength there. And again, that part of the business is not so large as to have a material impact on the overall business, because you also have some of the offsets of weaker currencies, not necessarily travel in the U.S. Again, more of the travel is domestic and intra-regional, that’s what’s really going to kind of drive things and more of the foreign exchange issues are not as pronounced within the given region.

Nick Jones:

Great. Thanks, Brian.

Brian Fitzgerald:

Thanks, guys. I think you will have more to say about supply with the upcoming winter release, but just wondering if you could talk about what you see as continuing pain points for host, Brian, maybe you just talk to that a little bit and maybe also structural drivers around supply like local regulations and zoning? Thanks.

Dave Stephenson:

Let me just double click it too on a couple of Brian’s points, because I think they are really important because of these partnerships that we’ve had with local governments, especially on tax collection, we have delivered more than $6 billion in tourism-related taxes to local governments. I mean, this is a material amount of money. And collecting – remitting taxes, we do it in over 30,000 jurisdictions around the globe. And I think in terms of like zoning regulations, we believe that the reasonable regulation actually normalizes hosting. And when you normalize hosting, it can really be a foundation for future growth. So we actually think that you do this in a reasonable way, and it will actually be a tailwind to growth in the future.

Operator:

Next, we will move to Brian Nowak at Morgan Stanley.

Brian Chesky:

Alright. Yes, Dave, do you want to take the first question?

Operator:

We will go next to the...

Brian Nowak:

Great. Thank you, both.

Doug Anmuth:

Thanks for taking the questions. I have two. First, Brian, I know you talked about strong growth in new hosts and a lot of them seeing new income opportunities. But within that, is the macro environment and interest rates, is that putting any pressure on second homes in your view? And then secondly, if you could talk a little bit about the early returns on the spring update categories. Is there anything you can add just around conversion rates or what you might be seeing in incremental bookings? Thanks.

Dave Stephenson:

Just to double quick on the strong – the second home impact question. If you go back and think about the 4 million hosts that we have a very different business than many others. So 90% of those hosts are individual hosts. They are the people that own a first – a primary home or maybe a secondary home and a big strength of our business, we saw this in COVID is that people even during an economic kind of shock period, they don’t get rid of their primary home. They don’t get necessarily getting rid of their secondary home, which is very different than professional hosts that maybe are doing an arbitrage of exact cost of ownership and return on the investment they can get on that specific property versus other alternatives. And so I think that this helps buffer any of those kind of impacts on our businesses, that individual host community.

Operator:

We will go next to Justin Post at Bank of America.

Brian Chesky:

Alright, Dave, I think you can take this one.

Justin Post:

Great, thank you.

Mario Lu:

Thanks for taking the questions. First one is for Brian. You mentioned earlier this one that redesigning pricing and better transparency is a top priority for you. How much of an uplift could this be to conversion potentially? And what changes should we expect to see?

Mario Lu:

Great, thanks, Brian. And just one on the operational take rate. I believe it’s still above 14% and has not changed much over the past few years. So firstly, one, is that correct? And if so, what are your thoughts on adjusting up or down in the future to drive demand?

Operator:

[Operator Instructions] We will go next to Bernie McTernan at Needham & Company.

Brian Chesky:

I mean I could answer the high level and Dave, you can go in. I mean, Bernie, it’s a very great question. One of the things we noticed during the pandemic – one of the lessons of the pandemic is I think Airbnb is the most adaptable business model in all of travel. And the reason why is we’re not just the European business, we’re not just a North American business. We are a truly global business. We’re in 100,000 cities all over the world. We’re not just a vacation rental business. We’re also an urban business, also a cross-border business. We’re not just a family business. We’re also popular with millennials, Gen Z and retiree at nearly every type of price point. So I think that however travel demand changes, we will be able to adapt. And that’s one of the great things about our model. It’s a global network, guests become hosts. Most hosts are regular people that tell their friends about Airbnb, which is why when a market occupancy increases, it tends in itself create more supply. So these are some of the reasons why we feel very, very excited about our ability to continue to adapt given this challenging macroeconomic environment. Dave, I don’t know if you want to add anything to it?

Operator:

We will move next to James Lee at Mizuho.

Brian Chesky:

Yes, James, yes, I think that as we give more tools to host to be able to dynamically price, they can be more competitive. And as they are more competitive, then we will continue to gain more share. So anything that allows greater value allows for more share. We don’t – we’re not – other than changing how pricing will be displayed to make it more transparent, intuitive and to continue to offer better value, we’re not actually looking at a fundamental change to our pricing structure.

Richard Clarke:

Alright. Thanks for taking my question. Just wondering, based on commentary, you’re seeing urban coming back. How normal are we in that mix at the moment? And can you possibly quantify what the ADR headwind might be as urban continues to come back? And then maybe just the same question regionally, you’re more skewed to the North American market than you were pre-COVID. Is that because those use cases are a bigger factor in North America or do you expect further changes in the geographical mix over time as well?

Dave Stephenson:

Sure. In terms of like urban coming back, it just continues to be a higher and higher percentage of our overall mix. It’s not quite back to where it was in 2019, and it may never quite be because we see such great strength in our non-urban but urban is strengthening each quarter. And so that’s the trend that we’re seeing on the urban side. And I think it’s actually similar on the cross-border international side. We’re not back to where we were in kind of 2019 level. Gross nights were like 48% were cross-border back in 2019. And what we’ve just seen is a cross-border continues to be a greater, greater percentage every quarter, but we’re not quite back to where we were in 2019.

Mark Mahaney:

Okay, thanks. Let’s see. David, could I ask you just adjust the over-earning question that the free cash flow margins are truly very impressive. Just you really see them you’ve been at 40% plus or roughly for the last three quarters on a trailing 12-month basis. What would cause those margins to go materially higher or lower from here? Or is there a reason to think that they are roughly sustainable? And then can I just ask about Categories? I know somebody asked about this earlier. But Brian, these features can sometimes take quite a long time to kind of get broadly used and the doubt that they can have a major impact. And I think this is one of those that could, how long do you think it’s going to take for Categories to be kind of widely adopted used and really start impacting and helping people better match up that supply – all the supply you have with the demand that’s out there? Thanks.

Dave Stephenson:

Excellent. So yes, the free cash flow, I’m really proud of our delivery of the free cash flow and the free cash flow margin. So thanks for calling it out. I mean we’ve just made substantial improvement in the overall profitability of our business, right? We’ve radically adjusted our marketing expenditures to be substantially lower. We’ve made metronomic improvement in our variable costs. We’re seeing great leverage in our fixed costs. We’re being incredibly disciplined in our fixed cost growth, and that will continue going forward. And so all of those will be tailwinds to being able to maintain or even increase our free cash flow margins over time. As average daily rates could moderate next year, that does put a little bit of a headwind towards our margins. But I think the improvements in our variable costs and the fixed cost leverage should enable us to maintain or even increase free cash flow margins over the longer-term. What we will continue to have greater expansion in free cash flow margin to be some of the things that Brian talked about a little bit ago, it would be kind of incremental services or activities that we add for guests or host over time. And there is no immediate announcements of major changes that you should anticipate in ‘23, but know that, that is a focus for us and over a more extended period will drive incremental revenue for us and incremental margin.

Operator:

We will go next to Stephen Ju at Credit Suisse.

Brian Chesky:

Hey.

Brian Chesky:

Yes. Stephen, I mean the crown jewel of our China business was always and we thought always was going to be the China outbound business. And the reason why is the take rate was higher for the outbound business than it was for the domestic business. The inventory is more unique. There is less competition and the average daily rate is a lot higher. So, the outbound business was always the price part of our business. And that’s what we are focused on. Now, as you know, not a lot of people are leaving the country right now, but we want to be prepared for when they do. And they eventually will, of course. And so the two things we are doing to prepare is, number one, we are going to be continuing to invest in our brand in China. And number two, if people are traveling and they are leaving China, they are going to other countries, and we would call these the core to countries. And the primary place, they are first probably going to go with intra-region. So, they are presumably going to be going to Southeast Asia, Korea, Japan. Eventually, they will go a little further to Europe and then they will presumably come back to the United States, especially maybe the kind of some of the coastal cities. And this is kind of how I think travel may recover. And so what we need to do is make sure we have enough supply in these corridors and continue to invest in our brand in China. And I think by only having an outbound business, we can actually focus all of our investments just on that, and it actually makes a lot more cost effective, a lot more efficient. And one thing I have learned is more focused we are, the more likely we are to achieve our results. So, that’s what we are feeling. We are actually feeling really confident about the prospects for China. It’s just going to be a longer like payoff than because of the fact that not a lot of people are leaving the country and traveling right now.

Eric Sheridan:

Thanks for taking the question. Maybe a two-parter, if I can on investment strategy. Obviously, we have a lot of technology companies that are talking about slowing hiring, possibly pruning talent out of their organizations. How do you think that positions you to possibly upgrade talent within the organization, Brian? And how are you thinking about hiring goals over the next sort 12 months to 18 months? And then the second part of the question is, obviously, a slow in the economy would not be like the existential crisis that travel belt in spring of 2020. But what’s your broader philosophy of investing through a soft patch in the economy or more closely aligning revenue growth with expense growth if you did see a soft patch over a couple of quarters? Thanks so much.

Dave Stephenson:

And if I double-click on one area is that we announced our Live and Work Anywhere policy this year, and I think that has enabled us to hire the best people in the world regardless of where they live. And so to Brian’s point about hiring fewer, more senior, and more experts in areas, this has clearly been able to make sure that we are getting the best talent in the world.

Operator:

We will move next to Ron Josey at Citi.

Brian Chesky:

Alright. I will take obviously the first one, Ron. Thanks. So yes, questions around kind of the longer-term strategy around AirCover. And maybe the way to explain AirCover, let’s just take as an analogy, let’s take Amazon. So, my recollection of Amazon, this will go back maybe 20 years, because 20 years ago, Amazon even back then, their core retail business was an amazing product. They had the most amount of selection on the Internet, and they have the lowest prices. But the problem with Amazon is they had an Achilles’ heel. And the Achilles’ heel was they were competing with walking in a store and taking something out at that moment. And so one of the things they created was Amazon Prime, which was obviously addressing the core Achilles’ heel, which was shipping. I think every business has to understand what its potential weakness is. I think the great thing about Airbnb’s model is we similarly have probably the widest selection of accommodations and everything we have is truly one of a kind at a great value. But our challenge is unlike a hotel, we don’t control the inventory and it cannot structurally always be as consistent. We can’t expect every property. So, AirCover similar for consistency addresses something similar to what Prime did for Amazon with shipping, which is to say, what if we could take this off the table, this question of consistency. And on the host side, the protections have led to a huge increase in NPS. Our NPS for AirCover for a host is over 60. And this is after something happened to your home. So clearly, this was a huge hit. And it was so popular that we decided to bring it to guests. And I think where this can go is over the coming years, we can offer increasingly more protection, more coverage for more different use cases. And I think the North Star for AirCover is if a listing was across – most of our inventory is only in Airbnb. But let’s say a home was on two different websites, Airbnb and another website, we want AirCover to be so compelling that just by having AirCover alone, it would be reason to go direct and book on Airbnb and not book anywhere else. And we are going to continue to make improvements every single year, and I want AirCover to be the gold standard for customer service for our category. And that’s what we are really focused on. And then down the road, there may be opportunities to offer like a paid version of this or some other type of membership program, but that would be down the road, but it’s a very popular customer request.

Dave Stephenson:

And then in terms of – to answer the question on guidance, too. On the guidance, articulation of the longer lead times for bookings and just the Q4 bookings that we have already on the books for the rest of this quarter is just to indicate that we have stable to accelerating demand for growth, right. And demand from our guests around the world. It’s that we are not seeing a softening in that demand especially when you look back to historic levels of 2019, that any of the deceleration in revenue growth between Q3 and Q4 is largely due to the uniqueness of the 2021 timing of growth between Delta and Omicron. So, I just think it just shows the stability of people wanting to get out their homes, wanting to travel, regardless of the macroeconomic uncertainties.

Deepak Mathivanan:

Great. Thanks for taking the questions. Just a couple of quick ones. So first, there has been a lot of press recently about how occupancies on the platform are down for certain house hosts. Is it just anecdotal or seasonal or whether there is anything more to it? I mean your 4Q guidance is pretty strong, but just trying to understand how much of this is just kind of noise out there. And then second question, maybe for Brian. Long-term stays is stabilizing near 20% of the mix on the platform, even as sort of your room nights is growing pretty nicely, you have talked about sort of like the flexibility and lifestyle for many people keeping this – or helping this growth. But curious whether there is also like a bigger macro drivers like maybe rental markets being very difficult right now that’s helping this trend. Just kind of trying to understand how much you are reaching already into the addressable markets beyond travel currently.

Operator:

Next, we will move to Lee Horowitz at Deutsche Bank.

Brian Chesky:

Dave, do you want to start with this?

Brian Chesky:

And I will just say – just to jump in. I mean we don’t really think of marketing as a way to buy customers because, obviously, as we have mentioned, more than 90% of our traffic is direct or organic. And so the main thing is we take a full funnel approach to marketing. And actually the top of the funnel is PR and communication. And we think that’s one of the biggest drivers of our traffic is PR. And then brand marketing is actually important. And actually, we think a bit more like product marketing. We want to educate people about our new features. So, right now, we are advertising and educating people about Airbnb Categories and AirCover. And then we think that performance marketing is more of a way the laser in to balance supply and demand rather than a way purchased a large amount of customers. And that’s essentially the way we think about marketing. And this allows for a very efficient, very dynamic approach to marketing that should get more efficient every single year.

Brad Erickson:

Hey. Thanks. Few follow-ups. First, nights came up just a bit light of where we all had it forecasted. So, obviously, that’s on us. But I guess in cases where you are maybe seeing a little bit of nights booked softness, are you seeing those hosts making moves on price, or are your pricing tools sending any message to those hosts about making moves? Just curious if you look to affect some elasticity in the event of any pockets of softness. And then second, Dave, I know you spoke to this just a minute ago on the backlog, but asked in a different way. Are you basically saying that you are seeing booking windows expand more than prior years here as we start out Q4? Thanks.

Dave Stephenson:

Yes. Well, a couple of things. One thing is we are not focused on optimizing just night side. I think nights is an important measure, and it’s an important driver of kind of overall demand. But we could also drive a lot of nights and looking and try to just drive them towards lower rate nights. Like we are trying to drive a balance of making sure that we have nights growth and revenue growth. And revenue growth obviously pays the bills. And so we are seeing strong growth in the business. I am very happy with our Q3 results. And on our full guide like you said, I think we are seeing stable to increasing demand, and we are just really impressed with the resiliency of guests and their willingness to travel and interest in traveling Airbnb. And I guess it goes back to the backlog, too, is that the reason why we kind of highlight is just that people are having confidence in travel. So, what we are seeing is that, yes, the booking windows are up year-over-year. There are a little bit – there is some seasonality in that. So, they are actually booking windows a little bit down from Q3. And so as – the lead times are just up from historical levels because the people are confident in being able to travel, I think that’s the important thing you should take away.

Operator:

And that concludes today’s conference call. Thank you for your participation. You may now disconnect.

Operator:

Good afternoon, and thank you for joining Airbnb's earnings conference call for the second quarter of 2022. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Airbnb's website following this call. I'll now hand the call over to Ellie Mertz, VP of Finance. Please go ahead.

Brian Chesky:

All right. Thank you, Ellie, and good afternoon, everyone. Thanks for joining. Our Q2 results demonstrate that Airbnb has achieved growth and profitability at scale. From a growth perspective, we exceeded 103 million Nights and Experiences Booked. Now this was our largest quarterly number ever. Revenue was $2.1 billion, up 58% from last year or 64%, excluding foreign exchange. Gross booking value was $17 billion, up 27% from last year or 34% if you exclude foreign exchange. Now both revenue and GBV were 73% higher than Q2 2019, significantly outperforming the travel industry. Now from a profitability perspective, we had our most profitable Q2 ever. Net income of $379 million was a nearly $700 million improvement from Q2 2019. Adjusted EBITDA was $711 million. Now this represents a 34% adjusted EBITDA margin, which is significantly up from the 16% margin in Q2 2021, a negative 4% in Q2 2019. Finally, we generated $795 million of free cash flow. Now this is a $1.1 billion improvement from the nearly $300 million cash burn 2 years ago at the depth of the pandemic. Over the last 12 months, Airbnb generated $3 billion in free cash flow, nearly $3 billion, and ended the quarter with nearly $10 billion in cash. So what explains this transformation in our business? Well, first, our business model is adaptable. We have nearly every type of space in nearly every location so however travel changes, we can adapt. And regardless of the economic environment, our guests come to Airbnb because they can find great value and our host can earn extra income. Second, we've relentlessly innovated while also staying focused and disciplined. When the pandemic began in 2020, we made some incredibly difficult decisions. We significantly reduced spending, making us a leaner and more focused company. And we've kept this discipline ever since, allowing us to keep the hiring and investment plans made in the beginning of the year. And Airbnb is well positioned for whatever lies ahead. In fact, we're so confident in our long-term growth and profitability that today, we're announcing a $2 billion share repurchase program. And this is coming only 1.5 years after our IPO. Now returning to our Q2 results. Our strong financial performance was driven by a number of positive business trends. First, guest demand in Airbnb is as high as ever. In Q2, we surpassed 103 million Nights and Experiences Booked, marking our highest quarterly number ever. Now despite broader macroeconomic concerns, we still saw a 25% increase in Nights and Experiences Booked compared to the quarter of 2021. Now early in Q2, strong guest demand exceeded our expectations. This is because guests in Europe and North America booked earlier than they have historically. Now given this earlier booking, growth rates compared to last year decelerated in May and June. And since the end of Q2, what we've seen is growth in nights booked reaccelerate from June to July as we enter peak travel season. Second, guests continue to return to cities and cross borders. In previous quarters, we've talked about how we saw significant growth driven by surges in domestic travel as well as travel to rural destinations. Now these trends continue. But we're also seeing guests returning to cities and crossing borders above pre-pandemic levels. Third, guests continue to stay longer in Airbnb. They're not just traveling Airbnb, they're now living on Airbnb. We saw long-term stays of 28 days or more remain our fastest-growing category by trip nights compared to 2019. The long-term stays has increased nearly 25% from a year ago. And actually, long-term stays have increased almost 90% since Q2 2019. Fourth, guest demand is driving growth on our host community. We continue to see the strongest supply increases in areas of greatest demand, with nonurban active listings up 50% compared to Q2 2019. But as demand is returning to cities, we're also seeing an increase in total urban supply. And we believe the upgrades we introduced last year, including our new host onboarding flow and AirCover are supporting this growth, but we're not stopping there. So you're going to see some exciting new product features to recruit the next generation of host later this year. Finally, I'd like to share a few highlights from the 2022 summer release. In May, we introduced Airbnb Categories. Since launch, listings in the Airbnb Categories have been viewed more than 180 million times. Through Categories, we are distributing guest discovery across more destinations and dates. Now we also introduced AirCover for guests. Since launch, the Net Promoter Score for guests that had an issue with their stay has already improved. And the real insulin -- instance where our host cancels, AirCover has led to 10% more rebookings. So to recap. We achieved significant milestones this quarter with our results. Nights and Experiences Booked were our highest ever. Revenue and adjusted EBITDA were records for Q2, and free cash flow was $795 million. In the last 12 months, we generated nearly $3 billion in free cash flow. Now before I go to questions, I want to talk about an update on my co-founder, Joe Gebbia. Last month, Joe announced that he'll be stepping back from this full-time operating role. Joe will continue to serve on the Board of Directors of both Airbnb and Airbnb.org. Airbnb is a founder-led company. So he's going to continue to take a role at Airbnb, and this will be as an adviser to me on future concepts and creative culture. Since the beginning, Joe has always been focused on big ideas to help others. These are uncompromising True North. So it will be fun to be able to spend more time with them on dreaming up new ideas, just like the early days. And as I reflect back on the last 14 years together, I just can't believe how lucky Joe, Nate and I have been. If anything, I've just gone a few degrees in a different direction, I wouldn't be doing this call with you right now. That's how fragile ideas are. And it's what gives me gratitude to know Joe and Nate. And what I'm most thankful for is that we're still together, still meeting every Sunday 14 years after we started. We built a dream together, and now, after all these years, we still continue to dream. So thank you, Joe. And with that, Dave and I look forward to answer your questions.

Lloyd Walmsley:

Two questions, if I can. First, just it looks like room Nights and Experiences Booked grew a little bit sequentially less in 2Q this year than it did in '19. And similarly, the guidance looks like it's calling for a little bit slower sequential growth. Just wondering if there's anything you'd call out that's behind that? And then secondly, can you give us an update on what you're seeing around just how people are using the platform post some of the new search and discovery innovations this summer? Are you seeing demand move into a wider dispersion of areas or any changes in conversion rates? What are early learnings from some of those innovations this past summer?

David Stephenson:

Yes. So our Q2 gross nights before the cancellations, they came in actually above our internal expectations. We did see some elevated cancellations in the back of the quarter relative to our forecast. We believe that some of the elevated cancellation's related to flight cancellations around the world, but it was mostly in North America towards the end of Q2 '22. And we're just seeing strong overall nights kind of growth, the 25% year-over-year growth in nights and experiences, we feel very confident in. And the same -- having the same results for Q3, we also feel quite good about. We're just seeing strong demand for guest travel all around the world.

Operator:

Our next question is from Mario Lu with Barclays.

Brian Chesky:

No. I mean we have a very consistent strategy. And our strategy is, number one, we want to unlock the next generation of hosts. We have 4 million hosts on Airbnb, and I think that millions more can turn to hosting, especially during these economic times. So that, I think, is really priority #1. As we add more hosts, we continue to grow. We want Airbnb to be the ultimate host to our guests and host. That's why we offered AirCover where we continue to provide better service all over the world and continue to up level. And guests aren't just traveling Airbnb, they're now living on Airbnb. And so we want to continue to offer more opportunities for them to travel and live on Airbnb. So we are still focused on our core business. That is the priority for us. We are also continuing to invest in long-term stays and other initiatives and most importantly, providing an incredible service that people love. And I would also just say, again, we're feeling really, really solid and good about Q3. Dave, anything you want to add.

Mario Lu:

Great. And just a follow-up, speaking of APAC. You guys mentioned that the domestic business is trending down in China, which I believe you guys said was around 1% of your business. Is there any other color you can provide in terms of the P&L impact from shutting that down? And any color on how large the outbound bookings for China is?

David Stephenson:

Yes. I mean the China business has been a small part of business overall. I mean, it's had less than a 1% impact on our revenue. One of the things that has been important in us getting out of the domestic business in China is maintaining a focus on what we think is the most valuable and important part of China, which is the outbound business. So really, what we've done is we've shifted all of the resources that we're applying and splitting between both domestic and outbound travel. We focused all that on outbound, which we think is the greater prize and the most important part for the long term. So until China has their COVID policy kind of in place and allowing people to kind of travel outbound from China, it will kind of remain to be depressed. But as that evolves and Chinese travelers travel again, we think that will be a nice unlock for our Asia Pacific business. It's not going to have a material impact on our P&L.

Bernard McTernan:

Great. ADRs are hanging in there better than feared, I believe, still expecting them to be up year-over-year. Can you just talk to some of the puts and takes, demand-driven pricing versus mix shift?

David Stephenson:

Yes. If you kind of rewind to what we've seen with ADRs back at the beginning of the pandemic, all of the increase was driven by mix, right? This initial resurgence of the travel for North America, whole home, nonurban. And then over time, we've seen mix become less and less a part of the increase in the ADR. Here in both Q1 and Q2, what we've seen is that ADRs were up 40% year over -- 3 years back to 2019. And about 2/3 of that increase has been price appreciation, and about 1/3 due to mix. And so we do anticipate that over time, as more people return to travel to urban, more cross border, ADRs may moderate. But yes, as you see, 2/3 of that has actually been price appreciation. So it's been stickier than we anticipated, maybe 6 months ago.

David Stephenson:

Well, it's a bit of both. I mean, really, we have on the books for Q4 of this year, we have more nights on the books in Q4 than relative to the same kind of period a year ago. It's very strong. We're seeing really strong demand in the back half of the year. So we're seeing a bit of both.

Justin Patterson:

Great. Two, if I can. Brian, when you look at host right now and just the friction to onboarding, what are you looking to really solve with this upcoming release? And then secondly, perhaps for both you and Dave, you've clearly shown a lot of margin progress, free cash flow progress over the next few years. How should we think about just the puts and takes between overall growth and showing more margin, more free cash flow generation ahead?

Justin Patterson:

Yes. Well, I mean it can be a little broader in there. Just where the friction point on onboarding is.

David Stephenson:

Yes. Thanks. We're really proud of the progress we made to reduce our fixed costs and make improvements in our variable costs. We've really exercised discipline on our spending here in 2022, and we're going to continue to do so. But while we're thrilled with this margin expansion, we're heavily in growth mode. We are not in profit maximization mode. We really want to balance profitability with growth. We -- one of the things we're very proud in Q2 is that we are showing both growth and profitability at scale. But we'll continue to invest in growth. We're going to prioritize things. We'll grow the business over the long haul.

Douglas Anmuth:

Just hoping you can talk a little bit about just kind of macro environment, just what you're seeing in terms of consumer activity or types of trips being booked. And also just to get your view on long-term stays. I think you talked about 25% growth year-over-year, but just the trends there going forward.

David Stephenson:

Sure. Well, if you start the macro environment, again, we are very pleased with our results despite any kind of macroeconomic. We're seeing strong demand here in Q3. And as I said, the Q2 nights and experiences grew 25% year-over-year, we're seeing a similar growth for Q3, and our demand in Q4 reservations is really strong, as I mentioned kind of earlier. What we've seen so far is North America and Europe have been our strengths. We're seeing -- but we are seeing an uptick in more cross-border and more urban. So those are historic strength areas for us, and we're starting to see those parts of the businesses come back. But ultimately, if you just kind of step back, you just see the resilience of our business overall, right, that because we have so much different kinds of supply in so many places around the world, we have any kind of place for anyone that wants to travel. And there's just so much pent-up demand for travel and just so much demand for travel in general, that people would like to spend money on the experience of travel and getting out of their home more than on things that we're just continuing to see that great strength in our business. And then in terms of long-term stays, it continues to be the fastest-growing business by tripling. So if you look at nights of 28 days or longer, that part of the business is growing faster since 2019 than any other segment stays. And actually, if you kind of subsegment it, nearly 50% of our nights are 7 days or longer. And which I think, again, you start to stay any place 7 days or more, an Airbnb is the best way to kind of experience that stay. So long-term stay trend continues to be very solid, growing faster than any other part of the business.

Nicholas Jones:

Two. I guess, first, can you just kind of give us an update on the I'm Flexible option and how that's kind of playing out and what kind of experiences you're able to provide in those markets that maybe are less dense? And then a follow-up.

Nicholas Jones:

Yes. And then, I guess a follow-up is in some of the areas that are outside of urban areas, less dense, less, I guess, arguably activities, how are you thinking about adding more optionality to make these types of experience more engaging for the guests?

Nicholas Jones:

Like if you're in a rural area and there's less activities, arguably, because there's less population, how are you adding -- looking to add more experiences for those guests in those regions?

Operator:

The next question is from James Lee with Mizuho.

Brian Chesky:

Dave, do you want to take that?