The Positives
+ Revenue boosted by international and long-duration bookings. 4Q23 revenue grew 17% YoY to US$2.2bn, 2% above the top end of its own revenue guidance (US$2.17bn). This outperformance was led by a 12% YoY increase in booking volumes to 99mn, 3% YoY improvement in the average daily rates to US$157, and a 3% FX tailwind. Cross-border nights booked grew 13% YoY (strength in the Asia-Pacific and Latin America regions) and represented 44% of total nights booked, while urban nights booked increased by 11% YoY. Meanwhile, long-term stays of 28 days or more accounted for 19% of total gross nights booked, led by the flexibility granted by remote work environments.
+ Supply continues to expand. Active listings on the platform grew by 18% YoY to more than 7.7mn. The supply growth was in double-digits across all regions, with the highest growth in the Asia Pacific and Latin America regions. We believe strong supply growth was led by continued product enhancements (The Listings tab, Airbnb Rooms, and pricing tools) and marketing to attract new hosts. Airbnb reported that it now has more than 5mn hosts worldwide.
The Negative
- Further deceleration in booking volume growth. Airbnb guided 1Q24e revenue to be in the range of US$2.03bn to US$2.07bn (12%-14% YoY growth), representing a decline in topline growth. The slowdown is mainly because the YoY growth rate of nights booked is expected to further decelerate relative to 12% in 4Q23 (vs 19% in 1Q23) due to tough comparisons following the Omicron-fueled pent-up demand seen in 1Q23.
Outlook
Airbnb witnessed stable demand at the start of the year, but management noted that 1Q24e would face tough comparables. For 1Q24e, Airbnb expects total revenue to grow by 13% YoY to US$2.05bn, taking the midpoint (Figure 1). Management noted that the timing of Easter will have a positive 1% to 2% impact on 1Q24e revenue growth as holiday-related stays are pulled forward to 1Q24e. Airbnb expects the booking volume growth rate to moderate relative to 12% in 4Q23, though it expects average daily rates to be flat to slightly up compared to 1Q23.
Airbnb expects to deliver adj. EBITDA (excluding stock-based compensation expense) growth on a nominal basis in both 1Q24e and FY24e. The company also expects 1Q24e adj. EBITDA margin to expand YoY mainly due to the timing of expenses. For FY24e, Airbnb expects adj. EBITDA margins of at least 35% compared to 37% in FY23 as it plans to invest in product development and marketing. Additionally, the company announced a new share repurchase authorisation of up to US$6bn shares.
The Positives
+ Booking volumes continued to accelerate. 3Q23 revenue grew 18% YoY to US$3.4bn, in line with the top end of US$3.4bn company guidance. Revenue was driven by 14% YoY growth in booking volumes to 113mn, 3% YoY improvement in the average daily rates to US$161, and a 4% FX tailwind. Cross-border booking volumes grew 17% YoY (strength in APAC regions), while urban nights booked increased by 15% YoY. Meanwhile, stays of 28 days or more accounted for 18% of total gross nights booked led by the flexibility granted by remote work environment.
+ Strong listings growth. Airbnb added about 1mn active listings this year. In 3Q23, active listings on the Airbnb platform grew by 19% YoY to more than 7mn. Active listings increased across all market types (urban and non-urban) and regions, with highest growth in APAC and Latin America regions. We believe strong supply growth was led by continued product enhancements (Airbnb Rooms, Monthly Stays, and pricing tools) and marketing to attract new hosts.
The Negative
- Cautious 4Q23e outlook. Airbnb guided 4Q23e revenue to be in the range of US$2.13bn-2.17bn (12%-14% YoY growth), representing a decline in topline growth. Management expects travel demand to slow down due to increased volatility led by geopolitical events in the Middle East and macroeconomic factors. As a result, Airbnb expects booking volumes growth rate to moderate sequentially based on QTD trends.
The Positives
+ Revenue beats guidance. In 2Q23, revenue grew by 18% YoY to US$2.5bn, ahead of the company’s guidance range of 12% to 16% YoY growth. Revenue growth was mainly driven by 11% YoY surge in booking volumes and 1% YoY increase in the average daily rates, or ADRs, to US$166. Cross-border bookings grew by 16% YoY as international travel is accelerating, accounting for 45% of gross nights booked. Urban nights booked increased by 13% YoY as guests are returning to cities, representing 48% of gross nights booked. In addition, guests are staying longer, with stays of 28 days or more accounting for 18% of gross nights booked driven by the flexibility granted by remote work.
+ Listings reach record high. In 2Q23, total active listings on Airbnb platform grew by 19% YoY to 7mn. Management highlighted that the growth came across all market types (urban and non-urban), with the highest growth rates in Latin America and APAC regions. We believe strong supply growth was led by continued product improvements and marketing to attract new hosts. In May, Airbnb introduced 50+ features and upgrades as a part of its 2023 Summer Release, including Airbnb Rooms, Monthly Stays, and pricing tools that enable hosts to compare their listing prices to the average rates of smililar listings nearby.
The Negative
- Deceleration in booking volumes. In 2Q23, the nights and experiences booked grew by 11% YoY to 115.1mn compared with 19% growth rate in 1Q23 and 25% in 2Q22. The deceleration was mainly because of tough comparisons due to pent-up travel demand (post-Omicron) seen in 2Q22.
The Positives
+ Consumer travel demand remained strong. In 1Q23, revenue grew 20% YoY to US$1.8bn despite 4% FX headwinds, implying 24% YoY growth on a constant currency basis. The significant growth was driven by record booking volumes and stable average daily rates (ADRs) of US$168. The number of nights and experiences booked jumped 19% YoY to 121.1mn driven by growth in cross-border trips (up 36% YoY) and urban nights booked (up 20% YoY). Long-term stays (28 days or more) accounted for 18% of total booking volumes driven by the flexibility granted by remote work.
+ Supply continued to accelerate. Total active listings on the platform increased by 18% YoY to an implied 7.6mn. Both urban and non-urban supply increased by 18% YoY. The supply growth is mainly due to continued product innovation to attract new hosts (Airbnb Setup, Ask a Superhost, and insurance and better tools for hosts) and more people turning to hosting to earn extra income.
The Negative
- Soft 2Q23e revenue guidance due to tough comparisons. For 2Q23e, Airbnb anticipates total revenue to be in the range of US$2.35bn to US$2.45bn (up 12-16% YoY). The slowing revenue growth is mainly because of tough comparisons following the Omicron-fueled pent-up demand seen in 2Q22 and as well as lower average daily rates (ADRs) due to the business mix shift towards urban and APAC regions.
The Positives
+ Travel demand remained strong. In 4Q22, revenue grew 24% YoY to US$1.9bn despite 7% FX headwinds, implying 31% growth on a constant currency basis. The significant growth was driven by solid growth in nights and experiences booked. Booking volumes jumped 20% YoY to 88.2mn driven by growth in cross-border trips (up 49% YoY) and urban nights booked (up 22% YoY). Urban areas represented 51% of total nights booked in 4Q22.
+ Long-term stays remained resilient. Long-term stays, or those lasting 28 days or more, represented 21% of gross booking volumes in 4Q22, and were stable with the year-ago quarter. This was mainly driven by the flexibility granted by hybrid/remote work. Stays of at least 7 nights accounted for 46% of gross nights booked in the quarter.
+ Record listings on the platform. Airbnb ended 4Q22 with 6.6mn global active listings – its highest ever. This suggests an increase of about 900,000 active listings (up 16% YoY) compared to 4Q21. The supply growth is mainly due to continued product innovation to attract new hosts (Airbnb Setup and Ask a Superhost) and more people turning to hosting to earn extra income.
The Negative
- Declining ADRs. In 4Q22, Average Daily Rates (ADRs) fell 1% YoY to US$153 due to FX headwinds. Excluding the FX impact, ADR grew by 5% YoY. In FY23e, management expects daily rates to remain under pressure and could see mid-single-digit declines due to the business mix shift towards lower ADR stays (urban and APAC regions) as well as pricing transparency and discounts.
Outlook
Airbnb said that guests were excited to travel despite macroeconomic concerns. Management highlighted that the company is witnessing continued strong demand so far in 1Q23e driven by strength in European bookings, market share gains in Latin America, and continued recovery within APAC regions. For 1Q23e, Airbnb expects to report total revenue in the range of US$1.75bn-US$1.82bn (Figure 1), representing YoY growth rate of 16-21% (18-23% in constant currency). The company also anticipates that the number of nights and experiences booked will increase at a rate similar to 4Q22 (~20%).
For FY23e, Airbnb expects adj. EBITDA margin to be nearly as strong as FY22 (~35%). Management noted that ADR headwinds on EBITDA margin could be offset by higher operating leverage.
The Positives
+ Strong travel demand continued. Airbnb posted revenue of US$2.9bn for the quarter, representing a 29% YoY increase (36% YoY in constant currency). This is mainly because gross bookings value (GBV) rose 31% YoY to US$15.6bn driven by a surge in nights and experiences booked and continued strength in average daily rates (ADRs). Bookings volume jumped 25% YoY to 99.7mn driven by a recovery in urban (up 27% YoY) and cross-border (up 58% YoY) travel. Non-urban areas represented 52% of gross nights booked in 3Q22.
+ Demand for long-term stays remained resilient. Long-term stays (28+ days) accounted for 20% of gross bookings volume in 3Q22, in line with the year-ago quarter. This was mainly driven by flexibility granted by hybrid/remote work. Stays of at least 7 nights accounted for 45% of gross nights booked in the quarter.
+ Supply on the platform accelerates. In 3Q22, Airbnb said that its active listings on the platform increased by 15% YoY across all market types, including urban and non-urban areas. We believe that the supply growth is mainly due to the company’s initiatives to attract new hosts to its platform like AirCover for Hosts and Ask a Superhost along with solid demand for alternative accommodation.
The Negatives
- ADR growth to moderate in 4Q22. In 3Q22, ADRs increased by 5% YoY to US$156 driven by price appreciation, offset by negative impact from a shift back towards urban markets. In 4Q22, management expects daily rates to be under pressure and could see a modest decline due to adverse FX impact and business mix shift towards urban destinations, which typically have lower rates due to smaller-sized accommodations. Despite moderation, the management said that ADR headwinds on EBITDA/FCF margins could be offset by higher operating leverage.
The Positives
+ 2Q22 revenue in line with forecasts. Airbnb met consensus estimates for its top line, posting US$2.1bn in revenue, representing a 58% YoY increase (64% YoY in constant currency). The growth was driven by a surge in booking volume and continued strength in daily rates. In 2Q22, the nights and experiences booked grew 25% YoY (up 24% vs pre-pandemic 2Q19) to 103.7mn, driven by continued recovery in urban and cross-border travel demand and improvement in business travel. 1H22 revenue/nights and experiences booked were at 44/49% of our FY22e forecasts.
+ Strong growth in long-term stays. In 2Q22, long-term stays (28+ days) remained the fastest growing category by trip duration as compared with 2Q19. Long-term stays surged 25% YoY and by almost 90% from 2Q19, driven by the rise of hybrid/remote work. Stays of more than 28 days now account for 19% of gross bookings volume, up from 13% in 2Q19.
+ Robust FCF generation and buyback authorization. Airbnb generated US$795mn of free cash flow (FCF) in 2Q22 and US$2.9bn of FCF in the last 12 months, ending 2Q22 with US$7.8bn in cash and cash equivalents. The company reported a net profit of US$379mn compared with a net loss of US$68mn in 2Q21, driven by top-line growth and an improved cost structure. Based on the strong performance, Airbnb announced a share repurchase program of up to US$2bn reflecting the management’s confidence about future growth and profitability.
The Negatives
- Soft 3Q22 guidance for bookings volume. Management said that booking volume slowed in May/June due to higher cancellations attributed to the flight disruptions, especially in the US. However, demand accelerated in July and Airbnb’s 3Q22 guidance calls for bookings volume growth to be similar to the YoY growth rate seen in 2Q22 (~25%). This implies nearly 100mn nights and experiences booked in 3Q22.
- APAC nights booked remain the drag. In Asia Pacific (APAC), booking volume remained depressed compared with 2Q19 due to cross-border reliance, tighter government restrictions and closure of its domestic business within China. Excluding Asia Pacific, global bookings volume would have exceeded 2Q19 levels by 35% in 2Q22 (vs overall 24%).
Outlook
Airbnb expects travel demand to continue. In 3Q22, Airbnb expects to report total revenue between US$2.78bn-US$2.88bn, representing YoY growth rate of 24-29%, and up 69-75% compared to 3Q19. Adjusted EBITDA margin is also expected to be 49% driven by a disciplined cost structure and top-line growth.
Downgrade to NEUTRAL with unchanged TP of US$119.00
We downgrade Airbnb to NEUTRAL from BUY after the recent run-up in share price. We maintain our DCF target price of US$119 (WACC 6.8%, g 4%) as our FY22e estimates remain unchanged. Macro uncertainties like rising inflation could weigh on discretionary demand for travel, but we believe Airbnb is a strong brand and could emerge as a preferred vacation option compared to hotels as it’s safe amid the spread of COVID-19, more affordable, and closer to home.
Company Background
Airbnb (ABNB) is the leading marketplace for people to list, discover and book private or shared alternative accommodation. Its platform connects guests and hosts online to book unique places to stay and for experiences. Airbnb offers 6mn active listings from over 4mn hosts across 220 countries.
Investment Merits
We initiate coverage with a BUY rating. Our target price is US$119 based on a DCF valuation with a WACC of 6.8% and terminal growth of 4.0%.
REVENUE
Airbnb’s revenue mainly comes from nights and experiences booked on its platform. For stays, customers (hosts and guests) are charged service fees as a percentage of the booking value, excluding taxes. Service fees vary depending on factors such as booking value, duration of stay, host type, and geography. For experiences, service fees are levied on hosts only. Total revenue expanded at 24% CAGR in the past four years (Figure 1) to US$6.0bn in FY21. Over FY18-21, Airbnb’s nights and experiences booked rose at a CAGR of 13% to 300.6mn in FY21 (Figure 2). The growth was mainly driven by travel demand recovery and alternative accommodation market share gains.
GEOGRAPHIC MIX
Airbnb’s business is geographically diversified with nearly half of its revenue from outside the US. In FY21, North America accounted for 38% of nights and experiences booked (Figure 3), and 54% of gross bookings value (Figure 4) and total revenue (Figure 5). North America held up the best through the COVID-19 pandemic, with nights and experiences booked only falling 21% YoY in 2020 compared with EMEA and Latin America which fell above 50%.
EXPENSES
Cost of sales expanded at a 16% CAGR in the past four years, compared with operating expenses growth of 22%. Operating expenses include operations and support (14% of FY21 revenue); product development (24%); sales and marketing (20%); and general and administrative (14%) costs. Total operating expenses as a percentage of revenue have reduced modestly from 78% in FY17 to 74% in FY21. We expect operating expenses as a percentage of revenue to be 62% in FY22e due to increased efficiency and lower product development costs.
MARGINS
Gross margins hit an all-time high of 81% in FY21, up by over 600 basis points (bps) from FY20. This was mainly driven by Airbnb’s top-line recovery due to a surge in nights and experiences booked and a higher average daily rate (ADRs). In FY21, Airbnb’s ADR grew 26% YoY to US$156 due to price appreciation and a business mix shift towards bookings in North America.
Net margins remained negative for FY21 at -6% compared with -136% in FY20. This has been largely due to revenue recovery and a significantly improved cost structure. Product development expenses decreased by 48% YoY in FY21 to US$1.4bn. This was mainly due to a US$1.3bn decline in payroll-related expenses. We expect Airbnb to report a maiden net profit of US$1.4bn in FY22e. This translates to a 17% net profit margin.
BALANCE SHEET
Assets: In FY21, cash and cash equivalents increased by 11% YoY to US$6.1bn. Marketable securities also increased by US$1.3bn. Airbnb is an asset light business and doesn’t need to make heavy investments in fixed assets. In FY21, the company reported fixed assets of US$0.4bn. Airbnb’s current ratio for FY21 is 1.9x.
Liabilities: Current liabilities for FY21 were US$6.4bn, almost US$1.2bn more than FY20. This increase was mainly due to a rise in funds payable to customers. Non-current liabilities saw a jump of US$124mn in FY21. Airbnb had a net cash position of US$4.1bn in FY21 (Figure 6). Airbnb’s debt-to-equity ratio remains low at only 0.4x.
CASH-FLOW
Cash-flow from operations has steadily risen at 54% CAGR to US$2.2bn (Figure 7) from FY19 to FY21. Airbnb has almost insignificant CAPEX spending as the company doesn’t have to build or lease properties. In FY21, CAPEX stood at US$25mn. The company generated US$2.2bn in free cash flow in FY21. This translates to a 36% free cash flow margin.
BUSINESS MODEL
Airbnb generates revenue through service fees charged to guests and hosts. Airbnb service fees are applied to the booking subtotal (the rate per night plus cleaning fee and extra guest fee, if applicable, but excluding local occupancy taxes and Airbnb service fees). Host service fees are automatically deducted from the host payout. Airbnb offers two monetization models for accomodations and one for experiences (Figure 8).
As shown in Figure 9 above, on a rental of US$100 per night set by the host, the guest pays US$116, which includes US$12 as guest fees and US$4 for taxes. Meanwhile, the host will make US$97 compared with the rate per night set at US$100 as Airbnb might collect US$3 hosting fee. Airbnb might make as much as US$15 (take rate of 13%), split between guest and host fees.
INDUSTRY
In 2020, the global tourism industry witnessed an unparalleled demand contraction, with March and April 2020 down 80% to 90% across all the travel industry segments and regions. This is mainly because countries worldwide implemented travel restrictions and other mandatory shutdowns to prevent the spread of the coronavirus. Since then, the travel demand recovery has been rocky and uneven due to fluctuations in COVID-19 case counts, lockdowns, and vaccination rates.
According to Statista, the global vacation rental industry’s total revenue is estimated to reach US$83bn in FY22, including US$18.6bn from the US. This hospitality segment is expected to rise at a CAGR of 6.3% between 2022 and 2026 to reach US$105.7bn, with 74% of that revenue generated through online sales. Additionally, the user penetration is expected to reach 11% by 2026 compared with 9% in 2022. The growth is mainly driven by significant pent-up demand to travel again.
Airbnb estimates its serviceable addressable market (SAM) to be US$1.5tn as of Dec. 2020, including US$1.2tn in short-term stays and US$239bn in experiences. Airbnb makes the following assumptions to determine the US$1.2tn for short-term stays (Figure 10):
11.8bn paid room nights at ADR of US$105 equals to US$1.2tn short-term rental SAM
