Airbnb, Inc. (NASDAQ:ABNB) Goldman Sachs Communacopia + Technology Conference September 9, 2024 7:25 PM ET
Company Participants
Ellie Mertz – Chief Financial Officer
Conference Call Participants
Unidentified Analyst
All right, I guess in the interest of time, we’re going to get started since the mics have started to work. So I know people are still trickling in, but we will get started in the interest of time.
It’s my pleasure to have Airbnb back at the conference this year, and Ellie Mertz, Chief Financial Officer. Ellie, thanks for being part of the conference, and welcome.
Ellie Mertz
Yeah, thank you for having me, and apologies on the line-up change. We decided we wanted to talk about travel trends instead of founder mode, so I’m here.
Question-and-Answer Session
Q – Unidentified Analyst
As I said, I’d let you say whatever you want about that. Founder mode is all the rage.
But you just reported earnings in August. Why don’t we start with level setting, in terms of what were the key messages coming out of earnings? We’re heading towards the back part of this year. Obviously you guys always are thinking and building and planning for the long term. Why don’t you level set with just big picture? What are the key messages, from your perspective that the company is trying to share with investors, and then we’ll go a little bit deeper from there.
Ellie Mertz
Great, great. Again, thanks for having me.
Unidentified Analyst
Sure.
Ellie Mertz
In terms of just broader messages, what I’d like to convey is, really stable start to 2024. We obviously had some incremental pieces of trends that we shared leading into the Q3 guide that I’m happy to talk about later.
But broadly thinking, where Airbnb sits today, we are in an incredible position of strength in terms of how much we’ve scaled the business over the last couple of years, the profitability we’ve been able to deliver, and the level of free cash flow generation, which puts us in a really strong position to begin executing upon our vision, which is to expand beyond what we’ve delivered to-date.
You’ll begin seeing in the next two product releases, an upcoming winter release, as well as our summer release next spring, real movement towards what we’ve called expanding beyond the core to offer more services and products to our guests and hosts over time, and to deliver incremental revenue growth streams in the years to come.
Unidentified Analyst
Okay, there’s a lot to mine there. We’ll touch upon some of those. I think probably the biggest short-term debate, and then I want to turn to the much more long-term stuff. Coming out of earnings was just the state of travel overall. I think there’s been a lot of confusion in the investment community as to how much of this is a slowing, how much of it is a normalizing, how much of it is a recession.
As someone who talks to investors myself from time-to-time, nobody seems to want a super nuanced answer to this. It’s sort of yes, no, recession, not, and the like. But what is your broad takeaway in terms of what we’re seeing from the consumer now, bringing it back to the travel landscape?
Ellie Mertz
Yeah, so let me talk just a little bit in terms of what we’ve seen here today, and maybe get a chance to touch upon what we shared in August.
So first, as I said a minute ago, overall travel demand, Q1 and Q2 were very stable, obviously at a lower growth rate than we saw in the preceding years, given the boost in J-curve we had in terms of the overall rebound. But very helpful, healthy levels of growth, and in particular for us, delivering higher levels of growth than the broader industry and continuing to gain market share.
The incremental trends that we noted back in August that are really the reason for the question are a couple of things. One thing that we noted that many others in travel spoke about as well is just a bit of a change in terms of lead time. So lead times obviously are the difference or the time duration between when you book a trip and when you actually take that trip. And the interesting thing that we’ve seen this year is, in Q1 and Q2 those lead times were effectively the same as they were in ‘23. And frankly, not far off where they were pre-pandemic.
And yet one thing that we noted in the numbers at the beginning of the summer, leading into our Q3 guide, was a bit of a change behavior in terms of those lead times, how much in advance consumers were booking their travel. And what we noted was that the near-term booking, so think about last minute. It could be for tonight, it could be for a couple weeks out, we’ve seen those be extremely strong.
Whereas on the contrary, what we noted was that those longer lead time bookings, so say if it’s July and you are thinking about that trip you might book for Thanksgiving or Christmas, we know that that segment was a little bit weaker, and frankly, weaker than our expectations or what we had seen for that segment in earlier parts of the year.
And I think the narrative around Q3 earnings broadly was a bit of a divide between, well, some consumer discretionary products are seeing extremely strong levels of growth, and some of them today versus travel are seeing a little bit of a different pattern. And I think when you double-click on the consumer there, I think what you find is that the consumer has different mentality around, am I going to order out dinner for $35 tonight versus is today when I want to make that $2,000 purchase for later in the year?
And so what we had been reading through the data was a bit of hesitancy on those, again, long lead time bookings. And when we think about that internally, we’re very mindful that over the last couple of years there’s been many occasions where lead times have moved a bit. Obviously, each of the COVID variants that passed through the world had impacts in terms of booking patterns. Similarly, macro data, as well as even the outbreak of war last year in October also impacted the consumer in terms of when they were booking.
And so our read-through on the lead time change was not necessarily that people would not come back and book, they just weren’t booking quite yet. And so it’s a trend that we’re obviously actively looking at, but we continue to feel very good about travel trends in general.
Unidentified Analyst
Okay. So with that backdrop, and maybe zooming out, so we do get into some of the bigger picture, longer term stuff. When you look back over the last couple of years and you see how consumers continue to interact with your company as a platform, and obviously there are a whole host of shifts, long duration stay, short duration stay, urban, non-urban.
What have been some of the key learnings about how the platform has evolved and consumers’ usage and adoption of the platform has evolved over those years. And then maybe we’ll take that and go forward from there, but just curious about those key learnings looking backward first.
Ellie Mertz
Yeah, I mean, I think when we look back a couple of years, Airbnb was really evidence of the agility of our platform in terms of the original outbreak of COVID and that we had what people were looking for and we’re able to climb out of the trough of COVID relatively quickly. Obviously, the trends that we shared there were about more domestic travel, more non-urban travel, more long-term stays. And I think if you fast forward to where we are today, many of those COVID-specific patterns have normalized, and yet there have been a handful of segments that have been extremely durable, specific to our platform.
Two that I would call out, one is non-urban travel. It was not a surprise that during the depth of the pandemic people were looking for low-density areas to travel to. But what we’ve seen on the platform is that that segment of our business has continued at a higher level than urban sites. And why is that? I think it’s a couple of factors.
I think, one, there has been heightened awareness over the last couple of years in terms of simply the diversity of markets that Airbnb serves. And second, it’s a really highly differentiated aspect of our offering. We obviously have very compelling offerings in top urban destinations. We also obviously compete in traditional vacation rental markets. But we also have listings pretty much anywhere that you would want to go around the world, and in most cases in markets where there is not a hotel alternative. And so that differentiated aspect of our platform has really persisted, despite the overall normalization of travel.
I would say the same in terms of a segment we call long-term stays, so stays of 28 days or longer. That was a segment that had a really big accelerant of the early days of COVID. And I think a lot of bearers thought that that segment would unravel as we emerged and people went back to work. And yet what we see today is that that segment is not growing as fast as short-term rentals, but on nominal terms, it’s approximately double the size that it was pre-pandemic and continues to be a very significant portion of our business.
I think that also speaks to an aspect of the platform that truly is differentiated. If you want to stay somewhere for five, six weeks, six months, a hotel is not a reasonable alternative, and Airbnb provides a massive amount of inventory that allows you to make use of that use case.
Unidentified Analyst
Okay, so with that, as the picture of the key learnings looking backwards, and you talk about wanting to invest for the future and move beyond the core as a company. I think that was a key message that’s been building a momentum from Brian over the last two earnings calls. How do you think about what you’ve learned and how it informs about Airbnb generally, moving beyond the core in the years ahead?
Ellie Mertz
Yeah, so a couple of aspects there. I talked a little bit about the changes of what has been durable and what has normalized. I think a couple of emerging trends that we have picked up that have really informed where we go, just in terms of our focus on the core business, is a focus on two things, affordability and reliability. Those are two very durable pieces of consumer demand that as we’ve looked at our relative positioning, we identify huge opportunities in terms of areas that we can continue to invest to on the affordability side, ensure that Airbnb is consistently providing a great level of value to the guests.
And on the reliability front, ensuring that when people come to Airbnb, we don’t just meet their expectations, but we exceed them, and that’s been a huge area of continued focus and that we know those two factors are extremely important to guests, and they are extremely important in terms of us continuing to deliver a great growth across the globe.
Unidentified Analyst
Okay, so let’s stick with that last point around across the globe, because I think the other notable shift in commentary that I’ve heard from the company on earnings calls in the more recent past has been sort of a refocus on getting the international piece more right.
It seemed like there was a bit of a messaging of, we’d focused on the core; we’d focused on some of the more developed markets. There’s a big world out there. A lot of opportunity, we need to sort of get that right. Talk about how that geographic focus, away from just how you align around the consumer, might also alter what the platform looks like in the years ahead.
Ellie Mertz
Yeah, so I think most people perceive Airbnb as an extremely global platform, because we have a presence in over 200 countries and regions around the world, and yet when we double-click at a market level, what we see is that there’s a pretty wide range of relative penetration.
In particular, what we see is that for our five core markets, those would be U.S., Canada, U.K., France, and Australia, the level of penetrations that we see in those markets effectively dwarfs that of the mid, long, etc., tail of incremental markets, and about two-thirds of our business continues to be concentrated in those core markets.
And so what that tells us is, there is a huge opportunity beyond those top five to deploy our global marketing playbook, to identify what product localization is required, such that we can drive differential growth of those non-core markets over time. And so what you’ve seen from us in the last couple of years is every year we’re identifying what is that next single market or set of markets that we’re going to turn our attention to. We will effectively turn on the marketing playbook while simultaneously identifying what are those items about? The product or the narrative or the messaging, that need to be effectively tweaked, such that we can drive differential growth in these markets.
We’ve seen some really nice success in that playbook, in particular in places like Brazil, Mexico, Korea. And when I look at that as a growth lever, it’s an extremely important one, both in the quarters to come, but also in the years to come. Because if you think about the distribution of our business that I noted earlier, the majority continues to be in those core markets. And our objective is over time to normalize that distribution, such that these non-core markets are obviously one or a larger percent of the total, but are providing a differential level of growth tail into the consolidated total.
Unidentified Analyst
When you look at – and maybe it’s very different market-by-market, but when you look at that opportunity set, do you guys as a company look at that and say, it’s a demand unlock problem, it’s educating the consumer, it’s driving demand, or is it also an element of supply? Do you think you have supply in those types of countries and you are just not marrying that supply with the right level of demand? Which is the bigger friction point to unlock that could produce growth?
Ellie Mertz
So it depends on the market, right. So if we think about Germany for a moment, Germany, part of the effort is really just the guest consideration, making Airbnb seem like a local trusted German brand, having the right payment methods, marketing to that consumer at the right time, because Germany is very much an outbound market. Other markets are highly domestic and so there’s different components.
I think the nature of your question underscores the importance of taking a very specific market focus to identify what are those gaps that we can fix and therefore deliver differential growth rates.
Unidentified Analyst
Okay, sticking with that theme though on supply, I think you’ve introduced a lot of innovation in the market in the last 12, 18 months, where you continue to think about ways of opening up pockets of supply. Brian’s talked a lot about if you are a traveler, you should become a host. If you’re a host, you become a traveler and try to create a flywheel effect around all that. Talk a little bit about some of the innovation you’ve introduced on the supply side, and how should we think about sort of elements of pockets of growth you are still trying to drive globally around supply?
Ellie Mertz
Yeah, let’s talk generally about supply. I would say we are extremely proud of the supply growth that we’ve been able to deliver over the last couple of years. If I were at this conference two to three years ago, the question would have been, do you think you’ll ever be able to drive the supply acquisition that you need to settle… [Multiple Speakers]
Unidentified Analyst
I might have asked Brian that question two years ago at this exact conference.
Ellie Mertz
You probably did. Yeah, and I think the results speak for themselves in terms of our ability in particular in ‘22 and ‘23 to reaccelerate supply growth, to get the level of global supply that’s required to meet demand.
Our efforts there were a combination of one, a very nice organic virtuous cycle in terms of general supply growth. Second, a real focus on both marketing and product to meet the host at any stage of the life cycle to accelerate the overall supply trends. And what we’ve been able to deliver is over the course of the last couple of years, really strong supply growth at the regional and market level to match and catch-up to the demand that obviously rebounded much quicker coming out of COVID.
The other thing that we’ve been focused on, and I would say this is an incremental focus that you’ve seen from us over the last, say, nine to 12 months, is not just a focus on how do we grow supply, but more importantly, how do we raise the overall quality of supply on our platform?
When we think about experiences on Airbnb, we know from the data on our platform that the vast majority of guest experiences on Airbnb are incredibly positive. But we also know we have some very small fraction where we don’t meet the expectations of the guests. And a portion of that is due to supply that simply does not meet quality expectations. And so what we’ve done of late is be more aggressive in terms of taking down those listings that will not meet the expectations and we don’t feel are good for the brand.
We’ve also done a lot on the product side in terms of better merchandising to the guest, which are those listings that we can highly, with high confidence, merchandise to you and you can expect to have a great experience. Something that we launched back in November is a merchandising badge called Guest Favorites. And Guest Favorites is a collection of the top two million listings on Airbnb that’s based on the average rating, the review data that we have, as well as just platform data in terms of what’s happened in these listings.
Based on all of that data, we can highly, with high confidence, suggest to you these are the listings that you should book. And the intent there is really to provide better transparency to the guest and to meet their expectations and overall deliver a much higher quality experience.
So a bit of roundabout answer, but really important to note that when we think about supply, it’s not just about growing the numbers, it’s also making sure we have the right supply and it’s of high quality.
Unidentified Analyst
Yeah, understood. Maybe just one follow-up and then we’ll move on from there. When you think about big events happening, obviously the Olympics happened in Paris this year. There were the European Football Championships in Germany. There’ll be a World Cup here in the United States in 2026. How do you think about the elements of still how you can benefit from bigger events and what opportunities and challenges that presents on the demand and the supply side?
Ellie Mertz
Yeah, I mean, I would say we’re super excited about what we delivered for Paris this summer. Paris is our largest city in the world in terms of overall nights, as well as listings. And yet knowing that there was going to be this huge world event this past summer, we got the effort out and were able to increase supply in that market by over 30%.
So it gives you a sense of a couple of things. One is the ability to keep growing even in our top market at great levels. Second, the ability to leverage an event to really drive, (A) get out the effort and attract new hosts inclusive of more casual hosts that can bring great diversity in terms of great listings. And then second, a really great branding moment in terms of being there for not just the event, but for a city.
So if you think about in the case of Paris, our ability to house over 400,000 guests during those games is really showing a partnership with a city of how we can be helpful and prevent the need for incremental infrastructure that would not have a persistent usage. So you should see, events have been historically a great strategy for us in terms of both driving supply and awareness and you should see that we continue that strategy.
Unidentified Analyst
Okay, understood. The team has talked a lot about the potential for Generative AI to inform the platform and product going forward. I think there’s a very healthy investor debate about whether Generative AI is a good thing or a bad thing for the travel industry more broadly.
When you guys sit down as a team, what’s your structural view of how Generative AI might change travel and how you think about aligning investments? Again, what your world view is about Generative AI could impact your platform, I’m assuming to the positives since you are investing against it?
Ellie Mertz
Yeah, I think we continue to be extremely excited about the possibility of leveraging Gen AI to deliver a better travel experience, both from a planning perspective, but also on the trip. At the same time, I think our view is that a lot of the really transformative applications are going to probably take longer than maybe we all expected a year ago with a lot of hype.
When I think about the applications that we are focused on internally, the one that I’m actually the most excited about is leveraging Gen AI to improve our overall customer service. If you’ve been on an Airbnb trip, customer service can be challenging. You have a guest and a host who may speak different languages. There’s thousands of permutations in terms of what issue might arrive or potentially a conflict, and there’s also a myriad of policies in terms of how we intend to resolve every type of issue.
And it really, you kind of think about that complexity of information that needs to be brought together quickly, and it’s a very ripe area for us to be investing in Gen AI to improve the overall customer experience. I think that’s where you’ll see the first real nuggets of great improvement to the product. But the ambition is obviously not just to improve customer service, but to provide a much more personalized and transformative trip planning experience. So that will take years to come, but it’s where we’re focused.
Unidentified Analyst
Understood, okay. Keeping with the theme of expanding beyond the core, one thing I wanted to ask about was experiences local. How do you think about elements of supply around building larger basket sizes, bigger travel planning initiatives? How do you think about driving supply and then bringing that supply back to informing your consumers and your customers that that’s available to them to build bigger experiences and bigger travel packages on the platform?
Ellie Mertz
Yeah, so experiences, I think people are aware we’ve had a small experiences business for several years. We put it on the back burner over the last couple of years during COVID and are in the throes of getting ready to relaunch and expand that business.
Since we’ve been in the business for some time, we have been very mindful of the relative learnings of what works and what doesn’t work. When you talk about creating the incremental basket size and really being added to the platform, I think one of our learnings is while everybody in travel has this ambition of building out the entire trip, most consumers are not purchasing that entire trip in one go. Instead, there’s a different period over which they are booking the airfare, booking the accommodations, getting to restaurant reservations, activities, etc.
And so we’re very mindful in terms of how we expand experiences. How do we get in front of the consumer at the right time? How do we have the right product experience, so that we can easily encourage you to attach to an existing stay that you are probably not booking at the same time? And so that really informs the product strategy of how we, in the future, go about expanding that product to scale.
Unidentified Analyst
Let me ask an outside-the-box question. You guys, as a company, have always been doing travel in a very non-commoditized way. So when you think about, I’m going to buy an airplane ticket or I’m going to reserve a restaurant, that’s in a lot of ways a lot of commoditized product that sits alongside maybe like a hotel room or something like that.
When you think about the base of hosts that you have, that could give experience recommendations or local flavor or local color. How do you think about tapping into that as an asset broadly to maybe inform for a traveler, when you get here to my house, you should do X, Y, and Z in the local community and maybe do it in a more non-commoditized manner? Is that something that you should be thinking about or that you are thinking about on a product roadmap standpoint?
Ellie Mertz
I mean, I think what you are getting at is better personalization.
Unidentified Analyst
Yeah.
Ellie Mertz
So whether it comes from the host or it comes from us or it comes from an AI model, I think one of the holy grails that we are working towards is how do we know more about you as a guest, so that we can better inform the merchandising, not only the home that we put in front of you, but what are the experience sets that are going to be relevant for you for this trip? And I think the opportunity size is large there in terms of improving the overall product experience. At the same time, we are mindful that unlike some other platforms, the frequency of travel is lower and therefore your information capture takes a bit more time.
Unidentified Analyst
Okay, understood. Last one on sort of expanding behind the core, we get a lot of questions about promoted listings.
Ellie Mertz
I’ve never gotten a question about promoted listings.
Unidentified Analyst
Exactly. I think there’s — I want to ask a little bit different way. In terms of when you think about what promoted listings can do, I think a lot of investors focus on what the pure math is and how it can impact the P&L.
How are you thinking about promoted listings more holistically in terms of aligning the goal of promoted listings against balance of supply and demand on your platform, making sure just introducing an advertising product for the sake of it isn’t the goal, but creating a right balance between supply and demand?
Ellie Mertz
Yeah, so when we think about paid placement, sponsored listings, advertising or whatever you want to call it, we think about it from the perspective of what is the service that we are going to provide the host? And so when we talk about expanding beyond the core, it’s not just what can the consumer guest purchase from us to fill out a trip, it’s also how can we help the host to be more successful? How can we find them a co-host? How can we help them with services that they need to be a host? And one of those could be, how do we allow hosts to pay to meet their earnings objectives?
And so we think about it in that lens of what is the suite of services that we want to provide to hosts to make them more successful, and that’s where it sits in our roadmap. I think some people presume that Airbnb is allergic to promotable listings. That is not the case. We just have not prioritized it yet.
Unidentified Analyst
Understood, very clear. Bring it all together for us, I think as we’ve gone through this past couple of earnings reports, you’ve been very clear that the company is currently in an investment mode. You’ve given a bit of a framework for this year to how to think about, I don’t know if it’s the right word to use, but a floor of as low as something for EBITDA.
Ellie Mertz
It’s pretty high for a floor.
Unidentified Analyst
I would agree, and 35% is very high. But what do you think is not being heard from that message from the broader investment community? I think we get a lot of questions on what do you mean by the investment cycle and what do you mean by the sort of EBITDA margin you’ve given.
With this opportunity, just what do you want to leave investors with in terms of what are the priorities for the investments you are trying to make going forward, and how should we think about this year as sort of representative of some sort of investment cycle or sort of just an element of this year and we’re not ready to talk about beyond this year just yet, which I think is where we sit right now.
Ellie Mertz
Yes, so I think it’s important to understand where we’ve come over the last three years to really answer that question. So we went public December 2020. We had negative EBITDA margins, negative five. And within the course of three years, we’re able to go from negative five to nearly 37% EBITDA margins last year, which was well in excess of actually where we had set our long-term margin target, at the time of the IPO. And we were able to do that really from two things.
One is, a tremendous amount of financial discipline, but also the benefit of high average daily rates. And so when we look at where we are as a company right now, we’re extremely proud of that trajectory in terms of demonstrating how profitable this business can be with free cash flow margins that are in excess of those EBITDA levels.
At the same time, we would like to drive higher growth. And so the intent with the guide for the current year in terms of pulling back a bit on the margins was to invest in short, medium, and long-term levers for growth, such that in future periods we can deliver top-line growth at rates higher than we are today, while still maintaining very strong levels of profitability, and so that’s the cycle that we are in right now.
Unidentified Analyst
Can I just ask one follow-up, and maybe it’ll be putting too fine a point in it. Should investors be thinking about these investments as relatively fixed in nature today and the return profile on those fixed investments could come down in the future? Or are they elements that have a variable nature that could be more short-term in nature in terms of the return profile?
Because there’s a peer or competitive viewers that went down this road a couple of years ago, talking about more fixed investments that would outrun potentially growth rates of revenue and that eventually runs its course. But I just didn’t know how we should be thinking about fixed versus variable and return profile, if you are ready to talk about that yet on those investments.
Ellie Mertz
So I would say generally speaking, when we’re looking at growth levers, it’s across the three growth levers that we have shared repeatedly. It’s short-term, but long in duration, all of our core optimizations. Its expansion markets, and then it’s expanding beyond the core.
And so when we’re thinking about these incremental investments, it’s a layered approach where the intent is to have things be delivering over time in terms of incremental growth, and leaning in where we see the biggest ROI. We’ll give a more clear view in coming quarters in terms of the net level of investment for ‘25 and beyond.
Unidentified Analyst
Okay, so bring it all together for us, we’re in the last few minutes of this. The broader view of where the travel industry is growing over the next couple of years, just three to five years. I’ve tried to be ending every one of these conversations on sort of a big picture note.
When you guys sit down as a team and think about where the company is going or where the industry is going, what most excites you about the landscape for travel and Airbnb broadly as a platform inside that landscape?
Ellie Mertz
Yeah, let me just speak about us a bit. I’ve been at Airbnb for over 11 years and just recently took the CFO spot back in March. And what gets me continually excited in my second decade at this company is the untapped opportunity we have to offer more than our core offering.
So in the last 15 years, we’ve built this really material scaled global business, over $70 billion of gross booking value, and yet that $70 billion plus of gross booking value is fundamentally one offering. And we haven’t even begun to tap either side of the marketplace in terms of the incremental products and services that we can bring to both guests and hosts, to one, make their experience with Airbnb better, but two, fundamentally increase the scale of this business by multiple revenue streams and businesses.
Unidentified Analyst
All right, well first, I know we’ve got a few minutes left, but I think we’re going to leave it there for two reasons. Number one, this conversation is between investors and drink [ph]. So we’re going to leave it there, because we want to let people get to their networking reception first.
And second, Ellie, thank you so much for doing this. I know you agreed to do this very late on. Thank you so much for stopping in. I really enjoyed the conversation. Great to see you.
Ellie Mertz
My pleasure. Thank you.
Unidentified Analyst
Please join me in thanking Airbnb.