Airbnb Inc

NASDAQ:ABNB

Earnings Call Transcript 2021-Q4

[Brent Thill, Jefferies]

Welcome everyone. It’s Brent Thill from Jefferies. We’re really happy to have with us today Dave Stephenson from Airbnb. Dave has been CFO for over 2.5 years. Prior to that time, he had spent almost two decades at Amazon, almost a decade at P&G. We really appreciate Dave your time and perspective on the story. And I think, you know, everyone may be just to kick off, just curious about, you know, where we're at, in the shape of the recovery and what's happening? I think we're all feeling a little bit better about wandering back into the world and spending time on the road, give us a sense of just high level, how you would frame what you're seeing, from your perspective on the global travel market?

[Dave Stephenson, Chief Financial Officer]

That's great. Thanks, Brent. You know, a lot of what we're seeing is just people ready to travel. And they have been, you know, stuck at home, kind of working on Zooms and really wanting to connect back with family and friends. And what really we've seen is a strong rebound in that travel demand, especially in the U.S. And, but we've seen globally just to demand to travel domestically, and travel nearby. And those are trends that we're kind of seeing in all locales around the world, but you know, clearly for our business we've seen a rebound in the U.S. are much faster than other parts of the world. Europe is starting to come back.

We're seeing growth increases in every month of the year since the beginning of the year. And so, we're optimistic about the travel, the travel rebound, especially in, you know, obviously we're seeing in the U.S. Obviously, optimistic about we're seeing in Europe. And so, we believe that if we continue to unlock many of the borders and allow more people to travel, especially in Europe, we're going to continue to see progress on the largest travel rebounds that we’ve ever seen in history.

[Brent Thill, Jefferies]

Yeah, maybe the U.S. has felt better in kind of pulling the thread on Europe, kind of what you're seeing specifically? It seems like things are really starting to ease even when you look at some of the news even coming out, you know, Canada, and what's starting to, kind of everything seems to be fine a little bit, just give us a sense of how much more room do you think we have until we're back to full recovery in Europe and other parts of the world if you had a, just a simple barometer, I don't know what the best way to frame it would be?

[Dave Stephenson, Chief Financial Officer]

Yeah, I think if I'm trying to be thoughtful about how we end up trying to forecast the future, given the unpredictability of the last year, it's hard to perfectly predict the future, you know, performance. Obviously, what we've seen in our business is real strong strength in the U.S. being well above our 2019 levels, our overall results above 2019, you know, Europe growing every single month and doing better than the month prior.

So, we're very optimistic about the back half of the year. I mean, it just depends on whether or not the borders stay open. And there aren't any other further lock downs. You know, we should have a strong recovery here in the back half of the year globally. Latin America and Asia still are lagging in their rebounds relative to U.S. and Europe.

[Brent Thill, Jefferies]

About three weeks ago, you announced the most comprehensive update to your service in 12 years, what does this mean for the company?

[Dave Stephenson, Chief Financial Officer]

I think it means that, you know, we are focused on making sure that we are taking – supporting our guests and our hosts in the way that they are traveling now, right. These 100 upgrades that we do really refine the core service that Airbnb has created over the last decade, but it's also to give features and functionalities that guests are really wanting when they're traveling. Things like, they're basically are finding that people are more flexible with either the dates or the locations that they're willing to travel. And we're sort of building features to enable that.

So, like a flexible date feature where instead of actually searching on fixed dates, you can search for a weekend getaway or a week-long vacation or a month-long stay. We find that that's a real benefit to our guests. And sometimes people are also more flexible in their destinations. They just want to travel, they want to get out, they want to be with their friends and their family. And the exact specific location is less critical to them. And so that's another feature that we've been building out. So, a lot of what we're doing is just improving the fit and finish of the core service of Airbnb, and then building on functionalities that people are finding are helpful to them as we're finding that travel living are blurring and the flexibility is increasing.

[Brent Thill, Jefferies]

One of the questions I've gotten from clients and again if anyone has any questions, you can email me at [e-mail] and I'll bring those questions up in the conversation with David. As we rebound the acceptance to go back to hotels and in other forms of accommodations are rising and many ask, you know how you're going to effectively capture the perfect trip? Many of the trips we go on with Airbnb, if you have to incorporate a hotel or air other things, how are you thinking about incorporating other parts or not of this overall trip experience?

[Dave Stephenson, Chief Financial Officer]

You know, Airbnb is focused on providing hosted stays and experiences to guests around the world. You know, one of the things that we've done amazingly well over the last, you know, decade plus is to match millions of unique stays and experiences with tens of millions of unique guests. And so the thing that we are continuing to work on is be able to match up those two parties, and probably will. Because we end up with, you know, a wide range of stays that we've been [indiscernible] from, you know, a shared room to $10,000 a night, you know, we're great for individuals, we're great for families, we’re actually great for business travel.

And so, we have this incredibly wide array of opportunities for how people can travel. And so rather than trying to perfect a perfect trip on end to end basis from every element that you might need for the trip, we're trying to make sure that we are able to support any kind of trip that a person might want to have and do a better job of matching up those needs, which goes back to many of the features and functionalities we talked about launching in May. All those are oriented around this harder problem, which is to match up millions of unique supply with tens of millions of unique guests.

[Brent Thill, Jefferies]

You've had a very strong experiences business, so you actually put the accommodation and you want the rock balancer in Lake Tahoe or you want to go on a Kayak tour, when you think about experiences and what that means, can you can you walk through how important is this to your overall strategy?

[Dave Stephenson, Chief Financial Officer]

I think experiences like the ultimate individual hosted event, right. It is an individual sharing their time for – and their expertise with a group of people and so it's really to us the quintessential individual hosting activity. And we think that it augments and supports overall Airbnb in emphasizing the uniqueness of all the different things you can do. And so while we're very bullish on the experiences business for the long term, it’s obviously been significantly impacted during COVID because, you know, there's completely in person prior to COVID and then you know, virtually completely shut down in the midst of COVID.

I was really proud of the team to kind of pivoting and making available online experiences. So, to enable a lot of the same experience hosts to actually provide many of their experiences in a virtual setting and I thought that was very creative and very powerful for us. And what I'm excited now is that some of the experiences are coming back in person, and over time, you know, will continue to grow to be a significant business force.

[Brent Thill, Jefferies]

Dave, we've got a couple questions from clients on the email hotline, we'll go to those first. One of the questions was, when do you expect somebody interesting initiatives that you had to cancel to protect the company to resume?

[Dave Stephenson, Chief Financial Officer]

Yeah, you know, we're going to be very judicious about the expansion of incremental investments outside of our core. You know the core business of individually hosted stays and experience is massive. And we have just barely scratched the surface in that core opportunity that we through this pandemic, we have clarified the importance of us to focus on that core. And we've clarified that that's really what makes us unique and different and gives us strength.

And so, we will be, there are so many opportunities to invest in this, kind of core piece, that the time that we [indiscernible], and where we might add-on ancillary things like, you know, transportation, which is one of the areas that we cut back last year, it will be a while until we would think about doing that again. And even to the extent that we might, we would do it in a much more holistic way along with the core business, which is around individual hosting. And until we would do it in a way that would be more unique and very specific to Airbnb rather than generic, a generic offering that could be found anywhere else.

[Brent Thill, Jefferies]

Another question from a client is relates to, just, you know, restrictions in regulation, we've seen restrictions on Airbnb in places like Barcelona, is this more of a widespread risk? How are you moving to mitigate this overhang?

[Dave Stephenson, Chief Financial Officer]

You know, we're actually finding right now that this has been – the COVID crisis has been a bit of a reset moment for many cities, and that our relationship to these cities, frankly, it's never really been stronger. We've actually been working with hundreds of cities around the world to help them recover the travel decrease that they've had, you know, we've collected over $3.4 billion in tourist rent, tourism related taxes, and many of these cities are hurting for tax revenue.

And so what we're doing is, continuing to work to be a better partner with them doing things like last year, we launched the city portal, which is a portal, which enables cities to be able to communicate with Airbnb and understand the activities that Airbnb has in their communities. And again, like I said, we have 100 partnerships with destination marketing organizations and communities around the world to help them recover in the ways that they want to recover. So, we actually think this COVID crisis has been a time where cities are able to kind of step back and see how we can work with Airbnb in a positive way going forward. So, I'm really confident on the regulatory front.

[Brent Thill, Jefferies]

One of the other questions we've gotten, you know, and this is probably just a sign of the times is many of us that have looked for places this summer, even into the fall are finding not a lot of great places now, it seems like there's a lot of demand in how you're keeping up and fulfilling, you know, the demand, which is obviously, the accelerators, we will want to journey out beyond Zoom. So, can you walk through how you're thinking about, you know, the, you know, the supply side of the equation, and what you're doing to get the right supply and what seems to be an increasing demand environment?

[Dave Stephenson, Chief Financial Officer]

Again, we're very optimistic in the rebound. We're seeing incredible strength as we talked about earlier, obviously, in the U.S. and continued strengthening in Europe, you know, the vast majority of our hosts around the world have, we have plenty of supply and available inventory all around the world. The vast majority of our hosts have available nights, and we're actually – our nights have been down still relative to 2019 in the majority of countries around the world. The exception has been, you know, the U.S. in non-urban, maybe beach locations here in the summer. And you know, August is clearly a kind of constrained area, you know, but beyond that the rest of the world is actually quite open and ready to receive guests when they're ready to kind of travel.

So, one of the things we're going to continue to do and we've done this for years, and we think we're better at it than anyone else, is to continue to recruit individual hosts to host with Airbnb by both making them understand the benefits of hosting. You know, some of the benefits are obviously the economic benefits are the most obvious ones. You know, we founded Airbnb in the depths of the, you know, great recession. And that was a great time for individuals to earn extra income at a time when they felt like that was beneficial to them. And in some ways, we're kind of in a second recession, and we have a second environment where many people are economically, you know, have economic stress, and may turn to hosting as a way to earn additional incomes.

One of the things we’re doing with the broad scale marketing campaign that we've been doing, this made possible by host campaign is just educate both guests about what's great about coming to Airbnb and for their stays, but also educates hosts about the benefits of hosting. So, we're actually when we spend our marketing dollars, we end up being able to market to both guests and hosts. And then many of the improvements that we talked about earlier, these 100 improvements that we've been making to the core service, just actually make it easier to host.

Make it more easier for potential host to understand the support that we provide them at Airbnb, and then just actually make the act of becoming hosts simpler, more straightforward, more intuitive, and more powerful. And things like matching up new prospective hosts with experienced super hosts. And so those were all the things we're doing to continue to unlock supply. So, I'm very – feel very good about our current situation with – in terms of available supply, and I'm confident in all of the improvements that we're making that we’ll continue to grow, you know, our business going forward.

[Brent Thill, Jefferies]

Another client question was just around, kind of the long-term CAGR, and I know that might be difficult to answer, but how you think maybe that, kind of reframe the question or if you can answer it, how you think about this balance of growth and bottom line profitability and how you think about that in the short-term and the long-term and ultimately, kind of what does that long-term margin profile look like, do you think as you continue to build scale?

[Dave Stephenson, Chief Financial Officer]

So, our goal is to have sustainable durable growth with significantly more profitability. We believe that we can get to more than 30% EBITDA margins over time. And we've actually, I think, demonstrated here in Q4 and Q1, significant progress in our profitability. We made some really challenging choices last year, to reduce overall fixed costs. And we are going to be very judicious as we talked about earlier in adding back fixed costs to Airbnb. We will grow fixed cost lower than revenue and we'll gain leverage on that. We've made substantial progress in our variable cost improvement.

So, everything from infrastructure costs, cost of payments, [committee support costs], up and down the P&L, we're making nice improvements in our variable costs. And so all those activities lead to this trajectory of 30% or more EBITDA margins, and that's not even including future monetization opportunities that we might have in Airbnb. And we can do that while having durable double-digit top line growth for the business as well. As we said, you know, we have a huge market that we are of any kind of stay and experience that a person might want in any country around the world. And in that basis, we're very small player and have a huge opportunity to grow.

So, I'm confident that we can do both grow in a very solid, kind of double-digit manner for an extended period of time, while also demonstrating the profitability. And like I said, I'm excited that we could actually not just talk about what we could do, but actually show it in our financial results, both in Q4 and Q1.

[Brent Thill, Jefferies]

When you think about the cost structure, there was another question just to drill in, like, what are you finding the most areas for operational efficiency? Are there some big buckets that you could actually bring up and describe where you're really getting better scale going forward?

[Dave Stephenson, Chief Financial Officer]

Well, probably the single most – we talked about one fixed cost leverage, we had a reduction overall absolute fixed costs, we're not growing as quickly as we grow, we're going to get great leverage there. Obviously, the marketing expense has been a big change, we have spent significantly more on marketing as a percentage of revenue in 2019. Have shifted our approach to be much more brand centric, and less dependent on search engine marketing, basically increase the bar expectation of the return on that search engine marketing spend, and feel very good about that approach.

Here in Q1, over 90% of our traffic was actually direct or unpaid. And that's largely because of the strength of our brand that we have one brand in the world, Airbnb, it's a truly global brand. It's not a U.S. brand. It's not a European brand. It's a global brand. And we don't have to go feed a number of other sub brands there. We can have one mouth to feed, Airbnb. And as I said, we even get the double benefit of when we market to guests, we also market to host. So all that leads to great efficiency on the marketing side. And that's been a material part of our improvement. And then the rest of the variable cost side, that's a long journey.

Like I was the head of finance for Amazon's global consumer business, and, you know, working on things like infrastructure costs, payments, costs, you know, community support costs, those are our journeys. Those are never ending activities. But I think you can make metronomic improvement in all of those over time. And I think those will just continue to yield, you know, benefits to our bottom line. So, those are not, usually those areas are not step changes, rather they are ongoing improvement efforts of just getting stronger and better at the muscle of variable cost improvement.

[Brent Thill, Jefferies]

There are a handful of questions just to understand how you build out the competitive moat. And if you look at others, like VRBO with Expedia, you've got local brands, if you go to Jackson Hole, you've got outpost, if you go to Napa, you've got beautiful places. You've got, you know, there's a lot of different potential competitors. And everyone would love to hear how you're building your moat out, what's really going to differentiate you over the others that are moving in?

[Dave Stephenson, Chief Financial Officer]

Well, I think the key is this focus on individual housing and individual unique supply. I mean, I think that's what we're known for. That's why people come to Airbnb are these hosted stays, the unique supplies and activities that we can provide to them. And I think it's the strength of having one brand. We actually don't have to try to feed, like I said, all these kind of sub small brands, there are some scale, because if you have a, you know, a small brand in Jackson Hole, you can only go to that in Jackson Hole.

And you don't think about that same brand the next time unless you travel to Jackson Hole every single time, next time you travel to Florida, or next time you travel to France or when you want to do your very first trip to Greece or Asia, you know, you can't travel that same one. With Airbnb, we can provide it to anyone and this is where, you know, going back we have you know, shared rooms. You know, boutique hotels, and luxury villas, like we have anything.

If you want to travel with on your own for business, or you want to travel with your wife for a romantic getaway or want to travel with your family for kind of a family event, you can be able to – come to Airbnb and provide that to you. And then one of the things like I said, we're trying to do better, I think we do it better than anyone, but we can continue to get better at is better matchup those individual used cases, because even an individual needs will be different depending on the trip that they're taking. And as we continue to do a better job with both our structured data and our unstructured data to understand what the need is of a particular traveler and match those up, we think that that will continue to give us the strength of Airbnb.

[Brent Thill, Jefferies]

I think everyone would love to kind of hear you mentioned, you know, Asia is still somewhat lagging, but just drilling into China, you know, your strategy there and how important this region is to you?

[Dave Stephenson, Chief Financial Officer]

China is an important business for us. The most important part of that business is the outbound traveler from China. So, significant number of Chinese travelers traveling elsewhere around the world, obviously, that is almost zero at the moment. And so until we reopen borders and have that travel again, that part of the business is significantly depressed. But we're confident that we'll come back, and it will be important part for us. One of the things that we've done over time is, when we saw the strength of the business of Chinese travelers traveling outbound around the world, and then they would come back to China and actually look for Airbnb’s in their own home country.

Again, it goes back to this global network that we have in the power of this brand. So, we started building a domestic business. And that domestic business of Chinese travelers traveling locally in China is actually doing quite well and is back [towards 2019] levels right now. So, it's important part of the business for the future. We're just waiting for borders to open up again and allowing Chinese travelers to travel again.

[Brent Thill, Jefferies]

Dave, another client question, just asking about market share in your developed markets, is there an easy way for you to frame your overall share or is there another metric maybe that you look at that is, is more important, any thoughts around the share?

[Dave Stephenson, Chief Financial Officer]

Yeah, I mean, I think again, we are trying to make sure that we can be and accommodate any, kind of stay. And so really, we're more focused on how broadly can we penetrate all the types of stages of accommodation that people might have. And in that area, I think we saw the long opportunity, especially in Latin America and Asia. When you think about any kind of stay, it's not just a traditional hospitality, kind of vacation trip, right?

A big part of our business now is actually even longer-term stays. You know, prior to COVID 14% of our nights were of stays of 28 days or longer. And now, even in Q1 24% of our nights were actually 28 days or longer. So, this is like a totally different used case than maybe what a traditional hospitality or an online travel agent might see. You know, our average, you know, nights per booking are going to be, you know, 4.5 or so. And so, and we think as [people, the flexibility] increase, and the idea of travel and living blurring continues to increase, we think that that's going to be a benefit that will be a tailwind for Airbnb.

[Brent Thill, Jefferies]

Another question from a client, I think this is an interesting one, and it really revolves around you know, those that have second homes or primary home, they kind of have to get the home ready, they have to do certain things, and there's been an ecosystem of partners, whether it's a volume meter, which is, if my kids were in the house, the volume meter would go off, and the hosts would get an alert, just my kids are yelling too loud, you know, airlocks, you know, the – all the kind of infrastructure that makes it easier to enable. And the question goes back to Apple, you know, do you – how do you view the risk of Apple, kind of getting into this? And are they more of a partner, could you – do you feel that they're taking share? There was a question just around, you know, that the partner ecosystem, the leverage that you could get with them or competition?

[Dave Stephenson, Chief Financial Officer]

You know, I'm actually really, I think we have lagged and under penetrated in that opportunity. I mean, I think there are much more than we can do with, you know, keyless entry, there's much more that we can do with, you know smart home activities, there's much more that we could do in these partnerships. I think we're – so I'm actually very bullish on the long-term.

I think these are areas that can be incremental revenue drivers for us over time. And I like the company, I like the actual competition, because Amazon, Google, Apple, all want to be part of this smarter home. And I think that we have opportunity to work with them to unlock some really important things that guests and hosts would find really valuable. So, I think we're – we have long ways to go in that area, but I think it's a really great opportunity for us.

[Brent Thill, Jefferies]

Another question just around the recovery of your business, and we've heard some pretty strong comments in the last day or so from the CEO of Morgan Stanley get back to the officer, you're not going to get paid, Jamie Dimon saying the same thing. And many say, well, if the rest of the CEOs in the world start saying this, you know, does this impact an opportunity for you guys? How are you running your structure on the return? Are you going to let employees be wherever they want to be? How do you think about, you know, the return to the San Francisco office? What - give us your perspective on what's happening?

[Dave Stephenson, Chief Financial Officer]

You know, we're being slower in actually trying to claim perfect knowledge about how we should have all of our employees work. I think that you're even finding some of the companies that are declaring one thing earlier, having to kind of backtrack and adjust later. I mean, I think what – and you have other companies, you mentioned a few that everyone's back in the office. There are others, like, you know, Google, or Apple, or Facebook that have said that at least two to four weeks a year, people can work remotely from anywhere. And so that kind of being incrementally flexible.

So, we don't have specific policies that we've actually outlined for our company yet, we will be more flexible, we will likely be at a more hybrid environment, we're not going to be all in the office, nor are we going to be completely remote. But exactly how we operate in that vein, is still to be determined. We're taking our time, because we don't want to try to declare, you know perfect knowledge.

Now, when I think that no one exactly knows the best way in which is all going to play out. What we do know is that employees are going to expect more flexibility, there's going to be a war for talent. And we're going to want to continue to provide the flexibility that our employees demand so that we can continue to attract the best in the world.

[Brent Thill, Jefferies]

Dave, we give you the magic wand and it's my pen, you can wave it over any constraint many would say maybe it's you know, the global traveler getting the global traveler back out, getting the borders open. Maybe one thing, are there, you know, maybe that's not your top magic wand activity, but when you think about what you would say would be the one or two things that you know can really, if you can unlock now, can really show the real promise of this platform, the story, what would those items be?

[Dave Stephenson, Chief Financial Officer]

No, I'm really proud of – we talked about it during the IPO that we have a very resilient business and we can withstand and both thrive in many different environments. And I think that's what we've continued to show and show that through the COVID crisis. We're showing it now through Q4 and Q1 results, you know, we have revenue above 2019 levels, even though our cross-border travel has returned, right, plus 50% of our business, kind of pre-COVID was cross-border, and now it's about 20%.

You know, our [Ermine] business has been down substantially. And yeah, that's been historic strength. And so what I think we're expected to see is that we've seen incredible rebound in our business, even without these two major areas, cross-border and [Ermine] rebounding to back to [2019 levels], and we're seeing good positive momentum in each and we'll expect, you know, when those strengths to be great tailwinds for us, kind of going forward. And then as we talked about these trends of travel and living, this extended trips that people are taking, you know, 20 days or longer, we think that's an important trend that will continue to see accelerate.

And then the benefit of just incremental flexibility, even if that means that a family can take one more incremental trip a year because they can take a Zoom call on a Friday, and be willing to spend a four day weekend somewhere. People are going to be more flexible than they were before. How much more flexible may vary by family and by individual around the world, but they're going to be more flexible, and we think all those will benefit to us. So, the magic wand is, you know, more vaccinations, you know, more borders unlocking, returning to more urban and cross-border on top of all the other benefits we've had, and our business will continue to thrive.

[Brent Thill, Jefferies]

That's great. Well, we really appreciate you taking the time to share the story. Congrats on all the success and we're looking forward to stay in touch. Thanks so much Dave.

[Dave Stephenson, Chief Financial Officer]

That's great. Thank you for the time. Enjoyed the conversation.

[Brent Thill, Jefferies]

Take care, everyone.

[Dave Stephenson, Chief Financial Officer]

Take care. Bye, bye.