Airbnb - Q1 2023

Transcript

Operator (participant)

Good afternoon, and thank you for joining Airbnb's Earnings Conference Call for the Q1 of 2023. As a reminder, this conference call is 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.

Ellie Mertz (VP of Finance and Investor Relations)

Good afternoon, welcome to Airbnb's Q1 of 2023 earnings call. Thank you for joining us today. On the call today, we have Airbnb's Co-Founder and CEO, Brian Chesky, and our Chief Financial Officer, Dave Stephenson. Earlier today, we issued a shareholder letter with our financial results and commentary for our Q1 of 2023. These items were also posted on the investor relations section of Airbnb's website. During the call, we'll make brief opening remarks, then spend the remainder of time on Q&A. Before I turn it over to Brian, I would like to remind everyone that we'll be making forward-looking statements on this call that involve a number of risks and uncertainties. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors.

These factors are described under forward-looking statements in our shareholder letter and in our most recent filings with the Securities and Exchange Commission. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained on this call to reflect subsequent events or circumstances. You should be aware that these statements should be considered estimates only and are not a guarantee of future performance. Also during this call, we will discuss some non-GAAP financial measures. We provided reconciliations to the most directly comparable GAAP financial measures in the shareholder letter posted to our IR website. These non-GAAP measures are not intended to be a substitute for our GAAP results. With that, the call.

Brian Chesky (Co-Founder and CEO)

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. Our revenue increased 24% year-over-year. Net income was $117 million, making this our most profitable Q1 on a GAAP basis. Free cash flow for the quarter was $1.6 billion. In fact, on a trailing twelve-month basis, our free cash flow was $3.8 billion. This represented a trailing twelve-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 nine months.

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. During the quarter, we saw a number of really positive business trends. First, more guests are traveling on Airbnb than ever before. Nights 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. We were especially encouraged by the continued recovery of Asia-Pacific as nights booked in Q1 increased more than 40% year-over-year.

We saw international travel from other regions to Asia-Pacific increase 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. We've also seen high-density urban nights booked increase 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. Over the past three years, we've seen new use cases emerge as guests across all regions and age groups use Airbnb for long-term stays. 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 non-urban supply growth, in fact, both grew 18%. Looking ahead, we remain focused on our three strategic priorities. First, we're Making Hosting Mainstream. We want hosting to be as popular as traveling on Airbnb. To do this, we're raising awareness around hosting, making it easier to get started, and providing even better tools for our hosts. 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. We also responded to input on rising prices with the rollout of Airbnb Rooms, an all-new take on the original Airbnb, and I'm going to share a little bit more about what we launched in a moment. 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 under-penetrated in many markets around the world, so we're increasing our focus on these less mature markets, and we are already seeing positive results.

Let me just give you two examples. In Germany and Brazil, we rolled out our expansion playbook for accelerated growth. As a result, they are now two of our fastest-growing markets. This playbook has in fact worked so well that we're now expanding it to other markets around the world. 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, every screen, every policy, and every interaction with customer service.

We then analyzed millions of calls and thousands of social media posts. We hosted listening sessions with guests and hosts all over the world. We mapped all this feedback against our blueprint. We prioritized the most common issues. On May 3rd, we introduced Airbnb Rooms and unveiled over 50 new features and upgrades for guests and hosts. Let me share a few highlights with you. First is total price display. Guests told us our prices aren't transparent enough. With total price display, guests can now view the total price with fees before taxes across the entire app. Second, new pricing tools for hosts. We heard from hosts that it's hard to use our pricing tools, and it's difficult to know what to charge. To help our hosts set more competitive prices, they can now see other Airbnbs are priced in their area.

This includes listings that are both in high demand and getting booked, as well as listings that are not. Finally, we also made it simpler to add discounts and promotions for hosts. Third is more affordable stays. Longer stays on Airbnb can be expensive, so we're doing a few things about it. We're reducing our fees after three months. U.S. guests can now save money by paying with their bank account, and hosts can easily set monthly discounts and offer more flexible cancellations. Finally, we also introduced Airbnb Rooms, an all-new take on the original Airbnb private room. Airbnb Rooms gets us back to the idea that started it all, back to our founding ethos of sharing, and they're also one of the most affordable ways to travel, with an average price of only $67 a night.

In fact, over 80% of Airbnb Rooms are under $100 a night. In the current macroeconomic environment, people want to travel affordably. Guests have told us that they want to know more about who they're staying with before they book. That's why every Airbnb Room comes with a Host Passport, which helps guests get to know their host before they book. The response to last week and our 2023 summer release has exceeded our expectations. Press coverage was overwhelmingly positive, and we got over 3,000 articles. This is the most press we've ever had from the launch. On social media, our tweets got 19 million impressions. It really went for a ride on social. The most important thing we heard is that our guests and our hosts feel like we're listening to their top concerns.

We're not done listening, and we will never stop improving Airbnb. With that, I look forward, Dave and I, to answering your questions.

Operator (participant)

Thank you. At this time, I'll remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll go first to Eric Sheridan at Goldman Sachs.

Eric Sheridan (Analyst)

Thank you so much for taking the question. 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? Thanks so much.

Brian Chesky (Co-Founder and CEO)

Hey, Eric. How you doing? I'm very excited about Airbnb Rooms because Airbnb Rooms is one of the most affordable ways to travel on Airbnb. You know, we've been doing a lot of listening to guests on Airbnb, and one of the things they told us is, especially in this economic environment, they are looking for affordable ways to travel on Airbnb. The average price of an Airbnb Room is $67 a night, so it's an incredible value. What we wanted to do is offer a product that we thought could capture this affordability segment that we think more and more people are going to be interested in in this economy and also launch a product that would be very relevant to the next generation of travelers. Essentially, I wanted to launch a product that the 26-year-old me would have wanted.

We looked at our private Rooms product, we already had 1 million listings all over the world, but there was a bit of an obstacle. During the pandemic, people weren't comfortable staying with one another, and to get people more comfortable, we realized that we needed to help people understand the host they're staying with before they book. That's why we launched the Airbnb Host Passport. I think this is gonna help a lot of people that are looking to save money, are interested in a local travel experience, be encouraged to stay in an Airbnb Room. We also added new privacy features to understand if there's a lock on the bedroom door, if the bathroom is private. We think all these different features are gonna definitely help Airbnb Rooms.

The final thing I'm gonna say, Eric, is that we have a major brand campaign coming this summer where we are gonna be promoting Airbnb Rooms. If we are successful, I think this is gonna bring in a whole new cohort of younger travelers. People that maybe weren't inclined to travel may now be able to travel, it hopefully should lift the overall marketplace for Airbnb.

Eric Sheridan (Analyst)

Great. Thanks, Brian.

Operator (participant)

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

Justin Patterson (Analyst)

Great. Thank you very much. Two if I can. First, to follow up on Eric's question around the summer release, Brian, you recently made some comments about AI being a meaningful opportunity for Airbnb going forward. Could you talk about how that just reshapes or helps you reimagine the travel experience going forward and some of the initiatives you might lean into around AI? Then Dave, I appreciate you only give guideposts on the full year versus explicit guidance. Given the room night comp and spend shift in Q2, as well as this dynamic around new pricing tools and the summer release, could you help us understand a little bit more some of the assumptions that go into the second half and about flattish year-over-year margin? Thank you.

Brian Chesky (Co-Founder and CEO)

Great. Well, why don't I start, Justin, with AI? You know, this is certainly the biggest revolution in travel and tech 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. I'll give you a kind of a bit of a overview of how we think about AI. All of this is gonna be built on the base models. The base models, the large language models, think of those as GPT-4. Google has a couple base models. Microsoft reaches Anthropic. These are, like, major infrastructure investments. Some of these models might cost tens of billions of dollars' worth of compute power. Think of that as essentially like building a highway. It's a major infrastructure project, and we're not gonna do that.

We're not an infrastructure company. We're gonna build the cars on the highway. In other words, we're gonna design the interface and the tuning of the model on top of AI, on top of the base model. On top of the base model is the tuning of the model. The tuning of the models is gonna 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 gonna get pretty much the same answer. The reason both of us are gonna get pretty close to the same answer is 'cause ChatGPT doesn't know the difference between you and I, doesn't know anything about us.

This is totally fine for many questions, like how far is it from this destination to that destination? It turns out that a lot of questions in travel aren't really search questions, they're matching questions. In other words, they're questions that the answer depends on who you are and what your preferences are. For example, I think that going forward, Airbnb is gonna 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: Who are you and what do you want? Ultimately, what I think Airbnb's building is not just a service or a product, but what we are in the largest sense is a global travel community.

The role of Airbnb in that travel community is to be the ultimate host. Think of us with AI as building the ultimate AI concierge that could understand you, and we could build these world-class interfaces, tune our model. Unlike most other travel companies, we know a lot more about our guests and hosts. This is partly why we're investing in the Host Passport. We want to continue to learn more about people. Then our job is to match you to accommodations, other travel services, and eventually things beyond travel. That's the big vision of where we're gonna go. I think it's an incredibly exciting opportunity. I'll just end by giving you some tactical things we're gonna be doing in the next 12 months. Number 1 is customer service. This is gonna be one of the biggest benefits to Airbnb.

One of the strengths of Airbnb is that Airbnb's offering is one of a kind. The problem with Airbnb is our service is also one of a kind. Therefore it's historically less consistent than a hotel. I think AI can level the playing field from a service perspective relative to hotels, because hotels have front desks, Airbnb doesn't. We have literally millions of people staying on Airbnb every night, and imagine they call customer service. We have agents that have to adjudicate between 70 different user policies. Some of these are as many as 100 pages long. What AI is gonna do is be able to give us better service cheaper and faster by augmenting the agents, and I think this is gonna be something that is a huge transformation.

It's a bit all hands on deck and you should see improvements later this year into next year. That's number one. Number two, we are now building AI into our product. Let me just give you an example. A few months ago, OpenAI launched plugins. In fact, we were actually supposed to be one of the launch partners for the plugins on OpenAI's ChatGPT. I told Sam, we were literally one of the first to work with him, right before our launch, I decided to pull the plug on it. The reason why is I decided that the interface of pure text base with widgets at the bottom was probably not the right interface for travel. Ultimately, I think the right interface for travel is multimodal. It's rich media, it's photo, it's video, it's much more immersive.

GPT-4 is available in our app. We're gonna be building GPT-4 into our interface, and I think that's the real opportunity for us. You should see some big changes next year with AI built into our app. The final thing I'll say is developer productivity and productivity of our workforce generally. You know, I think, you know, our employees could easily be, especially our developers, 30% more productive in the short to medium term, and this will allow significantly greater throughput through tools like GitHub Copilot. All of this is to say I'm really excited on the short term and the long term. The last thing I'll just say is I think the companies that will most benefit from the shift of AI are gonna be the companies that have the most innovative cultures.

You know, that's kind of what happened in the 90s with the Internet, and if the last couple of years is any indication, having launched over 340 features innovations, I think we're definitely gonna be right at the forefront of this revolution.

Dave Stephenson (CFO and Head of Employee Experience)

In terms of profitability, you know, we're just really proud of the progress that we've made in our operating efficiency, right? We made some very difficult choices in the midst of COVID to rationalize and streamline the company, get focused, get back to our roots, and we made substantial progress in our profitability ever since. Where we've done it, you know, we obviously reduced our headcount by 25%. We've only grown it moderately since. We've made substantial changes in our marketing efficiency, continued to make good improvements in our operating costs, everything from community support to cost of payments to infrastructure costs. Basically, we've become a better, more rigorous operating company overall. That kind of progress has been great for us going forward because even as our business has rebounded, we have stuck to our core strong kind of operating mode.

Even this year, as we anticipate moderation in ADRs, the improvements that we're gonna continue to make in community support, infrastructure, cost of payments, and our fixed cost leverage will be enough to offset any of the pressures that we're seeing in average daily rates.

Justin Patterson (Analyst)

All right. Thank you both.

Operator (participant)

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

Mark Mahaney (Senior Managing Director and Head of Internet Research)

Okay, thanks. Two questions. Across the online travel space, there's this dynamic of marketing costs being much more front-end loaded this year. Dave, any commentary on from your perspective, why that is? Then, secondly, could you just double-click a little bit, Brian, on the Brazil and Germany, examples that you talked about? If there's anything specific that you could say that you did that, caused those to kind of, you know, accelerate up to become two of your fastest-growing markets, so that we can think about how replicable those efforts would be in other markets, that'd be really helpful. Thank you.

Brian Chesky (Co-Founder and CEO)

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

Dave Stephenson (CFO and Head of Employee Experience)

Yeah. Great. Thanks, Mark. In terms of the front loading of marketing costs this year, it's just we're learning to operate better. I mean, we had seen such great success in our brand marketing campaigns, strong return on investments in that last year. What we learned is that we just felt like we needed to do that earlier in the year, get out even more ahead of our peak travel summer season with our brand marketing. The earlier we get that message out in the year, the better we can kind of reap that investment over the full year. This is purely about moving up the spend on kind of brand marketing earlier.

To a lesser extent, but it is an element of it as well, is investing in some of these new geographies where we haven't historically had brand marketing, and so actually expanding that marketing into more countries. Our marketing expenses as a % of revenue will remain largely the same in 2023 as it was in 2022. It's just that we're front loading more of the marketing to get the message out earlier.

Brian Chesky (Co-Founder and CEO)

Yeah. Mark, I'll just share a little bit about Brazil and Germany. Airbnb is one of the most international companies in the world. We're in 220 countries and regions. 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 of these markets you don't even need that. It included a brand marketing campaign. It made sure that our product was adequately localized, and it's just a really full funnel approach. Now we've added social media and influencers as well. Recently, over the course of the pandemic, we were not as focused on international expansion, and that's because we were mainly focused on recovery and some of the new travel segments like longer term stays.

Over the last three years, obviously, as you know, we've gotten really, really focused back to basics, and our company is significantly more profitable. We've done over $3.8 billion in trailing 12-month free cash flow. We feel like now is a really good time to focus on international expansion. We started with Germany and Brazil, again, it was full funnel. It involved a lot of PR. It involved brand marketing, bringing our marketing ad campaigns you probably see in the United States to these markets, localizing our product and working with local influencers. It's a pretty full funnel approach. The results have been incredibly positive. These are now two of our fastest-growing markets. We're now looking at bringing this playbook to other markets around the world, and I'll give you a couple examples. Number one is Asia Pacific.

We think there's a huge opportunity in Asia. We are massively under-penetrated. This is gonna be probably the fastest-growing market internationally over the next five years. The problem with Asia historically over the last few years is Asia market, as you know, is a very much cross-border market. With its borders being historically kinda 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 young travelers. We think Japan, Korea, China, India, and Southeast Asia are gonna 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, there's a lot of markets in Europe we haven't ever really run robust brand marketing campaigns. You know, now we're getting more aggressive in Italy, we're getting more aggressive in Spain, we're now looking at other markets in Northern Europe. 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 where you 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. Finally is Latin America. We're seeing a lot of growth in Brazil, we're now gonna bring it to some other really large markets like Colombia and some other markets within Latin America.

I think international is gonna be a pretty big boon to growth over the next two, three 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, especially it works with Airbnb because it's very much a cross-border network effect business.

Dave Stephenson (CFO and Head of Employee Experience)

Yeah. The playbook works-

Brian Chesky (Co-Founder and CEO)

Thank you, Brian.

Dave Stephenson (CFO and Head of Employee Experience)

I just don't want to leave the question without just reinforcing that how well the playbook is working for us and that 90% of our traffic remains direct or unpaid. That's been the case since COVID, and continues to be the case. This, this investment is working very well for us.

Mark Mahaney (Senior Managing Director and Head of Internet Research)

Okay. Thank you, Dave. Thank you, Brian.

Dave Stephenson (CFO and Head of Employee Experience)

Thank you.

Operator (participant)

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

Richard Clarke (Senior Analyst and Managing Director)

Hi. Good afternoon. Thanks for taking my questions. Two, if I may. I guess at the full year results, you mentioned how you control supply against the demand. I guess at this point, you're talking about a supply growing at about 18%, but you're pointing to Q2 demand growing maybe more like 10%-12%. You know, which one of those numbers is the right way to think about growth going forward? Should we be extrapolating the 18% or the 10%-12%? Just very quickly, you obviously shifted to showing the whole prices. Any impact you've seen from that? Is that impacting conversions? Is that impacting supply? You know, what's been the impact of that change?

Brian Chesky (Co-Founder and CEO)

Richard, why don't I, why don't I start at a high level?

Richard Clarke (Senior Analyst and Managing Director)

Great.

Brian Chesky (Co-Founder and CEO)

I think our long-term growth is gonna be as strong as our supply. If we were to back out, what happened in 2020, 2021 is that demand grew faster than supply. Initially, this was a great thing. The problem is when demand grows faster than supply and your supply constraints, prices generally go up. As prices have risen, while that's been good for the bottom line, you know, affordability in this economy is a major issue. One of the most important things we can do to make Airbnb affordable is to make sure we have enough supply in the platform. 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. We launched AirCover, which is top to bottom protection. No one else offers it. Airbnb Setup, 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. I think what's gonna happen is all the supply coming on 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 gonna bring in a whole new generation of travelers to Airbnb.

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. That's the high level. Now with regards to total price, this is primarily a U.S. issue. In the U.S., as you know, there is a bit of an issue where some hosts have higher cleaning fees. We heard a lot from guests. I think what the total price display is going to do is it's going to push demand to listings that have an overall better value of a total price. When people turn on the price toggle, we see that people are booking listings with lower cleaning fees or no cleaning fees.

I think this is going to have a really good practice in the marketplace of driving demand to the best value listings, rewarding those hosts, and making sure every single host remains competitive. 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. What our expectation is, based on our release last week, we launched a lot of features around affordability. You know, we have many more, a much more affordable monthly stay product. 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 1 request of travelers, which is affordable options.

Dave Stephenson (CFO and Head of Employee Experience)

Yeah. Let me add two more points. The implementation of the whole price has gone really well, and what we're seeing is actually a neutral impact on our overall business. The thoughtful way in which we've implemented this works quite well. The people that care the most about seeing it, all-in pricing, they can make the selection, and those who want to see it like other marketplaces don't need to make that selection. The other back to the growth rates, you know, 10%-12% nights growth is not our long-term ambition. You do have to remember that in Q2, we have a significant hard comparison versus the Omicron COVID variant that came out last year.

Remember that people delayed their travel in Q1 and compressed a large amount of travel into the Q2, which makes for a hard comparison of nights growth here in the Q2.

Richard Clarke (Senior Analyst and Managing Director)

Thanks. Thanks very much.

Dave Stephenson (CFO and Head of Employee Experience)

Thank you, Richard.

Operator (participant)

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

Brian Nowak (Managing Director and Senior Internet Analyst)

Great. Thanks for taking my questions. I have two. The first one, Brian, just go back to your last answer about how affordability is an issue in the economy. On the Airbnb platform, have you seen any signs of trade down or shorter stays or price changes or lower traffic conversions or the impacts of that more price sensitive user on the platform yet? That's the first one. The second one, Dave Stephenson, actually to go back to your last answer as well.

I think in the past you've spoken about how, you know, there's a lot of moving pieces around the shape of the year, but 2022 is a reasonable way to think about the shape of the room nights or bookings for the year. How should we think about that now that you're sort of thinking through the comp structure and how the 2Q, 3Q comps are quite similar? Thanks.

Brian Chesky (Co-Founder and CEO)

Dave, you wanna take the second, and then I'll handle the first.

Dave Stephenson (CFO and Head of Employee Experience)

Yeah. I mean, it has been hard to kind of perfectly predict the exact shape of demand. Obviously Omicron has impacted the shape on nights demand by more than the impact of revenue. You know, we continue to see as, you know, the revenue guide that we have here is, you know, revenue growth between kind of 12% and 16% in the Q2. I think that there's some of the pressures that we're seeing there on overall revenue growth have frankly just been some of the elevated ADR rates that we're seeing, just higher overall kind of pricing, especially in North America.

Some of the tailwinds that we're seeing for future growth in the back half of the year are a lot of the areas that Brian spoke about, things like continued acceleration in Latin America, acceleration in Asia Pacific, and more cross-border travel. I think some of those things are the benefits we're seeing in the back half of the year. Q2 is turning out to be a little bit tougher comp given Omicron last year. We're seeing overall stable demand for the back half. We highlight in the letter that we have 25% more bookings on the books at this time this year for the back half of the year than we did this time last year. It just gives us confidence in people's willingness and interest in travel for the back half.

Brian Chesky (Co-Founder and CEO)

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. In the United States, the lowest priced listings have the highest occupancy. 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 as hotels over the next couple years, that we're gonna see continued increase in occupancy for more listings in Airbnb. Also it's 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.

Brian Nowak (Managing Director and Senior Internet Analyst)

Great. Thank you both.

Dave Stephenson (CFO and Head of Employee Experience)

Thank you.

Operator (participant)

Next, we'll go to Ronald Josey at Citi.

Ronald Josey (Managing Director and Senior Internet Analyst)

Great. Thanks for taking the question. 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 you've mentioned in the past the marketplace for local host services, and other sponsored listings, other ideas. Any insights on sort of how you think about expanding the core and the vision for the Airbnb economy? Just a quick follow-up too on just the experiences rebuild, you know, that recent pause on experiences. Talk to us a little bit more about how you feel that product is progressing. Thank you, guys.

Brian Chesky (Co-Founder and CEO)

Yeah, Ron, I mean, great questions. Just to kind of step back, before the pandemic, we were really already focused on expanding beyond the core. In fact, we had 10 different divisions at Airbnb. We had a homes division, we had an experiences division, we had a transportation division, we had a magazine division, we had a lot of efforts. Obviously the pandemic occurred, and we had to get focused back to basics. What we've wanted to do over the last few years is before we work on new things, we wanted to perfect our core service. You know, one of the great source of inspiration I had was Apple. I remember in the mid-2000s, it was 2006, and Apple had not yet launched the iPhone. How many of us wanted Apple to come out with a phone?

The answer is a lot of people. The reason people wanted Apple to expand to the phone is 'cause they loved their iPod. How many of us wanted Gateway to come out with a phone? The answer is probably not many, 'cause we didn't love our Gateway computer. I think that one of the things I've told our team is we have numerous expansion opportunities, but we need permission to expand beyond our core. We need people to first love our core service. That's why over the last three years we've been focused on really perfecting our core service. That being said, our core service is stronger than ever, it's more profitable than ever, and I think we're now ready to expand beyond the core. As we speak, we are working actively on new products and services.

These new products and services are gonna be shipping beginning next year. You're gonna see a number of things ship next May as part of the 2024 summer release, and we're gonna see even more things ship later in the year in the years to come. Obviously, there's a lot of opportunities. There's guest services, there's host services. I'm not gonna go into a lot of detail. You obviously will have to tune in to talk. I think it's just important to note that I think that the biggest ideas Airbnb has are in front of us. I don't wanna think that the biggest idea I ever had when I was 26, working out of a three-bedroom apartment with my two cofounders.

I think that there's so much more Airbnb can offer, and part of it is just making sure we continue to learn more, build robust profiles, build an extensible platform model, continue to increase trust in the platform. What we can do is go into adjacencies within our core, but then including that, expand beyond the core. I think you're gonna see a lot of new opportunities. With regards to experiences, I remain bullish about the product. I think there is a massive opportunity for someone to build a huge product around experiences. Whether it's us and whether we're able to execute that product, we still have to prove that. You know, one of my great investors, one of my early investors is Marc Andreessen. He said there's no bad ideas, just ideas that are too early.

You know, a lot of life is timing, and experiences. I think when we launched in 2016, it launched right, like leading into the pandemic. It was probably early. I think the timing is probably now better. What we did is we decided, let's take a pause on new submissions, let's retool the product, and hopefully put out something that is even more relevant to this next generation that are looking for things to do. I remain really bullish on all this.

Ronald Josey (Managing Director and Senior Internet Analyst)

Thank you, Brian.

Operator (participant)

We'll go next to Mario Lu at Barclays.

Mario Lu (Equity Research Analyst)

Great. Thanks for taking the question. The first one's on ADRs. It came better than expected in the Q1. You guys mentioned India, saw 8% growth. Anything to point out to within that region for its strength? Is the full year growth still expected to be down mid-single digits? Thanks.

Brian Chesky (Co-Founder and CEO)

Dave?

Dave Stephenson (CFO and Head of Employee Experience)

On ADRs, it's just been interesting how persistently high our average daily rates have remained, and that has been consistent kind of on or across the globe. I think even more particularly, the ADR rates that we saw in North America have been persistently high. You know, these are a lot of the reasons why we've been launching so many of the tools and capabilities that Brian's talked about on the call today, making sure that we're finding good affordability for our guests through things like Airbnb Rooms and giving tools for our hosts to even kind of price better.

I don't have any more to say on that except that we think that the ADRs, as we continue to see growth in Europe, Latin America, and Asia, should moderate a bit here in the Q2. We wanna continue to make sure we're giving great value to our guests. In terms of full year expectations, you know, the year-over-year growth in ADR should be, I think still probably down in that kind of mid-single digit range. There's really no change in our expectations on ADR growth.

Mario Lu (Equity Research Analyst)

Got it. Thank you. The second question's on competition. One of your competitors is launching a loyalty program in July in the U.S. Just curious if you think, you know, that is a potential threat to your business since you don't have one, and any data points you can share just with regards to what % of listings are exclusive to your platform? Thanks.

Brian Chesky (Co-Founder and CEO)

I always believe that the best loyalty program is people loving your product. If they love your products, they come back. I think that's the reason why nearly 90% of our traffic is direct or organic, and we have really strong rebooker rates. I mean, I, you know, we haven't needed to have a loyalty program to have really good loyalty on Airbnb because people really love the experience. Ultimately, I think it's just a matter of continuing to innovate. Ultimately, we're in the inspiration business. People wanna have good trips, and the best trip wins. Whatever company is most focused on listening to customer feedback, innovating as quickly as possible, and taking giant leaps with experiences, I think is gonna be the most successful. We're really bullish about this.

That being said, for years, we've looked at a loyalty program, and I don't think a classic points program, which is essentially a subsidy to buy loyalty, is the right approach for us. We do think there's really compelling, interesting ways to reward our very best guests and something we've been actively thinking about.

Mario Lu (Equity Research Analyst)

Great. Thank you.

Operator (participant)

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

Nick Jones (Equity Research Analyst)

Great. Thanks for taking the questions. You're adding a lot of great solutions for hosts, and guests and in the outlook comments and the release. Sounds like this is contributing a little bit to some of the ADR pressure. How do you balance the efforts to continue to increase supply, making it easier for supply to join while redistributing demand to available supply? Is there a risk of incremental ADR compression as a result of some of these efforts?

Brian Chesky (Co-Founder and CEO)

Yeah. Hey, Nick, I can start. I mean, I think part of our, 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 turn out to be the fastest-growing markets for demand. It's demand creates supply. What ends up happening is a lot of these individual hosts get booked. They start making a bunch of money, obviously. You know, the vast majority of them get booked within days of listing. What ends up happening is they tend to open up more nights, they tell their friends about it, and then supply increases. We've also found a number of tactics.

In fact, performance marketing is a very important way that we balance supply and demand. You know, other companies tend to use it as an arbitrage business to buy lots of customers. We've 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. Frankly, the more supply we add, the more we think we're gonna have really great value listings that will ultimately attract more demand. I think we're able to balance this out throughout the coming year.

Nick Jones (Equity Research Analyst)

Great. Thank you.

Operator (participant)

Mr. Kelly with Oppenheimer, please go ahead.

Jed Kelly (Equity Research Analyst)

Hey, great. Thanks for taking my question. Just going back to the comment in the shareholder letter of, you know, your current backlog of nights being approximately 25% stronger than it was a year ago. Can you just reconcile that with the 2Q guide? How should we expect normal seasonality trends going forward? 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? Thank you.

Dave Stephenson (CFO and Head of Employee Experience)

The 25%, I mean, I think what it's doing is just demonstrating the strength in demand. I think if you go back to the beginning of Q1, people booked much earlier here in 2023 than they have historically. We had longer overall booking rates for the back half of the year, we're seeing that strength. To the extent that that demand just shifts earlier in the year, that's why the growth rate in backlog can still be higher than what we are projecting for nights in any kind of given period. In terms of normalcy, I think the specific percentage of backlog isn't a direct translation to kind of nights booked, what we are seeing is strong demand across the globe and very stable demand in North America.

Brian Chesky (Co-Founder and CEO)

Jed, just to clarify, question, when you say apartments, are you referring to the Airbnb-friendly apartments?

Dave Stephenson (CFO and Head of Employee Experience)

Yeah, the friendly apartments.

Jed Kelly (Equity Research Analyst)

With landlords and real estate developers?

Dave Stephenson (CFO and Head of Employee Experience)

Yeah.

Brian Chesky (Co-Founder and CEO)

Yeah, yeah. That's great. A 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 275 buildings. We now have, I think, over 250 buildings. We have, you know, Greystar and some of the biggest real estate developers in America on the platform, and that's been our proof of concept. Assuming this works, and all indications are it is gonna work, the response has actually exceeded our expectation, at least from landlords, then yeah, we'd love to bring this to Europe, Latin America and Asia.

Jed Kelly (Equity Research Analyst)

Thank you.

Operator (participant)

We'll move next to Justin Post at Bank of America.

Justin Post (Managing Director and Senior Equity Research Analyst)

Great. A couple 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 theirs, more heavily weighted to the host? Do you think that works well in Europe, and how do you think about the differences there? Then maybe for Dave, on the marketing spend, definitely seems like the timing's different. How do you think about marketing ROIs this year versus prior years? How should we think about that? Thank you.

Brian Chesky (Co-Founder and CEO)

Dave, you wanna take the second question first?

Dave Stephenson (CFO and Head of Employee Experience)

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 or unpaid, that does great returns. 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, you know, where we have opportunities to drive incremental profit, you know, we do so. I don't know. 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 was talking about, where we add, amplify our brand and search engine marketing with things like social and PR, and we have that full funnel approach. It works really well, and that's the kind of success we're seeing in Brazil and in Germany.

Brian Chesky (Co-Founder and CEO)

Yeah. Maybe Justin, before I answer about our model in Europe, I just wanna also add something. Most travel companies, their strategy is like basically paid marketing, right? Performance marketing, brand marketing. I think a call out I just wanna make is PR, social media is a huge benefit to Airbnb. Historically, we have the largest share of voice in travel. Last week we got 3,000 articles. I mean, that was like more than a third of the amount of press we got for IPO. We think that there's a lot of opportunity for Airbnb to continue to be front and center in people's minds, in PR and social media, and even in pop culture, on TV shows, movies, songs, et cetera, et cetera. I think the name of the game is both paid media and then earned media.

Earned media is a really important part of an international story, international expansion, because earned media really creates trust more than paid media, you know. Now with regards to Europe, one thing I just want to point out is we actually have both models. We have a model where we have a guest fee and a host fee. We also have a model where we have a host only fee, and hosts can choose, and we have this kind of choice for hosts, especially for larger property managers. Ultimately, especially with our total price display, I don't think it's a major issue for guests. I think ultimately they're gonna be looking at the total price, and we've not seen a major behavior change. I think guests are most sensitive to total price. They're becoming more savvy.

They're getting trained on total price, and that is partly why we moved our product towards an option of showing people total price. As long as we remain competitive, as long as we offer the best product and we offer the overall best value for the total price, I think that's ultimately what guests are gonna care about.

Justin Post (Managing Director and Senior Equity Research Analyst)

Great. Thank you.

Operator (participant)

As a re-reminder, please limit yourself to one question to allow everyone an opportunity to ask a question. We'll go next to Steven Xu at Credit Suisse.

Steven Xu (Equity Research Analyst)

Hey. Thank you. Brian, can you talk about eventual rollout plans for pay over time to other parts of the world like Brazil, you know, given the propensity among users there to use this type of product? I guess I'll ask the Airbnb Rooms question another way. You know, between this and pay over time, it seems like you are in a position to expand your audience. You know, can you talk about how much latent demand you may potentially unlock with what looks like higher service levels to that bargain shopper? Thanks.

Brian Chesky (Co-Founder and CEO)

I'll talk. I mean, what you'll notice is a lot of our updates last week were based on affordability. We announced a partnership with Klarna, which is pay over time, where you can pay in as many as four installments. I also want to add, we also announced a partnership with Stripe, where you can pay by bank account for monthly stays. This is really important because it means you don't have to pay for a credit card to pay basically what is essentially rent, and that also will increase conversion by lowering costs. 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 apartments.

Assuming these partnerships work, no doubt we're gonna be spanning these to markets all over the world. You're correct, a lot of countries, people pay, in installments more than even in the United States. Yes, Brazilian 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, you know, like the United States before expanding it globally. All indications are this is gonna be very successful. 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.

If you can continue to be the most relevant brand for a young audience, then you're gonna continue to be able to ride that growth, and that's gonna definitely be a boon for first time bookers. The great thing about young people is, you know, 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. What we wanna do is capture the next generation of travelers, and then they'll grow with us. I think that Airbnb Rooms is a great entry level product. It's a great way to introduce people to Airbnb. I noticed, for example, when I used to talk to Jeff Bezos, he said that, like, diapers was a very important entry product to Amazon for families, right?

You buy diapers, then also you need other things. This is maybe an extreme example, I think Airbnb Rooms is a great way for new travelers to come to Airbnb. If you think about it, between Airbnb Rooms allowing the pricing tool for hosts to price more affordably, total price, which should keep the cleaning fees down, and other discount products, I think we're gonna have really one of the most affordable products in travel, bar none.

Operator (participant)

Thank you. We'll go next to John Colantuoni at Jefferies.

John Colantuoni (Equity Research Analyst)

Great. Thanks for taking my question. Active listings expanded more this quarter than in recent quarters. When you look at the profile of these new active listings, overall, how do these listings compare to your existing portfolio? You know, what portion of the hosts are individuals? You know, urban versus suburban versus vacation destinations, et cetera. 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? Thanks.

Brian Chesky (Co-Founder and CEO)

Yeah. Dave, why don't you take both these?

Dave Stephenson (CFO and Head of Employee Experience)

Sure. I think we talked about the shape of marketing during the year, that we are bringing in the more front-end loading on our brand marketing spend, especially here into Q1 and Q2. It's several hundred basis points higher in Q2 than it was in Q2 last year. For the full year, total marketing costs will be roughly the same as they were in the prior year. I don't have much more to say on kind of the shape of 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 the individual hosts. Individual hosts are 90% of our hosts. That continues to be the case.

The new hosts that we're bringing on, 'cause we cater our tools to the needs of those individual hosts, whether that's making sure that it's easy to list, that we give them AirCover for hosts so 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. What's been great to see is that our mix of individual and professional hosts 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. The areas, you know, as urbans come back, our urban growth has been, you know, kept in line with that kind of growth.

As we keep expanding and increasing our business around the world, the listings come right along with it.

John Colantuoni (Equity Research Analyst)

Great. Thank you.

Operator (participant)

We'll go next to Doug Anmuth at J.P. Morgan.

Doug Anmuth (Managing Director and Senior Equity Research Analyst)

Thanks for taking the question. I just wanna ask about long term stays. The percentage is down versus recent periods. I know you talked about some of the changes in payments and fees coming up. Just are long term stays slowing more with normalization in the economy or really just more of a mix shift issue towards shorter stays? Thanks.

Brian Chesky (Co-Founder and CEO)

Hey, Doug. I think it's important to just step back and say that what we saw even before the pandemic was that long term stays were growing. They have been our fastest growing segment by trip length. I think what the pandemic did is it probably accelerated some inevitable growth in this huge opportunity for us. I also think we're never going back to the way the world was before the pandemic. I do think there is some little bit of a post-pandemic equilibrium that you're starting to see. We're also seeing a mix shift because cross-border urban nights are now up. That being said, I remain extremely bullish on long term stays. I think it's gonna be one of the big growth opportunities for Airbnb over the next five years. The reason why is because people are permanently more flexible.

Even bosses that want people back to the office, I think you're still gonna see incremental flexibility. More, you know, people going away for the summer, more people maybe going away for the holidays. Ultimately with AI, you're gonna see an acceleration of people having more distributed and more global workforces. All you have to do is believe Zoom is here to stay to believe long term stays are here to stay, and that's what we're betting on. The biggest feedback we've gotten on our long term stay product was it was just sometimes a little more expensive to book a long term stay on Airbnb because the platform was built for short term stays. We made over 12 upgrades to long term stays, and a lot of them are based on affordability.

Starting with we now have a monthly dial for you to really discover monthly stays. It's this really cool dial, like an iPod click wheel, that allows you to search from one month to a year on Airbnb. You can pay by bank account. This saves on credit card processing fees. You can pay over time. We have more flexible cancellation policies, so you now can cancel a long-term stay up to one month before check-in. We have new discounting tools for hosts on weekly stays and monthly stays, and we have many other upgrades as well for monthly stays. I think we're gonna see a lot more growth. One of the big opportunities I think, Doug, that we're gonna see is more people starting to come to Airbnb to list exclusively long-term stays.

People that have no intention of hosting on a nightly basis will host long term. Another thing we believe is gonna happen is we think long-term stays could be a gateway to short-term stays. There might be hosts that aren't comfortable hosting on a nightly basis, but they're used to having a tenant, and they might go to Airbnb to rent monthly, and over time, we might be able to get them more comfortable on a short-term basis. We think this is a really big opportunity for us, but I do think there is some normalization in this post-pandemic equilibrium, but I believe this is still a major growth opportunity for years to come.

Doug Anmuth (Managing Director and Senior Equity Research Analyst)

Thank you, Brian.

Operator (participant)

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

Lee Horowitz (Equity Research Analyst)

Great. Thanks for taking the questions. Brian, maybe circling back to the competitive environment. It strikes us that given some of the numbers coming out of your large OTA competitors, that the industry has grown incrementally more competitive in the last year or so. Can you help us understand from your seat if you have seen a change in the competitive environment over the last 12 months, and what your expectations are for how competition may evolve over the next two years? Dave Stephenson, can you talk about how you think about balancing margins and investments beyond this year, assuming rates are in a headwind moving forward? It strikes us that international investments are starting to look nicely over the next two years.

I guess with this in mind, how do you think about how margins can progress in the coming years given your investment priorities? Thank you both.

Brian Chesky (Co-Founder and CEO)

All right, yeah. Hey, 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... pandemic, and most of the travel industry is only a little bit larger than they were before the pandemic. There's been a major mix shift share towards Airbnb. You know, I think we're starting to see some of the old ways of traveling recover, specifically urban and cross-border. Ultimately, we're really focused on innovating. We're focused on playing our own game and, you know, I think that we're gonna continue to focus on a few areas. We're gonna continue to mainstream hosting, and we think we're gonna be adding more supply of homes than any other company. Next, we're gonna be focused on perfecting our core service.

I think there's potentially down the road a 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. 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. 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 that only Airbnb can do. If we focus on the things that only Airbnb can do, then in a sense, you're gonna come to Airbnb, and we're gonna have a lot of demand, a lot of exclusive traffic. Airbnb Rooms is just one of many examples of something that only Airbnb offers. We're gonna continue to be competitive, but we're also gonna focus on things that only we offer. Dave?

Dave Stephenson (CFO and Head of Employee Experience)

Yeah. I think one of the things I'm really proud of is the ability for us to both grow and grow profitably and have very strong margins. I mean, having our 44% kind of free cash flow margin, is something I'm definitely very proud of. I think going forward, you know, just remember that we are still heavily in growth mode, and we're gonna continue to invest behind growth for the future. The good news is that as I'm doing this year, we're able to continue to be very rigorous in our investments across our P&L, make improvements in our cost structure, find fixed cost leverage, and do all that while investing for kind of growth for the future.

What I think you should anticipate going forward is that we'll continue to have a profitable business focused on growth, and that over time, we'll continue to have opportunities to expand margins, but that's not my primary focus right now. My primary focus is in investing for growth. As you mentioned, one of those areas for opportunities will be to increase our investment in areas where we're significantly under-penetrated and seeing great success, and we highlighted a couple of those areas on the call today.

Operator (participant)

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.

Brian Chesky (Co-Founder and CEO)

Well, thank you everyone for joining us today. Just to recap, we had a strong start to 2023. Revenue was $1.8 billion, which is 20% higher than a year ago. Net income and Adjusted EBITDA were both records for Q1. And our trailing 12-month free cash flow was $3.8 billion, and that represents a free cash flow margin of 44%. I'm really proud of the progress we made. If you look at over the last three years how much more profitable the company's become, I think a lot of that has been based on our discipline and our execution. You know, speaking of execution, our product just keeps getting better, and we continue to innovate, with more than 50 upgrades and features last week, and many more ahead later this year.

I'm proud of what we're doing, and I'm really excited for the road ahead. Thank you all, and we'll talk next quarter.

Operator (participant)

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