Airbnb Inc. (ABNB, Financial) is one of the largest travel companies in the world, which does not own any lodges or hotels directly. The company faced a near-death experience in 2020 as travel shut down globally. However, since then, it has restructured, gone public and benefited from the huge rebound in pent-up travel demand. The company has continued to perform well and, in the second quarter, beat both revenue and earnings growth expectations.
In this discussion, I will break down these results and look into how Airbnb has been continually improving its product. Let’s dive in.
Solid second quarter
Airbnb reported solid financial results for the second quarter of 2023. Its revenue of $2.48 billion beat analyst forecasts by $65 million and rose 18% year over year. This was driven by a 12% increase in gross booking value to $19.1 billion.
Overall nights and experiences booked rose to 115.1 million, up 11% year over year. This was driven by solid growth across multiple regions. Cross-border travel returned with a 16% increase in international nights booked for guests.
The Asia Pacific region continues its recovery with a staggering 80% increase in international travel, while North American cross-border nights booked rose by 20% year over year.
Airbnb has prioritized a number of markets with lower penetration but high potential. These include Brazil and Germany, which have risen to become two of the company's fastest-growing markets. Overall gross nights booked rose by 110% for Brazil and 63% for Germany compared to 2019.
Countries such as South Korea and Japan have achieved huge growth since 2019, but penetration is still low relative to the overall lodging industry. Therefore, these countries also offer a long runaway for growth, especially given the high-income nature of the residents.
In July 2022, the company made a decision to close down its business in China and instead focus on outbound China business as the key opportunity.
Airbnb has pivoted its value proposition to encourage guests to do longer stays, which, of course, will increase total booking value. In the second quarter, these longer stays stayed steady at 18% of total nights booked.
The company has also made the host onboarding process much easier and assigned new hosts a virtual buddy they can ask questions to. In this case, the company’s supply growth rose by 19% year over year, with over 7 million total active listings.
To put things into perspective, this is larger than the world's top five hotel brands combined. But of course, the beauty of Airbnb is it does not have the overhead of renting or maintaining its inventory.
The supply-demand balance helps influence the gross booking value per night. In this case, the average value was $166.01, up 1% year over year.
New feature rollouts
In May, Airbnb launched 50 new features as part of its 2023 summer release. These features included a pricing tool for hosts, following feedback their other tool was more difficult to use. In addition, the business added a similar listings panel to help give hosts a competitive indication of prices.
The company also rolled out more affordable monthly stays by reducing its fees for stays longer than three months. This helped to drive an increase in listings offering a monthly discount from 22% to 50%.
On the marketing front, Airbnb has been investing into its brand for a period of time. In the second quarter, the business enhanced this with its “Only Airbnb Campaign.” This enabled guests to stay in the Barbie Malibu Dreamhouse, which quickly became the most popular listing on the platform.
During the second quarter, the company launched Airbnb Rooms, a new take on the original “Air bed and breakfast” concept in that you can stay in a spare room in someone's house.
Given the economic environment, this is also one of the most affordable ways to travel with the average stay of approximately $67 per night, which is substantially cheaper than the average hotel room.
Profitability and balance sheet
Airbnb reported solid operating income of $523 million, which rose by a 14.15% year over year. This was a solid result given the business reported a 22% increase in general and administrative expenses and a 20% increase in research and development expenses.
The company’s overall net income rose to $650 million at a solid 26%. Its free cash flow rose to $900 million, up 13% year over year.
On a trailing 12-month basis, its free cash flow achieved a solid 43% margin.
Airbnb channeled this excess cash into a $2.5 billion stock buyback spread out over the past 12 months.
The company also reported a strong balance sheet with $10.3 billion in cash and short-term investments. While its total debt stood at just $2.3 billion, which means it is well covered.
Valuation
Airbnb trades with a price-sales ratio of 10.3, which is below its five-year average. However, the company’s forward price-earnings ratio is still high at around 40.
Final thoughts
Airbnb is a tremendous company that has truly started to innovate once again. The business had a tough time during the pandemic, but now appears to have bounced back stronger, leaner and more diversified. As a founder-led company, Airbnb has strong leadership and an uncanny ability to quickly pivot in order to embrace market changes. Therefore, Airbnb has all the ingredients for a potentially great long-term investment.
