Airbnb Posts Its Most Profitable Second Quarter as Hosts Cut Prices

On 3 August 2023, Airbnb reported what it called its most profitable second quarter on a GAAP basis: net income of $650 million on revenue of $2.5 billion, which was up 18% on the year. The same letter to shareholders carried two figures that mattered more to anyone with a listing. Active listings had grown 19%, to more than 7 million. Nights and experiences booked had grown 11%.

Airbnb also said hosts had begun to lower their prices, and its chief executive, Brian Chesky, spent part of the call with analysts arguing that a slightly lower price would earn a host more.

The quarter in figures

The letter covered the three months to 30 June 2023. Its main figures were these.

• Revenue: $2.5 billion, up from $2.1 billion in the second quarter of 2022. That was growth of 18%, or 19% with currency effects taken out.
• Net income: $650 million, up 72% from $379 million. The net income margin was 26%, the highest Airbnb had recorded for a second quarter, against 18% a year earlier.
• Cash: adjusted EBITDA of $819 million, up 15%, and free cash flow of $900 million, up 13%.
• Bookings: 115.1 million nights and experiences, the most in any second quarter, and gross booking value of $19.1 billion, up 13%.
• Price: an average daily rate of $166, up 1%.

Airbnb said it had bought back $2.5 billion of its Class A shares over the previous twelve months. For the third quarter it expected revenue of $3.3 billion to $3.4 billion, growth of between 14% and 18%.

More listings than ever

Listings grew faster than bookings. Supply grew 19% on the second quarter of 2022, up from 18% growth in the first quarter of 2023, and Airbnb said it had added more net active listings than in any quarter in its history. It ended June with over 7 million. The figures left out mainland China, where Airbnb had taken its listings down in July 2022.

Supply grew at double-digit rates in every region. Growth was fastest in Asia Pacific and Latin America, the two regions where bookings also grew most: nights and experiences booked rose 24% in Asia Pacific and 22% in Latin America. Supply in cities and outside them grew at about the same pace. Airbnb named Brazil and Germany as two of its fastest-growing markets, with gross nights booked on an origin basis up 110% for Brazil and 63% for Germany on the same period of 2019. In Asia Pacific, the letter said, supply outside China exceeded demand, which was still below its level before the pandemic.

The company described its supply base as highly distributed and said the number of individual hosts kept growing. It also reported that demand had picked up inside the quarter. Year-on-year growth in nights and experiences booked improved from 10% in April to 15% in June. CNBC set the quarter against the one before it: bookings had grown 19% in the first quarter of 2023 and almost 11% in the second.

The push on host prices

Airbnb said hosts had told it the pricing tools were hard to use and that they struggled to price competitively. In its 2023 Summer Release in May it redesigned the tools and added a feature called Similar Listings, which it said helped a host arrive at a competitive price. After that, the letter said, hosts started to bring their prices down, and a growing number offered discounts for weekly and monthly stays. The share of new active listings with a monthly discount rose from 22% to approximately 50%.

The price cuts showed in North America, not across the whole platform. For Airbnb as a whole, the letter said, increases in the prices hosts listed were offset by what guests were willing to pay and by a shift in bookings toward cities and regions with lower rates, which left the average daily rate stable. In North America the average daily rate fell 1% on the year, and the letter said available prices fell 2% as hosts reduced prices. In Europe, the Middle East and Africa the average daily rate rose 8%, the largest increase of any region. On the call, according to the transcript published by The Motley Fool, Chesky gave a third measure: with the shift toward larger homes taken out, Airbnb's prices in North America were down 4%, while hotel prices were up by somewhere between 4% and as much as 10%, depending on the data used. He said the prices guests booked were, on average, lower than listed prices.

Chesky then set out the case for a lower price. “Most hosts are not booked most nights,” he said, as the Associated Press quoted him. “If they lower the price just a little bit, they will add more bookings, more nights, and they'll end up making more money.” A hotel, he said on the call, was usually booked about 25 nights a month.

He set a limit on it. “So, our goal is not to drive down prices as low as possible,” he said, according to the transcript, and he added that there was a point at which a cut was no longer worth a host's while. Prices, he said, had to leave a host with meaningful income.

The Associated Press put the price question in a wider frame. AP wrote that Airbnb had faced complaints that steep cleaning fees left the price of a short stay close to a hotel's, or above it, and that it had changed its site to show cleaning fees upfront. AP noted that Airbnb had forecast its average nightly rate would fall slightly in the quarter. It rose 1% instead. The letter said the new host pricing tools had a moderating effect on the rate, and that Airbnb still expected it to rise on the year in the third quarter because of currency rates and a shift in the types of listing booked.

How investors read it

The profit beat forecasts and the bookings did not. AP reported that analysts surveyed by FactSet had expected earnings of 80 cents per share on $2.42 billion in revenue. Airbnb earned 98 cents per share with special items left out, on revenue AP gave as $2.48 billion. But analysts had expected 117.6 million bookings, and Airbnb reported 115.1 million. CNBC reported that the shares fell by as much as 6% in after-hours trading that Thursday. AP, in a report updated that evening, said they were down about 1% three hours into late trading. CNBC said they had risen about 64% in 2023 to that point.

The forecast was stronger than the market expected. Analysts had been looking for third-quarter revenue of $3.23 billion, AP reported, below the bottom of Airbnb's range. Short Term Rentalz, a trade publication, led its report on 4 August with the company's optimistic outlook.

What it meant for hosts

For a host reading the letter in August 2023, the practical points were about competition and price.

• Competition: there were more than 7 million active listings, 19% more than a year earlier, and supply was growing at double-digit rates in every region.
• Price: hosts in North America were already cutting. Available prices were down 2% on the year, and Airbnb's new tools made it easier for a host to compare a price with the nearby competition.
• Discounts: about half of new active listings offered a monthly discount, up from 22%. Stays of 28 days or more were 18% of gross nights booked, and stays of three months or longer rose to about 25% of monthly stays in June from 18% in April. In May Airbnb had cut the guest service fee after the third month of a stay.
• Fees: with cleaning fees shown upfront, a guest comparing listings saw the cost of a short stay before choosing.
• The low end: Airbnb Rooms, introduced in May, averaged $67 per night, the letter said.

Airbnb's own forecast was for a higher average daily rate in the third quarter of 2023 than a year earlier. The reasons it gave were exchange rates and a shift in the types of listing booked, which it expected to outweigh the effect of its pricing tools.

Sources

1. Airbnb, Inc. (shareholder letter, furnished to the US Securities and Exchange Commission), Q2 2023 Shareholder Letter (Exhibit 99.1 to Form 8-K) (3 August 2023).
2. Airbnb, Inc. (Form 8-K, US Securities and Exchange Commission), Form 8-K, 3 August 2023 (3 August 2023).
3. Airbnb Newsroom, Airbnb Q2 2023 financial results (3 August 2023).
4. Associated Press, as carried by ClickOnDetroit (WDIV), Airbnb profit jumps to $650 million in 2Q, as bookings increase and rental rates hold steady (3 August 2023).
5. CNBC, Airbnb reports continued deceleration in nights and experiences booked (3 August 2023).
6. Short Term Rentalz, Airbnb reports optimistic outlook after most profitable Q2 ever (4 August 2023).
7. The Motley Fool, Airbnb (ABNB) Q2 2023 Earnings Call Transcript (4 August 2023).