Will Airbnb's turning point come with slowing growth and "hidden thunder" in profits?

After the US stock market closed on February 13th, Airbnb released its fourth-quarter earnings report for the fiscal year 2023. There were no surprises, but there were some concerns. The key points are as follows:

Slowing growth in booking volume: In terms of key metrics, Airbnb's total booking value for this quarter was approximately $15.5 billion, which roughly met expectations without any surprises. The year-on-year growth rate also slowed down from 2% to 15% compared to the previous quarter, and after excluding the impact of exchange rates, the actual growth rate was 13%. In terms of price and volume, the growth rate of nights booked also slowed down from 14% to 12%, which is in line with market expectations. Although the average daily rate (ADR) increased by 3% year-on-year, after excluding the favorable impact of exchange rates, the actual increase in ADR was less than 1%. The period of price increases seems to have come to an end.

As market concerns, the continued slowdown in the growth of nights booked seems to confirm the weakening demand for travel and accommodation. In terms of regions, the Latin America and Asia-Pacific regions, which were previously driving the company's growth, have also shown a marginal slowdown (with a decline in growth rate of 2-5%). The source of future growth for the company's business scale seems to be a problem.

Limited improvement in monetization rate, and no surprises in revenue gross margin: In terms of revenue, Airbnb's revenue for this quarter was approximately $2.2 billion, slightly better than expected. In terms of trends, the revenue growth rate also decreased by 1% compared to the previous quarter, reaching 17%, and did not reverse the trend of slowing growth in booking value. The similar trend in changes in revenue growth rate and booking value indicates that Airbnb's monetization rate has not changed much. The monetization rate for this quarter was 14.2%, a slight increase of 0.2% year-on-year, resulting in a slight increase of less than 1% in the company's gross margin, ultimately achieving a gross profit of approximately $1.83 billion, which roughly met expectations.

Surge in one-time expenses, dragging down profit and cash flow: Although Airbnb's performance in terms of scale indicators such as booking value and revenue for this quarter generally met or slightly exceeded expectations, the abnormal expansion of expenses led to a significant deterioration in profit and cash flow, which is the biggest "blemish" in this performance.

Excluding equity incentive expenses, the proportion of operating support expenses, marketing and promotion expenses, and research and development expenses to revenue continued to decrease this quarter, reflecting the company's increasing operating leverage. However, the company's administrative expenses for this quarter reached $1.14 billion, exceeding the level of an entire year under normal circumstances.

Although the company explained that this was mainly due to the provision of over $900 million in withholding tax and lodging taxes for this quarter, the abnormal expansion of administrative expenses resulted in a negative operating profit of nearly $500 million and a significant shrinkage of operating cash flow to less than $50 million in GAAP terms for this quarter.

Guidance for next quarter's revenue slightly higher, order growth rate continues to decline: For the first quarter of 2024, the company has guided for revenue between 2.03-2.07 billion, slightly higher than the expected median of 2.02 billion, but the difference is not significant. However, the market is most concerned about the trend of growth in room nights, and the management expects the growth rate to continue to decline next quarter, which fails to alleviate the market's concerns about the sustainability of demand. At the same time, the average daily rate (ADR) is expected to remain flat or slightly increase year-on-year.

Dolphin Research's viewpoint:

Overall, Airbnb has delivered results for this quarter that are in line with or slightly better than expectations in terms of key metrics such as booking amount, room nights, and revenue. Although there are no obvious shortcomings, it has also failed to disprove or alleviate concerns in the market about the weakening of future travel accommodation demand. Prior to the release of the financial results, high-frequency third-party data had already shown a trend of weakening demand, and whether it is the actual growth in room nights this quarter or the guidance for next quarter's growth, it seems to validate the trend of weakening demand, which has intensified the market's concerns about the company's medium-term growth prospects.

In summary, Dolphin Research believes that although the company will continue to experience stable revenue growth and long-term improvement in profit margins for a period of time, its recent performance has not been outstanding, and the outlook for the future shows a marginal deterioration trend. However, the company's valuation is significantly higher than its peers, which creates room and motivation for a valuation correction. It is necessary to pay more cautious attention to the changing trends in travel accommodation demand in the future.

The detailed interpretation of this quarter's financial report is as follows:

I. Continued slowdown in order growth, sustainability of demand is the biggest concern

In the fourth quarter of 2023, Airbnb achieved a total booking amount of approximately 15.5 billion US dollars, roughly in line with the expected 15.2 billion, without any surprises. The year-on-year growth rate also further slowed down from 17% in the previous quarter to 15%, with a 2% contribution from exchange rate fluctuations. The trend of slowing growth in order volume continues.

From the perspective of price and volume, Airbnb had a total of approximately 98.8 million bookings this quarter, with the growth rate also slowing down from 14% to 12%, which is consistent with market expectations. According to foreign investment banks, there has been a weakening trend in travel accommodation demand in Europe and the United States since the fourth quarter, and the company has also guided for a further slowdown in the growth of room nights in the first quarter of 2024. In other words, the sustainability of travel accommodation demand is currently the biggest concern.

In terms of price, the average daily rate (ADR) reached $157, a 3% increase year-on-year, slightly higher than the expected median of $2. However, excluding the favorable impact of exchange rates, the actual year-on-year growth in ADR is less than 1%. The period of price increases has basically come to an end.

In terms of regional performance, the company did not disclose the growth rate of orders in North America and Europe this quarter. However, based on the low growth in the previous quarter and third-party research data, Dolphin Research reasonably speculates that the growth in North America and Europe is between a slight negative growth and low single-digit positive growth.

As for the recent growth drivers in Latin America and the Asia-Pacific region, after experiencing a recovery, there is currently a trend of marginal slowdown. The growth rate of overnight bookings in Latin America has slowed from 24% to 22%, and in the Asia-Pacific region, it has slowed from 27% to 22%.

Second, the improvement in monetization rate is limited, and the gross revenue margin is also not surprisingly positive. Airbnb achieved revenue of approximately $2.2 billion this quarter, slightly better than the expected $2.16 billion. The revenue growth rate also decreased by 1 percentage point to 17% MoM, failing to reverse the trend of slowing order growth.

The monetization rate of Airbnb has not changed much, as evidenced by the similar growth rates of revenue and booking volume. It was 14.2% this quarter, a slight increase of 0.2 percentage points YoY.

Due to the slight increase in monetization rate, the company's gross profit margin also increased by less than 1 percentage point, ultimately achieving a gross profit of approximately $1.83 billion, slightly ahead of the expected $1.77 billion, but with a limited lead.

Third, the surge in one-time expenses dragged down profit and cash flow performance. As mentioned above, although Airbnb's performance in terms of order amount and revenue is generally in line with or slightly better than expectations, the significant deterioration in profit and cash flow indicators this quarter due to the abnormal expansion of expenses is the biggest "stain" in this performance.

Looking at the figures after excluding equity incentive expenses, operating support expenses and marketing expenses, which are highly correlated with business scale, increased slightly YoY, but their proportion to revenue decreased. As for R&D expenses, they decreased YoY in absolute value, reflecting the company's improving operating leverage.

However, the company's administrative expenses in this quarter reached $1.14 billion, exceeding the usual level for an entire year. Although the company explained that this was mainly due to the provision of over $900 million in withholding tax and lodging tax this quarter. However, regardless of the circumstances, due to the abnormal expansion of management expenses, the operating profit under GAAP for this quarter has once again turned negative, with a loss of nearly 500 million yuan, and operating cash flow has significantly shrunk to less than 50 million US dollars. Although the company claims that these impacts are one-time events, the deterioration of profit indicators in this quarter is undeniable, and whether such a situation will occur again is a concern that investors must be vigilant about.

Dolphin Research's previous research on Airbnb:

Earnings Report Analysis

November 2, 2023 conference call: "Airbnb: Pricing Power & Emerging Markets are the Current Growth Drivers"

November 2, 2023 earnings report analysis: "Airbnb: Is the 'Sweetheart' Getting 'Old and Yellow'?"

August 10, 2023 conference call: "Airbnb Summary: Strengthening Cost-effectiveness, Bullish on Continued Growth of Homestays"

August 4, 2023 earnings report analysis: "Airbnb: The Performance of 'Small Happiness' Can No Longer Capture the Market's Heart"

May 10, 2023 earnings report analysis: "Airbnb: Winter is Coming, Is the Collapse of Global Tourism Spending About to Begin?"

February 15, 2023 conference call: "Airbnb: Slight Increase in Investment Next Year"

February 15, 2023 earnings report analysis: "Indulgence in Food, Drink, and Entertainment Continues, Airbnb 'Leaps' Forward" Telephone Conference on November 2, 2022: "Outlook for Airbnb in Travel and Tourism (3Q22 Conference Call Summary)"

Financial Report Review on November 2, 2022: "No Good News, No Bad News: How Much Attraction Does Airbnb Have Left?"

Telephone Conference on August 3, 2022: "Management's Strategic Outlook for the Second Half of the Year (2Q22 Conference Call Summary)"

Financial Report Review on August 3, 2022: "Is Overvaluation the Original Sin? Good Performance Can't Help Airbnb Either"

In-depth

On February 28, 2023: "Microsoft and Amazon Fall, Is it Airbnb & Uber's Turn to Claim the Throne?"

On April 6, 2022: "Airbnb: An Alternative in the Pandemic, Why Can It Turn the Tables When Others Are in Hell?"

On April 7, 2022: "Airbnb: The Crown is Too Heavy, Valuation is Running Too Fast"

Risk Disclosure and Statement in this Article: Dolphin Research Disclaimer and General Disclosure