Airbnb: Is the collapse of global tourism consumption coming with winter?

After the US stock market closed on May 9th, Airbnb released its Q1 2023 financial report, with the following highlights:

1. The performance of this quarter's financial report is good, why did the stock price plummet after hours?: First, let's look at the overall performance of this quarter. Revenue was $1.82 billion, slightly higher than the expected $1.79 billion. The year-on-year growth rate slowed down by 4% compared to the previous quarter, but the magnitude was not significant. In terms of profit, gross profit was also higher than expected by 1%, and operating losses were $5 million, which was the same as the same period last year and lower than the expected $9 million.

Overall, although the performance of this quarter is not outstanding, it at least meets market expectations. Why did the stock price plummet more than 10% after hours? The problem is that the market's concerns about the decline in tourism demand have been confirmed by the company's performance and guidance.

2. The first quarter can still hold on, and the second quarter begins to decline: The most important accommodation booking amount this quarter was $20.4 billion, which was also slightly higher than expected by 1%. However, from the perspective of price and quantity factors, the total number of room nights booked this quarter was 121 million, slightly lower than market expectations. The year-on-year growth rate was 19%, also lower than the expected 20%.

Looking at different regions, the revenue growth rate in North America this quarter was only 13%, which can be inferred that the growth in order volume is probably less than 10%. The overall growth of the company still relies on the support of the recovering Asia-Pacific and European regions.

A more serious problem is that research institutions' data shows that online accommodation spending has begun to weaken since the end of March, and the decline in the first two weeks of April is even more severe. The company's guidance for the growth rate of bookings in the second quarter is less than 16%, which is significantly slower than this quarter. Third-party data and the company both point to the decline in global (especially American) tourism demand.

3. ADR is flat, and there are no highlights in revenue and gross profit: The monetization rate this quarter was 8.8%, which was only 0.1% higher than the same period last year. Compared with the situation where the monetization rate increased by 0.5% in the fourth quarter, it can even be said that the monetization situation has deteriorated on a month-on-month basis. Although the company did not comment on why the monetization rate has relatively decreased, a simple logic is that when supply and demand are relatively strong, the platform has the ability to increase monetization, but vice versa.

The monetization rate was basically flat year-on-year, and Airbnb's gross profit margin this quarter was also flat at 76%, achieving a gross profit of $140 million.

4. Marketing expenses are pre-positioned, and the trend of profit improvement is suspended: Overall, the cost expenditure of Airbnb this quarter only slightly increased, but marketing expenses expanded significantly. The expenditure this quarter was $420 million, far higher than the $230 million in the same period last year, accounting for about 23% of revenue. The company stated that the pace of marketing expenses investment this year is ahead of last year, so the expenditure in the first half of the year will be higher. The marketing expense ratio in the second quarter will also increase by 4% year-on-year.

Among other expenses, operating support and management expenses accounted for a similar proportion of revenue, and product research and development expenses decreased significantly, decreasing by about $70 million year-on-year. In summary, the overall operating expense ratio this quarter (excluding equity expenses) was 64%, which increased by 1% compared to last year. Due to the company's gross profit margin being flat year-on-year this quarter, and expenses being basically flat, the operating profit margin after adding back SBC was also flat year-on-year at 13%. Non-GAAP operating profit was $240 million, a 26% increase from last year.

However, on a GAAP basis, the company lost $5 million this quarter, which was consistent with the same period last year despite a 20% increase in revenue. The company's previously sustained profit release rhythm has temporarily halted.

Dolphin Analyst's View:

In terms of revenue and profit indicators, both this quarter's performance and guidance for the next quarter are in line with market expectations, or slightly better than expected. However, for companies like Airbnb with full valuations, not beating expectations is a small miss, and a small miss is a big miss.

At the same time, compared with financial indicators, the market is more concerned about the trend of changes in order amount and order volume. However, the seemingly strong growth this quarter was mainly driven by spending in the Asia-Pacific and European regions, while the North American region, which accounts for nearly half, has weakened. Looking ahead, third-party data and company guidance both show that demand is further declining. Under the shadow of the risk of a recession in the United States, investors' already tense mentality naturally turns to hedging after the confirmed decline in travel demand.

At the same time, although ADR is currently relatively strong, compensating for the decline in single quantity and supporting booking amount (GBV). If the subsequent travel demand continues to decline and the supply-demand imbalance is reversed, whether ADR will also decline and further amplify the decline in GBV is also a risk that cannot be ignored.

Compared with Uber, which Dolphin Analyst also covers, tourism is completely optional and entertainment-oriented, and will be more affected once the economy deteriorates. Therefore, consistent with the trend of their stock prices, Dolphin Analyst also prefers Uber. Considering that even after consecutive declines, Airbnb's valuation is still not cheap, Dolphin Analyst believes that it is currently better to wait and see.

Dolphin Analyst will share the conference call summary with the Dolphin user group through the Longbridge App, and interested users are welcome to add the WeChat account "dolphinR123" to join the Dolphin investment research group and get the conference call summary as soon as possible.

The following is a detailed interpretation of this quarter's financial report:

I. Q1 still has residual heat, and Q2 is coming?

Airbnb's revenue composition is simple, almost entirely composed of commissions from renting out properties on the platform. Therefore, the total booking amount (GBV) of property rentals is the most important operating indicator that can reflect the company's operating conditions, and is also the focus of investors' attention. Therefore, our comments mainly revolve around this area.

Firstly, in the first quarter of 2023, Airbnb achieved a total booking amount (GBV) of $20.4 billion, slightly higher than expected by 1%. In terms of growth trends, the year-on-year growth rate of GBV this quarter was 19%, which was basically flat compared to the previous quarter, and did not slow down. Under fraudulent scrutiny, global travel demand remained quite strong in the first quarter.

Breaking down the price and volume factors, the actual order volume in the first quarter has shown a tendency to weaken:

Airbnb's room night bookings for the quarter were 121 million, slightly lower than the market's expected 122 million, and the actual 19% growth rate was slightly lower than the market's expected 20%. Although the difference seems small, for companies like Airbnb with relatively full valuations and expectations, not beating is missing.

In fact, data from multiple statistical agencies shows that online accommodation spending growth has been declining significantly since the end of March. Sojern's data shows that global hotel bookings grew by 8% in March, but the first two weeks of April were 6%; while the growth in the United States was slower, 4% in March and 3% in the first two weeks of April. It can be seen that the overall accommodation demand in the world is weakening, especially in the United States.

According to the company's disclosed regional operations, the weak growth in the US region in the first quarter has been supported by the recovery in Europe and the Asia-Pacific region.

(1) Revenue in North America in the quarter increased by 13% year-on-year, and if the impact of ADR and realization rate is removed, the order volume growth rate is likely to be no more than 10%, and the growth in North America is the weakest. The United States contributed 48% of the company's total revenue this quarter, so if US tourism demand continues to weaken, it will have a significant drag on overall performance.

(2) Bookings in Europe & the Middle East increased by 21% compared to the same period in 2022, although it slowed down compared to the previous quarter, it is still relatively strong. At the same time, ADR increased by 8%, which also shows that European tourism demand is still recovering.

(3) The South American region achieved a year-on-year growth of 22%, with Mexico and Brazil performing relatively resiliently.

(4) As countries such as Japan, South Korea, and Southeast Asia have successively lifted the ban, the order volume in the Asia-Pacific region in the quarter increased by 48% year-on-year, continuing to accelerate from the previous quarter. With the rapid release of domestic tourism demand in the near future, it may further accelerate later. However, the Asia-Pacific region accounts for less than 10% of the company's revenue, and the benefits to the company as a whole are limited.

Therefore, overall, although travel demand remained strong in the first quarter, fatigue has set in. The company's guidance for order volume growth of less than 16% for the next quarter confirms the market's concerns about the decline in macroeconomic weakness and the decline in travel demand. On the other hand, this season Airbnb's average daily rate (ADR) did not decrease as expected compared to the same period last year. It remained at $168, the same as last year, while the market expected it to drop to $164. However, if the impact of exchange rates is excluded, Airbnb's ADR actually increased by 3% this season. But it is worth considering that the reason for the rise in accommodation prices is mostly due to demand exceeding supply. So if the subsequent demand for accommodation continues to decline, what will happen to the ADR?

Secondly, the monetization rate remained flat, and revenue and booking growth rates were consistent. The company achieved revenue of $1.82 billion this quarter, which was also 1% higher than market expectations, and the year-on-year growth rate slowed slightly from 24% in the previous quarter to 20%. Since the growth rate of order amount was flat this season, the reason for the slight decline in revenue growth rate was that the monetization rate speed increase was smaller.

The monetization rate for this season was 8.8%, which was only 0.1 percentage point higher than the same period last year, while the monetization rate for the fourth quarter increased by 0.5 percentage point year-on-year. Although the company did not comment on why the monetization rate was relatively low, a simple logic is that when supply and demand are relatively strong, the platform has the motivation to increase the monetization rate; when supply and demand are not prosperous, there is motivation to reduce the monetization rate to stimulate demand.

Similarly, due to the monetization rate remaining basically flat year-on-year, Airbnb's gross profit margin this season also remained at 76%, achieving a gross profit of $140 million.

Thirdly, marketing expenses were higher in the first half of the year and lower in the latter half, dragging down profits in the first two quarters. Since Airbnb went public not long ago, the scale and volatility of stock incentive expenses are relatively large, so when looking at costs and expenses, we mainly adopt the caliber of excluding equity incentive expenses to better observe the trend of company expenses. At the same time, because travel demand has obvious seasonal changes, we mainly compare the performance of the same period and do not look at the month-on-month changes.

Overall, Airbnb's expenses increased slightly this quarter, mainly due to significant expansion in marketing expenses, which amounted to $420 million this quarter, far higher than the $230 million in the same period last year, accounting for about 23% of revenue. The company stated that the pace of marketing expenses this year was ahead of last year, resulting in higher spending. At the same time, the marketing expense ratio in the second quarter will also increase by 4pct compared to the same period last year.

Among other expenses, operating support and management expenses account for a similar proportion of revenue, but product development expenses have decreased significantly, down about 0.7 billion compared to the same period last year. Overall, the operating expense ratio for this quarter (excluding equity expenses) is 64%, an increase of 1pct compared to last year.

Due to the company's gross profit margin and expense spending being basically the same as the same period last year, the operating profit margin after adding back SBC is also the same as last year at 13%.

The company achieved a non-GAAP operating profit of $240 million, which exceeded market expectations by $70 million and increased by more than 26% compared to the same period last year. However, after deducting equity incentive expenses, which account for 13% of total revenue, the company only barely broke even in this quarter under the GAAP basis.

Previous research by Airbnb:

Financial Report Review

February 15, 2023 Conference Call "Airbnb: Investment Will Increase Slightly Next Year"

February 15, 2023 Financial Report Review "Can't Stop Eating, Drinking, and Playing, Airbnb "Jumps" and Runs"

November 2, 2022 Conference Call "What Does Airbnb Think of the Prospects for Travel and Tourism? (3Q22 Conference Call Summary)"

November 2, 2022 Financial Report Review "No Good News Is Bad News, How Much Attraction Does Airbnb Have Left?" On August 3, 2022, Telephone Conference "How does Airbnb management view the strategy for the second half of the year (2Q22 conference call minutes)" and Financial Report Review "Is high valuation the original sin? Good performance can't help Airbnb" were released.

On May 4, 2022, Telephone Conference "Joyful Industry Recovery (Airbnb Conference Call Minutes)" and Financial Report Review "The King of Airbnb Returns with the Recession of COVID-19" were released.

Depth

On February 28, 2023, "Microsoft and Amazon are down, is it time for Airbnb & Uber to claim the throne?" was released.

On April 6, 2022, "Airbnb: The Alternative Under the Epidemic, Why Can It Turn Over When Others Are in Hell?" was released.

On April 7, 2022, "Airbnb: The Crown is Too Heavy, and the Valuation is Running Too Fast" was released.

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