Slowing growth & narrowing profits, Airbnb is still going through a tough time

On November 8th, Beijing time, after the US stock market closed, $ Airbnb.US announced its Q3 financial report for the fiscal year 2024. Overall, the performance indicators for this quarter were generally slightly better than market expectations, but the challenges of slowing growth and declining profit margins have not been reversed despite the slight improvement in expectations. The key points are as follows:

1. The most critical indicator—Gross Booking Value (GBV) for this quarter was approximately $20.1 billion, with a year-on-year growth rate slowing by 1 percentage point to 10% compared to the previous quarter, hovering on the edge of single-digit growth. Although it was slightly better than more conservative expectations, the trend of continuous slowdown in growth has not been reversed.

In terms of price and volume drivers, Airbnb had a total of approximately 123 million nights booked this quarter, with a year-on-year growth rate continuing to slightly slow by 0.2 percentage points to 8.5%. This is much better than the market's more pessimistic expectation of 7.1%, but it still indicates a slowdown. On the pricing side, the average daily rate reached $164 per night this quarter, up 1.4% year-on-year, compared to 2.1% in the previous quarter. With the cooling demand for travel in Europe and the US, the hotel and travel sector has less ability to raise prices.

2. Looking at the company's business growth by region, revenue in North America grew by approximately 6%, significantly slowing from 9% in the previous quarter. Additionally, North America's Average Daily Rate (ADR) increased by 3%, assuming the monetization rate remains roughly stable, the order volume growth rate in North America is likely only in the low single digits.

In Europe, benefiting from the Olympics, the growth in nights booked has accelerated compared to the previous quarter, with revenue growing by approximately 13%.

The emerging regions of South America and Asia-Pacific saw growth rates of 15% and 19% in nights booked, roughly in line with the previous quarter. However, the revenue growth rates in these two regions were 11.8% and 13%, respectively, lagging behind the growth in nights booked, indicating that the monetization rates in these two regions are likely declining.

3. From a revenue perspective, due to a slight year-on-year decrease of 2 basis points in the monetization rate, the year-on-year revenue growth rate was 9.9%, with a quarter-on-quarter slowdown of 0.7 percentage points, falling into the single-digit range. According to the company, the slight decline in the monetization rate was due to increased investment in user services, which partially accounted for the revenue deductions.

However, unexpectedly, the gross margin increased by approximately 1 percentage point year-on-year this quarter, with gross profit amounting to approximately $3.27 billion, slightly higher than market expectations by 1.7%.

4. Since the beginning of 2024, the company's management has repeatedly stated that they will increase investment efforts, and the expansion of expenses compressing profit margins is one of the market's main concerns. Excluding stock-based compensation, apart from management expenses growing approximately 10.3% year-on-year and being roughly in line with revenue growth, the year-on-year growth rates for operational support, product development, and marketing expenses ranged between 16% and 27%, with marketing expenses showing the most significant year-on-year growth.

After including equity incentive expenses, Airbnb's overall operating expense ratio for this quarter is 46.7%, an increase of 4.3 percentage points compared to the same period last year, which significantly compresses the company's profit margin. Ultimately, operating profit is $1.53 billion, a mere 2% increase compared to the same period last year.

5. For the fourth quarter of 2024, the company guides revenue in the range of $2.39 to $2.44 billion, with the upper limit slightly above the market expectation of $2.42 billion, which is neutral. In terms of other key indicators, the company expects the growth rate of nights booked in Q4 to slightly accelerate compared to this quarter (8.5%) but may still not reach double digits. The average revenue per user has slightly increased year-on-year (but it is not specified whether the growth rate quarter-on-quarter is up or down). On the profit side, the adjusted EBITDA profit margin will continue to narrow year-on-year due to marketing and product investments.

6. From the perspective of shareholder returns, the company repurchased approximately $1.1 billion worth of stock this quarter, bringing the total repurchase amount for the year to about $2.6 billion as of the third quarter, which annualizes to a shareholder return rate of 3.7%. However, it is worth noting that the company's operating cash flow for this quarter was also $1.1 billion, so there may be pressure to continue increasing the repurchase intensity in the future.

Dolphin Investment Research Perspective:

Based on the analysis above, Airbnb's various indicators this quarter are slightly better than the more conservative market expectations, which cannot be denied. However, beyond the expectation gap, we can see from the performance trend itself that:

1) In terms of growth, the growth rates of order volume, average revenue per user, and total order value continue to decline slightly, and the trend of slowing growth has not been reversed. Regionally, North America continues to deteriorate significantly, while revenue growth in other regions is only hovering slightly above 10%, leaving little safe distance from falling into single-digit growth. It is evident that the growth pressure faced by Airbnb is widespread globally.

2) In terms of profit, the significant increase in expense spending has led to a lower conversion rate, with the expense ratio rising and the profit margin declining, resulting in the company's operating profit growth hovering around zero for two consecutive quarters, making the pressure on profitability more apparent. The increased investment is, on one hand, the company's proactive choice to promote new businesses and explore new markets, but on the other hand, it likely also reflects a forced choice under growth pressure.

Combining these two points, the situation of slowing growth and shrinking profits can be described as a vicious cycle of losses. Although growth may improve in the next quarter, the profit margin remains under pressure and in a contracting state. The overall impression is still negative.

From a valuation perspective, although Airbnb's current performance trend is not good, its EV/EBITDA valuation is still higher than that of peers Booking and Expedia. If viewed from a PE valuation perspective, it corresponds to about 30x valuation based on the 2025 GAAP net profit. It is evident that the valuation is still not cheap, and Dolphin Investment Research finds it difficult to regard it as a comfortable investment target

The following is a detailed interpretation:

1. Performance slightly better than expected, but the growth rate of core business indicators continues to slow down

The most critical indicator—Gross Booking Value (GBV) for this quarter is approximately $20.1 billion, with a year-on-year growth rate slowing down by 1 percentage point to 10% compared to the previous quarter, edging towards single-digit growth. Although it is slightly better than more conservative expectations, the trend of continuous slowdown in growth has not been reversed.

From the perspective of price and volume, this quarter, Airbnb total nights booked was approximately 123 million, with a year-on-year growth rate continuing to slightly slow down by 0.2 percentage points to 8.5%, but still significantly better than the market's more pessimistic expectation of 7.1%.

In terms of price, this quarter, the average revenue per night reached $164, a year-on-year increase of 1.4%, compared to 2.1% in the previous quarter. With the cooling demand for travel in Europe and the United States, the hotel and travel sector no longer has the support and momentum for price increases.

By region, the company disclosed that revenue in North America grew by approximately 6%, while the Average Daily Rate (ADR) increased by 3%. Assuming the monetization rate remains roughly stable, the order volume growth rate in North America is likely only in the low single digits. Airbnb also stated that most of the travel in this region currently consists of relatively inexpensive domestic trips.

The European region benefited from the boost of the Olympics, with the growth in nights booked accelerating compared to the previous quarter. For the same reason, ADR also increased by 6% year-on-year. Combining this, revenue in the European region grew by approximately 13%, and the order volume growth rate should be around the mid to high single digits.

The emerging regions of South America and Asia-Pacific saw growth rates in nights booked of 15% and 19% respectively, with growth rates roughly in line with the previous quarter. However, the revenue growth rates in these two regions were 11.8% and 13%, indicating a decline in monetization rates in these areas.

2. Slight decline in monetization rate & revenue growth rate slips into single digits

From a revenue perspective, due to a slight year-on-year decline of 2 basis points in the monetization rate this quarter, the year-on-year revenue growth rate is 9.9%, with a quarter-on-quarter decline of 0.7 percentage points, falling below the GBV growth rate, officially entering the single-digit range. According to the company, the slight decline in the monetization rate is due to increased investment in user services, with some accounted as revenue deductions.**

Although it did not fall below market expectations, the momentum of revenue growth remains quite "stubborn" under the resonance of slowing GBV growth and a slight decline in monetization rate for two consecutive quarters.

However, unexpectedly, the gross profit margin increased by about 1 percentage point year-on-year this season, with a gross profit amount of approximately 3.27 billion, slightly higher than market expectations by 1.7%.

3. Under high investment, profits continue to be compressed

In addition to the slowdown in revenue growth, another issue that the market is most concerned about is that the company's management has repeatedly stated that the company's investment will significantly increase in 2024.

In reality, excluding equity incentive expenses, management expenses increased by about 10.3% year-on-year, and the revenue growth rate remained roughly flat. The year-on-year growth rates of operational support, product research and development, and marketing expenses ranged from 16% to 27%, with marketing expenses showing the most significant year-on-year growth. This is generally consistent with the management's previous declarations.

The increased investment reflects, on one hand, the company's proactive investment to promote new businesses and explore new markets, and on the other hand, it likely reflects a forced choice under growth pressure.

Including equity incentive expenses, this season Airbnb's overall operating expense ratio totaled 46.7%, an increase of 4.3 percentage points compared to the same period last year, which significantly compressed the company's profit margin. Ultimately, Airbnb's operating profit for this season was $1.53 billion, only a 2% increase compared to the same period last year. Excluding equity incentives, the adjusted operating profit was $1.89 billion, a year-on-year increase of 5.9%, which performed slightly better.