Airbnb (Minutes): investments this year will not significantly affect profits

The following are the conference call minutes for $Airbnb(ABNB.US) Q4 2024. For the financial report commentary, please see Has Airbnb Finally Come Back to Life?

1. Core Financial Information Review

For the full year of 2024: EBITDA totaled $4 billion, with an adjusted EBITDA margin of 36%; since 2020, there has been over 4,000 basis points of EBITDA margin expansion. Free cash flow was $4.5 billion, representing a free cash flow margin of 40%. At year-end, corporate cash and investments were $10.6 billion, and funds held on behalf of others were $5.9 billion. The company repurchased $838 million of Class A common stock in Q4 and $3.4 billion for the full year, with $3.3 billion remaining on the repurchase authorization.

2. Q1 2025 Outlook:

a) Expected revenue between $2.23 billion and $2.27 billion, representing 4% - 6% YoY growth or 7% - 9% when excluding FX headwinds. Without calendar impacts (Easter timing and leap year day) and FX headwinds, revenue growth would be about 6 percentage points higher (10%-12%).

b) Nights and Experiences Booked growth expected to be relatively in line with Q1 2024, once excluding the leap day impact. The adjusted EBITDA and margin are expected to decline compared to Q1 2024 due to the same factors as revenue. Excluding calendar and FX headwinds, the adjusted EBITDA margin would remain relatively flat YoY.

3. 2025 Guidance: The company plans to invest $200 million - $250 million toward launching and scaling new businesses in 2025. Even with these investments, a full-year adjusted EBITDA margin of at least 34.5% is expected. The impact of the investments on the quarterly adjusted EBITDA margin will be most pronounced in the first 9 months of 2025. As new businesses scale over the years, they are expected to significantly contribute to revenue growth.

4. Overview as follows:

2. Detailed Content of the Financial Report Conference Call

2.1 Key Information from Executive Statements

(1) Airbnb rolled out over 535 features and upgrades in recent years to improve the guest and host experience, such as Guest Favorites for easier listing discovery and the Coast Network to simplify hosting, which grew to nearly 100,000 listings in 4 months.

(2) The company made product optimizations like enhanced search functionality, better merchandising (including suggested destinations, detailed maps, and new welcome guides), flexible payment options, and local payment methods in nearly 2 dozen countries, leading to higher conversion rates.

(3) Airbnb rebuilt its platform with a new technology stack, including new listing management tools and an upgraded unified messaging system, enabling faster innovation and expansion beyond short-term rentals, with 2025 marking the start of its next chapter.

(4) The 2025 strategy focuses on perfecting the core service, accelerating global market growth, and launching/scaling new offerings, with plans to invest $200 million - $250 million in new businesses this year while maintaining strong profitability and free cash flow.

2.2 Q&A

Q: What is the timeline for localization in different countries; what are the details regarding the allocation of the $200 million to $250 million investment?

A: Airbnb is a global brand, but currently, our business is primarily focused on our top five core markets, namely the United States, the United Kingdom, Canada, France, and Australia, which together account for about 70% of our total booking value. Therefore, as a growth lever, we have been investing in target markets outside of these five core markets, where we see significant opportunities for penetration and support for our global growth rate.

As for how long localization takes, it depends on the specific market. Brazil is a very successful case; over the past two years, we have particularly focused on increasing brand marketing in Brazil and significantly expanded our business in the country. Japan is a different situation; we only just started brand marketing in Japan in the fourth quarter, and the local awareness is relatively low. So for each target market, we must consider the market's current state, global travelers' awareness and consideration of us, and what product optimizations we need to make to ensure we can adequately meet the needs of the local audience.

Regarding the $200 million to $250 million investment, it will primarily impact marketing and product development, including building teams for supply operations, conducting awareness campaigns, and increasing the number of product developers.

Q: Is Airbnb moving closer to other OTAs (i.e., becoming more similar)? Does the company have confidence in mastering the impact of AI on OTAs?

A: I believe artificial intelligence is still in a very early stage, possibly similar to the internet in the mid to late 90s. So I think it will have a profound impact on the travel industry, but I do not believe it has fundamentally changed any large travel planning yet.

Most companies in travel planning are integrating other platforms, but it is still too early to realize planning functionalities. We have chosen a completely different approach, starting with customer service. As part of our summer release, we will launch AI-driven customer support. You can imagine that we receive millions of inquiries each year. AI can excel at customer service, being available around the clock in various languages and quickly reading large volumes of documents. So, we are starting with customer support. In the coming years, we will introduce AI-driven customer service agents into Airbnb search, ultimately making it a concierge service for the travel life. I think this is a very exciting moment, as you can see models like DeepSeek and more competition, with models becoming cheaper, even nearly free, and getting faster and smarter.

From all perspectives, they are starting to become commoditized. I believe this means a lot of value will flow to the platforms. Ultimately, I think the best platforms and applications will be those that can extract the most value from AI. I believe we will achieve this in the travel and lifestyle sectors.

Q: Internal AI efficiency potential and evolution of capital allocation strategy.

A: AI can significantly improve customer service efficiency in a few years and may increase engineering productivity by about 30%.

Regarding the question of capital allocation strategy, I want to say that there has been no substantial change strategically. Over the past two years, we have emphasized that our capital allocation strategy includes: first, investing in our core business; second, pursuing mergers and acquisitions when relevant opportunities arise; and third, returning capital to shareholders. Given our strong balance sheet and free cash flow margin, we have the funds to do these three things. From our 2025 guidance, you can see that we have slightly increased investments in our core business, particularly in new ventures. In terms of returning capital to shareholders, you can refer to the scale of the buyback activities in 2024 as a reference for 2025. I expect we will be somewhat sensitive to price and adjust the quarterly buyback scale based on stock prices.

Q: Speed of product innovation and obstacles in the old tech stack.

A: We have completed 535 upgrades, with the vast majority of these upgrades done in the past two years. Each year, we are increasing the number of features and upgrades. This summer's release will be larger than ever, and I expect subsequent versions to be even bigger.

This will allow fewer engineers to launch features faster. This is a significant advancement. So I believe we will have more upgrades this year than last year, and this will continue to increase each year.

Q: Obstacles faced by new products; impact of investments in the second half on profits.

A: New products are designed to meet the needs of guests and hosts beyond core services, starting with travel-related experiences and services, with the ultimate goal of reaching 1.6 billion devices using Airbnb's services each year.

In 2025, Airbnb plans to invest $200 million to $250 million in launching and expanding new businesses. These investments are expected to hurt margins from the first quarter to the third quarter, while revenue growth will become apparent after the launch of new products at the end of the second quarter, with the exit growth rate in the fourth quarter reflecting the most significant improvement. Despite these investments, the core business can still maintain high margins and good profitability. The revenue in the first quarter will be affected by unfavorable foreign exchange factors and date changes; without these factors, the EBITDA margin in the first quarter will remain relatively flat.

Q: Improvements in search and product display; contribution to growth in nights booked and experience reservations.

A: We have tremendous traffic, with nearly 5 billion unique visitors each year, so it's crucial that when people come to Airbnb, they can find listings that suit them. Improvements in search and product display, such as personalized welcome messages and a streamlined checkout page, have increased conversion rates. The growth in nights booked and experience reservations is attributed to industry trends and product optimization, which contributed several percentage points to the increase in exit rates. The conversion rate of our mobile app is significantly higher than that of our mobile website. Therefore, we have been pushing for more people to download our mobile app. In the fourth quarter, the proportion of bookings made through the mobile app reached 60%, compared to 55% the previous year.

Q: Will you collaborate with large companies that can provide enhanced services? Additionally, how do you view the opportunities in the North American market?

A: Airbnb plans to shift from a closed ecosystem to an open ecosystem, potentially collaborating with local and global companies to enhance services. Initially, first-party products will be prioritized, followed by third-party integrations.

We observed trends in the second half of the year is that the North American market, like other regions, experienced accelerated growth from the third quarter to the fourth quarter. Although we have achieved some scale in North America, hotels still dominate. Our share of the overall accommodation industry remains small, leaving significant room for growth.

Compared to other regions, there is still room for improvement in our short-term rental business relative to the hotel business in North America. As mentioned in previous conference calls, we have studied the situation in various states in the U.S. and found that there are some demographics where our business coverage is not very strong, such as the Hispanic community and some inland states outside coastal areas. These are areas where we will continue to work to improve penetration and increase user engagement.

Q: Performance of the co-host network; what opportunities are there for efficiency improvements in cost structure management?

A: The co-host network is performing well in 10 countries (Australia, Brazil, Canada, France, Germany, Italy, Mexico, Spain, the UK, and the US), with 15,000 co-hosts managing 100,000 listings. Due to high ratings (an average of 4.87) and the fact that most listings are "guest favorites" or managed by superhosts, these listings generate twice the revenue of other listings. Airbnb plans to expand the co-hosting business into Asia, focusing on Japan and South Korea. Opportunities for efficiency improvements in cost structure management include payment processing, customer service, general and administrative expenses, and disciplined marketing spending, which help to expand profit margins while investing in new growth opportunities.

Regarding questions about profit margins and efficiency improvements, as we mentioned in our margin guidance, we look for efficiency opportunities in our core business while seeking new growth opportunities each year. For the outlook for 2025, I would say there are efficiency opportunities in our variable costs, such as payment processing and customer service, where we can improve efficiency and thus expand profit margins Similarly, we have maintained strict control over general and administrative expenses (G&A) and employee growth, which also helps to expand profit margins.

In terms of marketing, we did increase overall marketing efforts in 2024 as we saw opportunities. For the marketing plan of our core business in 2025, we expect the proportion of revenue to remain unchanged.

Q: Growth situation in expanding regions; marketing efforts and investment in these areas.

A: The growth momentum in expanding regions is strong, but the overall growth rate in the first quarter was affected by factors such as holidays (Easter, leap year) and foreign exchange headwinds. Marketing spending is primarily focused on brand marketing, which involves a fixed amount of investment in each market rather than being performance-based. This allows Airbnb to maintain strong growth in core markets while gradually investing in expanding markets without letting the growth rate of marketing expenses exceed the growth rate of revenue. The company is leveraging existing investments and focusing on improving efficiency to drive growth in these regions.

Q: Macroeconomic impacts on growth pressures in the North American market; outlook on take rate.

A: During the summer peak season of 2024, the booking cycle in North America shortened, leading to a lackluster booking performance in the third quarter. This was due to fluctuations in consumer behavior rather than a weakening of demand. The situation improved in the fall, with consumers beginning to book and showing strong interest in future travel.

Regarding the take rate, the foreign exchange service fee launched in mid-2024 is approximately 100 basis points of 20% of the gross booking value (GBV). In the third quarter, we had higher make goods, which served as a revenue offset, counteracting the uplift from the foreign exchange service fee. In the fourth quarter of 2024, the offsetting factor is a tough comparison due to revenue gains related to gift card breakage in the fourth quarter of 2023.

For 2025, Airbnb expects that the full benefits from the foreign exchange service fee will not be affected by similar offsetting factors, leading to an implied year-on-year increase in occupancy rates.

Q: Fixed asset investment in product releases after 2025; growth in North American urban markets; priority of advertising services?

A: For product releases, significant work on rebuilding the technology architecture has been completed, allowing future product resources to focus on developing consumer-facing growth features. In North America, there are growth opportunities in urban markets dominated by hotels. Airbnb aims to improve the balance of price and value by enhancing the convenience, reliability, quality, and cost-effectiveness of bookings. Campaigns emphasizing Airbnb's advantages over hotels have been successful, indicating a potential turning point where more group travelers choosing hotel accommodations may turn to Airbnb. Advertising services represent a billion-dollar opportunity, but it is not a priority this year.

Q: Urban demand and regulation; broader regulatory environment. A: In terms of urban demand, 80% of the top 200 markets recognize Airbnb's operating model and have corresponding regulations, and the company has collaborated with multiple cities to address housing demand issues during disasters such as the Paris Olympics and the Los Angeles fires. We have collected approximately $13 billion in hotel occupancy taxes and have a good historical record of working with cities. More and more cities view Airbnb as a solution to problems rather than the problem itself.

However, New York remains an exception, as they have banned most of our operations. From the last data I saw in September of last year, they believe that banning Airbnb can reduce rent, but in reality, rents have increased by 3% year-on-year, with no significant increase in housing supply, while hotel prices have risen by 7% year-on-year. So, I think New York is a cautionary case that other cities will not follow; they are more likely to see us as a solution to problems.

Q: Competitive landscape; progress on the restart of experience business.

A: Airbnb's strong momentum reflects both its past performance and its plans to consolidate its leading position. The company's market share continues to grow globally and regionally, attracting traditional hotel users through product improvements and brand considerations.

People may be concerned about the comparison with Vrbo. Vrbo's business contracted in the fourth quarter of 2023 in the U.S. and globally, so its comparison base is relatively low. In the last quarter, we found that the markets where we compete with them, especially the non-urban markets in the U.S., are among the fastest-growing segments for us in the U.S. So even in comparison with Vrbo, we feel we are performing quite well.

Another point regarding competition is that we are leading in overall supply growth. Moreover, most of the newly listed properties have chosen Airbnb, and most are exclusive listings. This further expands our advantages in the breadth and uniqueness of our supply, which is crucial for our brand and customer value proposition.

Q: Conversion optimization; the flywheel effect brought by new services (i.e., acquiring new customers through the launch of new products or enhancing customer lifetime value by promoting more multi-product bookings).

A: Airbnb aims to optimize search and discovery features to balance the promotion of new services while maintaining accommodation conversion rates. This involves personalized and timely product marketing to align with the guests' journey. New services are designed to enhance core products and encourage more frequent bookings and app usage, thereby increasing customer lifetime value through the flywheel effect.

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