Airbnb CEO Brian Chesky says his company can thrive in boom and bust cycles if it keeps innovating. To meet that promise, his company will have to boost its pricing competitiveness and makes it easier for individuals to list properties. And make the case to Wall Street on unfair comparisons to 2021.
Sustained high rates for short-term rentals and vacation homes propelled Airbnb to notch record revenues and profits in the third quarter, it reported on Tuesday. The lodging booking agency continued to cash in on consumers’ pent-up demand for travel as the pandemic receded.
Airbnb’s net income rose 46 percent year-over-year to $1.2 billion, its highest-ever quarter, for the period that ended September 30.
The San Francisco-based company generated third-quarter revenue of $2.9 billion, which was likewise a company record. The revenue mark was up 29 percent compared to a year ago.
Airbnb had 90 million guest arrivals, another record. They generated 99.7 million “nights and experiences” booked, a figure that climbed 25 percent year-over-year.
Wall Street Skeptics
Yet despite the record-breaking results, investors sent Airbnb’s stock price down in after-hours trading. Why? Investors worried about a potential weakening in the company’s forecasts for the fourth quarter, which dropped below their expectations.
Analysts noted that excutives said bookings would “slightly moderate” from its third quarter levels.
“As the impact of the pandemic recedes but macro conditions persist, we expect a continued, albeit choppy, recovery of cross-border travel to be a further tailwind to future results,” the company said in a statement. Executives also noted that a strong U.S. dollar relative to other currencies was a headwind for its performance.
During a call, executives cautioned analysts against judging the company’s performance against an unreasonable standard of a one-off bump as Covid restrictions were lifted in many countries a year ago. They said analysts were ignoring that Asia Pacific has still yet to recover, offering another driver for growth.
“If you actually go back to 2019 [for pre-pandemic performance], we’re actually seeing stable to increasing demand for bookings here from Q3 into Q4,” said David Stephenson, chief financial officer. “The decel [deceleration] that we see from Q3 into Q4 is really a hard comp [comparison] on Q4 last year where we had really strong demand after Delta and before Omicron. And so this is really kind of a hard year-over-year comp.”
Hosts who discovered Airbnb during the pandemic have remained “as strong, if not even stronger” in “stickiness” and “engagement” as hosts who joined the platform before the crisis, executives said.
Analysts who thought long-term stays of a month or longer would be a pandemic blip may be caught by surprise by Airbnb’s results on Tuesday.
“We’ve seen many companies require their employees to return to the office,” Brian Chesky, co-founder and CEO, said. “And at the same time, long-term stays remain 20 percent of our total gross nights booked on Airbnb.”
Chesky argued that Airbnb has shown since its founding after the financial crisis that it can grow steadily during economic downturns as individuals turn to it to generate additional income through hosting.
The company has continued to keep its marketing costs in line, claiming that 90 percent of its traffic comes direct or through unpaid channels — a higher mix than enjoyed by online rivals such as Booking Holdings and Expedia Group.
Conversion rates, or the pace at which a visitor to Airbnb becomes a buyer, have risen over the past several years with a “metronomic improvement,” meaning that efforts to inspire travelers bring in more viewers and temporarily depress conversion rates only eventually to translate into increased bookings and a rebound in conversions.
Since last year, when it rolled out “AirCover,” a form of basic insurance that a listed property will be as advertised, the company has seen its net promoter score, a measure of guest satisfaction, increase. The company plans shortly to expand what the product covers.
Adapting to Economic Softness
Airbnb executives acknowledged that some economies are softening or heading to recession by taking steps to improve the competitiveness of pricing for lodging on Airbnb and to make it easier to onboard supply.
On pricing, the company isn’t planning on making wholesale changes to its structure. But it is planning to add more transparency, as Skift has previewed. The goals are for owners and hosts to have a better understanding of the prices actually being paid for lodging.
The company will also update its search ranking to boost the prominence of properties that past guests have told Airbnb provide “great value.” The company will also provide more discounting tools. The company may also reduce its cut, or commission, on multi-month bookings to help them be priced more competitively.
“If we do all this, I believe the prices will get even more competitive,” Chesky said.
To help boost supply, on November 16 the company will roll out new tools that it hopes will make it easier for people to list their homes for rent on Airbnb.
On supply growth, the company said that its active listings grew approximately 15 percent in the quarter compared to a year ago — after excluding properties in mainland China that it delisted in July after exiting that market. The company didn’t provide a specific number of active listings, other than to say about 90 percent of its listings are from hosts and that it has “more than 4 million hosts” — the same number as reported a year ago.
“The one area I haven’t seen consumers pull back as much is travel,” Chesky said. “Because the mall is now Amazon, the movie theater is now Netflix, people still want to get out of the house. They still want to have meaningful experiences.”