Airbnb, Inc.

Best of Relations section of Airbnb's website following this call. I will now hand the call over to Ellie Mertz, VP of Finance. Please go ahead.

Thank you. Good afternoon and welcome to Airbnb's third quarter of 2023 earnings call. Thank you for joining us today. On the call today, we have Airbnb's co-founder and CEO, Brian Chesky, and our Chief Financial Officer, Dave Stevenson. Earlier today, we issued a shareholder letter with our financial results and commentary for our third quarter of 2023. These items were also posted on the investor relations section of Airbnb's website. During the call, we'll make brief opening remarks and then spend the remainder of time on Q&A. Before I turn it over to Brian, I would like to remind everyone that we'll be making forward-looking statements on this call that involve a number of risks and uncertainties. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described under forward-looking statements in our shareholder letter and in our most recent filings with the Securities and Exchange Commission. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained on this call to reflect subsequent events or circumstances. You should be aware that these statements should be considered estimates only and are not a guarantee of future performance. Also during this call, we will discuss some non-GAAP financial measures. We've provided reconciliations to the most directly comparable GAAP financial measures in the shareholder letter posted to our investor relations website. These non-GAAP measures are not intended to be a substitute for GAAP results. With that, I'd like to pass the call to Brian.

All right. Well, thank you, Ellie. And good afternoon, everyone. Thanks for joining. I'm excited to share results with you. Q3 was another strong quarter for Airbnb. We had over 113 million nights and experiences booked. Revenue of $3.4 billion grew 18% year over year. Net income was $4.4 billion. Now, this includes a one-time income tax benefit from the release of a valuation allowance of $2.8 billion. But even excluding this tax benefit, adjusted net income was $1.6 billion, our highest ever. It represented an adjusted net income margin of 47%. And free cash flow for the quarter was $1.3 billion. In fact, on a trailing 12-month basis, our free cash flow was $4.2 billion, which is also our highest ever. And because of our strong cash flow and balance sheet, we repurchased over $500 million of our stock. Now, during the quarter, we saw a number of positive business highlights. First, we have added nearly 1 million active listings this year. Our supply grew 19% in Q3 compared to a year ago. We once again saw double-digit supply growth across all regions, with the highest growth in regions with the highest demand. Urban and non-urban supply increased at nearly the same rate. And we saw relatively similar supply growth among individual and professional hosts with a majority of new listings exclusive to Airbnb. Second, Q3 was a record travel season on Airbnb. Nights and experiences booked grew 14% in Q3 compared to a year ago. We saw an acceleration in nights growth across all geographies. And we were particularly encouraged by the growth of first-time bookers during Q3. And we saw more nights than ever booked in the Airbnb app, with 53% of gross nights booked in the app compared to 48% in the same period last year. And finally, international expansion markets are gaining momentum. Cross-border nights booked increased 17% in Q3 compared to a year ago. In Asia Pacific, our business has fully recovered to pre-pandemic levels. And we're seeing significant growth and Asia Pacific markets such as Taiwan, Thailand, and Indonesia, all experiencing year-over-the-nights growth above 30% on an origin basis. Now, we've been able to achieve these results by continually making progress on our three strategic priorities. First, we're making hosting mainstream. We've been focused on making hosting as popular as traveling, and our Q3 results show that our approach is working. We ended the quarter with our highest number of active listings, and we saw strong active listings growth across all regions and market types. And hosts are benefiting. During Q3 alone, Airbnb hosts earned more than $19 billion. We'll continue growing supply by raising awareness around hosting, making it easier to get started, and improving the overall experience for hosts. Second, we're perfecting our course service. We've collected millions of pieces of feedback on how to improve Airbnb. And two years ago, we started doing twice a year product releases to address this feedback. And since then, we've launched more than 350 new features and upgrades across our entire service. And in the past year alone, this has included things such as improved customer service, total price display, and new tools to help host set more competitive prices. These upgrades are paying off for both guests and hosts. For example, We redesigned our tool and we made it easier for hosts to add discounts and promotions. And now, almost two-thirds of hosts offer weekly or monthly discounts. We also added a new feature called Similar Listings that lets hosts see listing prices in the area so they know what to charge. And since we launched the Similar Listings tool, nearly one million hosts have used this feature. And in September, We shared progress we've made to help lower cleaning fees, reduce prices, and improve search and reliability. We have even more improvements coming as part of our November 8th winter release next Wednesday, where we'll introduce dozens of new features aimed at making Airbnb more reliable. And finally, our third strategic priority is to expand Airbnb beyond our core. Now, we've made significant progress in the past few years in building a strong and profitable business. And in addition to laying the foundation for new services and offerings, we've been focused on international expansion. We are investing in underpenetrated international markets, and we're seeing great results. Following the success we've seen in recent quarters in Germany and Brazil, Korea has now become one of our fastest-growing countries compared to 2019, with gross nights booked, 54% higher than they were in Q3 2019 on the origin basis. As international travel continues to recover, we're building greater momentum for Airbnb and under-penetrated markets. So those are results for Q3. With that, Dave and I look forward to answering your questions.

Thank you. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. If you would like to remove yourself from the queue, press star one again. We'll take our first question from Mark Mahaney at Evercore ISI.

Thanks. Can I throw two questions in? You talk about some of these improvements you've seen in markets like Germany, Brazil, and Korea. Could you just spend a little bit more time on that opportunity going forwards and You know, is it the expectation now that Germany and Brazil are already optimized, you just keep optimizing other ones, or does it take a while to monetize those? And then secondly, in terms of future services that you could offer to sellers, any update on when we could see those, particularly things like sponsored listings for sellers? Thank you. For hosts, I mean. Thank you.

Yeah. Hey, Mark. This is Brian. I'll take it. Let's first talk about international expansion. So it's a great question. And as everyone recalls, probably aware, Airbnb is in 220 countries and regions. So on the one hand, we're one of the most global companies in all of travel. We're a truly global travel network. At the same time, Mark, what we've seen is that our penetration in the United States is significantly higher than our penetration in many other countries. And we think there's a huge amount of growth if we could just get us, Airbnb, to even a fraction of the percentage of penetration that we have in the United States. So last year, we decided to roll out this updated playbook. We rolled it out in Germany and Brazil. It's kind of a full-pronged approach. It involves some product optimizations, PR, local marketing, and just general optimizations on the ground in these regions. And what we've seen is Brazil is now double the size as it was pre-pandemic. We rolled that same playbook out to Korea. It's now 54% higher than it was before. But what I would say is we've just scratched the surface of what we can do in Germany, Brazil, and Korea. I think those markets are on a good trajectory. They could be significantly larger. And we're now looking at Japan and India, China, around Asia Pacific. We have some optimizations in Southeast Asia, continual growth in Mexico. There's a number of other countries in addition to a number of areas in Europe where we think we can see a lot more growth. So I think the next 24 months, we're going to see a major acceleration in our penetration in a lot of these markets. There's about a dozen, dozen and a half markets around the world, as you know, have large tourism opportunities, and we're really focused on that. And that's going to be one of our biggest near-term expansion opportunities. With regards to future services to sellers, we don't have anything to announce right now, but what we've been doing is we've been building the foundation of our system so that we can have these new tools and services. including sponsor listings. And we also, not recently, we've been rolling out a pilot for co-hosting. Co-hosting is a service where we match hosts that don't have homes, but they have extra time, with homeowners that have space, but they don't have time to host. And we've been doing these pilots in France. We've rolled it out in parts of the United States. And this is turning into a popular service that we think is going to lock a lot more supply. So we're going to, over the next couple of years, I think you're going to see a number of new services roll out for hosts. Okay, thank you, Brian.

We'll go next to Eric Sheridan at Goldman Sachs.

Thanks so much for taking the question. I just have one. Brian, in a number of interviews in the quarter, you talked about potential for product roadmap over the longer term, you know, different products that could probably expand elements of the platform, car rentals, maybe even long term. apartment rentals. How do you think about product evolution that's being offered to the consumers on the platform and thinking about investing behind those initiatives? Thanks.

Hey, Eric. I mean, just to step back, the last few years, I think we've really, really benefited by being focused. You know, when the pandemic occurred, we felt like we had to hunker down, get really lean, get really focused. And we went from basically a break-even company now a company doing obviously cash flow margins of around 44 percent of revenue so we've really benefited from this focus and really benefited from focusing on our core business to your point eric i think we are now getting ready to re-expand airme beyond its core it was always our intention to do much more than just short-term housing um for travelers there's always intention to do more of that so we're working on making airme more of an extensible platform and i think ultimately There are actually quite literally dozens of services for guests and hosts that we could build on top of the Airbnb system. I think a lot of it comes down to making the platform extensible so we can offer these services. I think at the end of the day, what we're really thinking about are a couple big ideas. First, I think that we are thinking about generative AI as an opportunity to reimagine much of our product category and product catalog. So if you think about how you can sell a lot of different types of products and new offerings Gender of AI could be really, really powerful. It can match you in a way that you've never seen before. So imagine Airbnb being almost like the ultimate travel agent as an app. We think this can unlock opportunities that we've never seen. Additionally to that, there's a lot of opportunities on both the guest side and the host side. And so we're going to be thinking through a lot of this. So you'll see hopefully some updates in the coming years.

Thank you.

We'll move to our next question from Brian Nowak at Morgan Stanley.

Great. Thanks for taking my question. I have two. First one, maybe on the guide a little bit, I know there's a lot of moving pieces between the revenue comments and the ADR comments and the take rate. Just sort of wanted to confirm, are you guys sort of looking to guide room night growth and sort of the high single, low double digit range in 4Q? Is that the right way we should be thinking about with take rate and things? And then the second one, Brian, I know you have a lot of innovation, you have 350 features and upgrades, et cetera. Can you just sort of give us one or two of them that you think could be most impactful to accelerate that room night growth as we go into 24 and 25? And Brian, sorry, are you referring to things you've already shipped or things that we're working on that we haven't shipped? Well, either way you want to go.

Yeah, if you have ones that have already shipped, that'd be great. If you have other ones you want to tell us about next week, that'd be good, too.

What do I know? Yeah, so let me – why don't I answer the innovation, and Daisy can talk about the guide for going forward. So maybe, yeah, let me talk about some things that we've already done. I can give you a little bit of sense of how we're thinking about next week and beyond. We did over 50 upgrades last May. It was based on the idea that millions of customers have given us feedback, actually both guests and hosts, on how to improve Airbnb, and we've listened. And if I were to just call out three things, Brian, I would just call out three things, would be total price display, pricing tools for hosts, and monthly stays. So let me just go through three and what happened. On total price display, we rolled out total price display before taxes. This is based on popular demand. We are now the only travel app of our kind that actually does this. Since we rolled this out, 260,000 listings have removed or reduced their cleaning fees. We now have 3 million listings that do not have a cleaning fee. So we think this is working. We also think people are now being steered towards better total value on a total price inclusive of all costs basis. The second are pricing tools. Since we rolled out new pricing tools, about half, of new listings are now offering a monthly discount. We also have this new tool called similar listings where you can see where other people are charging around you. And this we find has been the best way to make sure our hosts have competitive prices because hosts are usually surprised to discover the listings that get most bookings around them offer a better value. And it's always really hard to know what your home is worth and what you charge. So the best thing you can do is give people transparent data. Well, 1 million people have used these tools. And probably the thing I'd point to is while this time year over year in September data, hotel prices are up 10%. Airbnb prices globally are only up 1%. So we're definitely moving in the right direction. Now in North America, on a mixed shift and FX neutral basis, our price is actually down 3% in North America, while hotels are up towards double digits, I think. So the last thing I'd say is monthly stays. We obviously announced a bunch of updates on monthly stays, including, you know, you can pay by bank. We lowered fees after three months. We have this whole new really cool interface. And stays for three months or longer are now growing nearly 20% year over year. So those are just three things we've seen. I think what we've learned is, like, as we listen to customers, we adapt quickly. We can drive incremental growth. As far as what's next, obviously, you know, we don't talk about too much before it will release. I will say, though, next Wednesday, we are focused on some pretty big opportunities around reliability. So this is the last thing I'll say about this. If you think about how big Airbnb is, for every person who stays in Airbnb, approximately nine people every night stay in a hotel or about nine bookings. The hotels are about an order of nine or two bigger. And when you ask people, why do you book a hotel and not Airbnb? The number and reason they come up with is usually reliability, that they know what they're going to get before they book. You know, it kind of speaks to the strength and weakness of Airbnb, that on the one hand, it's one of a kind. On the other hand, that one of a kind that offers availability that not every person wants. And so next week, we're going to have some new offerings that I think will make a pretty big dent in this. So that's what I can say. I think I'm pretty optimistic about what you'll see next week. And of course, we're already working on stuff for next May and next October releases as well. So hopefully stay tuned.

And then in terms of the guidance, Brian, for the fourth quarter, we have our revenue guide. It's between $2.13 billion and $2.17 billion. So that's revenue growth between 12% and 14%. And remember that in Q3, our revenue growth excluding the impact of foreign exchange is about 14%. So, and we're not anticipating the same level of FX impact on the fourth quarter. So broadly, our revenue growth is relatively comparable between Q4 and Q3. In terms of the NITES guide, we're just seeing some variability in our NITES demand here early in the quarter. And so we're just being cautious with that guide. And so we're not being specific on it, but anticipate NITES to be a few points below, NITES growth to be a few points below Q3.

Thank you both.

We'll move to our next question from Lee Horowitz at Deutsche Bank.

Great. Thanks so much. Can you really help us think about how you guys are tracking towards expectations on occupancy or utilization moving forward? You know, as you guys extend beyond the core into newer markets, do those markets come with occupancy or utilization headwinds that we should be thinking about and holistically how you guys think about how occupancy or utilization may track next year? And then maybe, you know, just one high-level one. You know, thinking beyond the current cycle, we've seen a lot of other online travel models sort of hit this, you know, low teens to high single-digit growth rate and, you know, decelerate from there or not be able to reaccelerate their businesses in a meaningful way. Can you maybe, you know, take a step back and help us better understand how you think that, you know, maybe Airbnb may be a little bit different than prior iterations that we've seen and can perhaps sustain sort of that double-digit revenue cadence over a longer period of time than what we're used to in the market. Thanks so much.

Yeah, you start with occupancy and I'll take the second question.

Great. Yeah, in terms of occupancy, we've actually seen it be pretty stable in terms of kind of on a global basis. I mean, if you actually step back, you got to remember that the vast majority of our hosts on Airbnb are individual hosts. They're not looking to drive 100% occupancy of all their listings. And what they want to do is earn enough money to usually hit some certain amount of financial goals. So as we continue to grow our inventory, we're continuing to see strong occupancy levels overall. Clearly, we grew our inventory at 19%, which is ahead of kind of revenue growth in the current period. But if you actually step back and look over like a four-year period, go back all the way to 2019, the growth in our overall listings has actually been relatively similar to our overall growth in ninths. So that occupancy over an extended time period tends to be fairly stable, while in any short-term time period, it can have a little bit more volatility. But overall, again, we don't focus on occupancy as a primary driver, but we monitor it on locale by locale because what really matters is that we have great available listings in a specific market on a specific date.

Haley, I'll take your second question. Yes, I think that, you know, as I said before, I think we're only scratching the surface of how big this company becomes, and I absolutely think that we can get to, you know, really solid you know double-digit revenue growth for many many years to come and there's three things that i'd point out the first is our core business i think our core business could be significantly larger than it is today even if we didn't do anything new and the reason i believe this is the following i believe that almost every single person who stays in a hotel could stay in an airbnb if number one they knew about all the benefits of airbnb And number two, we made sure that our service was sufficiently reliable to be an alternative. So let me start with those two. We've done recently a new marketing campaign that's called Airbnb It. And it basically contrasts the benefits of the Airbnb versus the hotel. And based on our research, one of the things we've noticed is that a lot of people who stay in hotels don't understand some of the unique benefits of staying in Airbnb and why it is better for certain types of trips. And one type of trip that Airbnb is almost always better is when you're traveling with three or more people. If you're traveling with a family, you're traveling with a group, why do you want to stay in different rooms versus different rooms separated or having to stay in the same, you have to all go to the same time. And then the only place you can meet in these crowded lobbies where you can get a whole home all to yourself. So this is, we've been running these digital campaigns. It's the highest performing digital campaign we've ever done. And this is going to be the basis for a new major new marketing campaign next year. Additional to that, as I mentioned before, if we just keep focusing on reliability, making sure that when you book, you know what you're gonna get, and if there's ever a problem, you have an excellent customer service that is nearly as good as a front desk or as good as a front desk, then I think there could be in the years to come a tipping point where many people could choose Airbnb. So that's just our core business. Next is international. Even though we're in 220 countries and regions, there's only a couple of countries where we even have penetration that rivals the United States. And those countries are Canada, Australia, and France. After that, UK a little bit, it really starts to tip down. And so we have like massive, massive opportunity just by bringing Airbnb's playbook to these other countries. Obviously Germany, but not just Germany, like actually the entirety of Northern Europe Eastern Europe, and even Italy and Spain, basically every country but France and UK, are at a step change lower penetration. Latin America is a completely new market for us emerging. Asia Pacific, I would argue, is a completely new market. We can be adding huge amounts of growth just by our expansion playbook. And then finally, yeah, I mean, I would say just on new products and services, though we're not disclosing anything that we're doing new right now, Here's what I'd say. I think the biggest strength I have as a CEO is not driving profitability, even though we've done a really good job. I think it is literally inventing new products and services. It's why we've hired so many great technologists, designers, and I think this is going to be a sweet spot for us. We're obviously not going to talk about new things before we ship them, but twice a year, every May and every October, November, we're going to be putting out going forward new ideas that I hope really increase the addressable market for Airbnb. And I think that we can do much more than just short-term housing. But again, I think short-term housing is still a huge opportunity for us.

We'll go to our next question from Doug Hammack at JP Morgan.

Thanks for taking the questions. First, you've called up the greater volatility in early 4Q. Just curious if you have any view of whether that's more macro-driven or geopolitical. And then I'm curious if you have a sense of kind of visibility and any kind of bookings into 2024 and perhaps maybe how that visibility compares now versus a year ago. Thanks.

Yeah, it's hard to completely pin down the root cause of any kind of softness or volatility. I think it is just broadly what we're seeing is a little bit of softness in our overall kind of demand relative to Q3. we call out kind of the macroeconomic and geopolitical just because that is what's i think driving any volatility it's out there it's early um i think i'm feeling confident about our revenue growth for q4 being 12 to 14 percent growth and the fact that that remains stable with q3 i think is is really promising you know early visibility into 2024 um is again it's too early to tell i think i'm feeling great about our overall playbook and plans, as Brian has mentioned. I think I am most excited about the additional efforts we're making to get greater penetration in our international markets. And overall, I'm seeing solid demand for Airbnbs. People are still prioritizing travel over buying things. So I'm very bullish on the long term.

Thank you.

Next, we'll go to Jed Kelly at Oppenheimer & Company.

Hey, great. Thanks for taking my question. Can you just give us further update on the regulations you talked about in the shareholder letter? And then Google announced a new update to their vacation rentals where they're essentially letting property managers show their price. So can you talk about how you're seeing some of the changes Google's making? Thank you.

Hey, Jed. I'll take regulation. Yeah, I would generally say over the last decade, we've been really, really encouraged by the general trajectory of regulation. Here are a couple of stats. Currently today, 80% of our top 200 markets already have regulations on the books. And these regulations, though they vary, generally have found workable solutions for home sharing for us to continue to grow and thrive. And I point out like the country of France has passed national legislation that is very, very favorable and workable. We've had cities near us like Seattle or San Diego that have passed really favorable legislation. I will probably contrast that to New York City, which has completely gone a different direction. And unfortunately, I thought when we started Airbnb that we could develop model legislation in New York, that if we can make it in New York, we can make it anywhere, and that other cities would adopt the legislation that New York adopted. It turns out that's actually not the case. In fact, New York has gone a different direction. And I think it's going to turn into a cautionary tale because what we're already seeing is hotel price in New York are now up 8% year over year. You know, a one bedroom or a studio in New York seems to be about $500. A lot of people can't even afford to go there anymore. We are seeing more bookings in Jersey city and the perimeters around New York city. And I do anticipate more and more activity will probably go underground, which is probably not the intention that people even pass a lot. So generally speaking, we're seeing the trend lines to be generally really, really constructive. We built this city portal, which is a one-stop shop for cities to be able to self-serve, be able to get data and monitor the type of activity happening in their city. We have 400 cities on the city portal. And generally what we're seeing is that a lot of cities in a pandemic or post-pandemic era have reached out to us wanting to make sure that they are able to benefit from economic dollars going to the city. And we paid $9 billion in hotel tax. So generally, it's gone fairly well. It is going to be notable that if you just read the news, you're always going to seem to be reading about a city, something happening in New York because we're in 100,000 cities and nearly all regulations happen at the municipal level. So it's kind of a long slog to be able to work with these cities because there's so many of them and there's not a lot of standardization. But generally speaking, you know, not with staying in New York, we are seeing a lot of positive developments. And then on the Google question, Dave.

Yeah, I can take this. I mean, you know, we're not going to respond directly to any kind of specific thing that Google is doing. I think if you do step back, though, and remember that the vast majority of hosts on Airbnb are individual hosts, you know, approximately 90% of them, that the majority of those listings are unique to Airbnb, and you can only get them here. I think that that is one of the larger kind of defensible moats that we have, which is if you want to have an amazing stay, if you want to have unique listings, you come directly to us. And we're really not seeing the impact of the competition taking additional share from us. In fact, we continue to take or increase our relative share of listings in the market continually. And this is why we're continuing to grow at faster than the overall kind of travel market. So I don't have much more to say beyond that.

Yeah, maybe the only other thing I'd say is we're just seeing a lot of strength in mobile bookings. You can think of mobile bookings essentially like direct. It's not people not going to Google. 53% of our gross nights booked on the last quarter were on native mobile apps, essentially iOS and Android. And that is up from a year earlier, which was less than 50%. And again, I'll just say 90% of our traffic is direct or unpaid. So we think that the strength of a brand, the strength of our app, the strength of people coming direct to Airbnb is key. And the reason it's direct is because our inventory is unique. It's not commodities. The majority of hosts don't list anywhere else, and we build custom tools for them. So that's our general theory, to build unique inventory that allows people to come direct to Airbnb. And I don't see that changing.

We'll move next to Nick Jones at JMP Securities.

Great. Thanks for taking the questions. You know, Brian, you've talked about Airbnb's pricing maybe not increasing or it's down while hotels are up. I mean, how do you feel about the average prices on Airbnb today? Is there still room to kind of maybe get those lower? And I guess, you know, as you talk about some of the marketing and advertising campaigns, do you think kind of travelers or consumers are view Airbnb as a premium offering, a discount offering? Is the reliability kind of the trade-off? I guess, can you kind of maybe paint the picture a little bit more as to kind of what you feel consumers' hesitation is to maybe book an Airbnb and how much pricing plays a role in that? Thanks. Yeah.

Hey, Nick. Let me start with pricing and then I'll talk about the general offering. You know, when we started Airbnb, our original tagline was a cheap, affordable alternative to a hotel. And the primary reason people chose it in the early days was price. Now, once they used it, we used to say money is the hook, but the experience is the reason you keep coming back. Because it also turns out when you stay in Airbnbs, you're often typically in a real neighborhood, not a hotel district. You have this really cool space. You can make a meal. You have a lot more of a much more equipped home. Sometimes there's a local connection to the community. That's what you're looking for. But affordability has always been one of the most important benefits that we have on Airbnb. And I do feel like we still have opportunity for our prices to be even more competitive. There's a really interesting thing we discovered. Within reason, generally, when hosts lower their prices, they tend to make more money. And this is typically not true of hotels, right? Because if you're running at 80% occupancy and you lower your prices per night, you typically don't have a lot more room to make up the lower prices with higher occupancy, and so you'll typically lose money. But many of our hosts run at low enough occupancy, and they always have, that if they lower the price just a bit, they can sell more nights. And so we think there's a win-win where if we continue to encourage hosts to offer more competitive pricing, it's a win for guests, but it's also a win for many of the hosts. And I would also just point out that in addition to pricing tools, you need to have ample supply. Supply, I just want to highlight again, is growing 19% year over year. This was a huge question, by the way, 18 months ago. Could Airbnb re-accelerate to nearly 20% supply growth? And we are approaching 20% supply growth. I think that is really, really key. So to answer your question, we've made huge progress in the last year, but prices are up quite significantly from pre-pandemic for Airbnb and hotels. We're both up a lot. And my hope is whether or not prices come down on Airbnb further in the next year or two, my hope is while hotels will almost undoubtedly keep increasing year over year, our prices will continue to be a little bit more, they'll be more moderated. And that goes to the next question. We actually think there's a very high correlation or relationship between ADR and NICE growth. And the higher the ADR, typically the lower the NICE growth. And the lower the ADR, typically the higher the NICE growth. So there's a trade-off there. And so we think that as we continue to be more affordable, we'll continue to stimulate more demand. Now, the interesting thing about Airbnb is that we're not really one type of offering, right? Southwest is a budget brand. Louis Vuitton is a luxury brand. Apple is kind of like a luxury brand for like a lot of different people, but they do have like premium prices. Airbnb's offering really is one of the most unique and resilient models. I mean, we are one of the most popular brands for people under 30 in travel, probably the most popular brand for people under 30. But we're also very much a family travel brand because homes accommodate families much better than, you know, typically hotels. We're not just an urban brand. We're a rural brand, a vacation brand. We're not just a North American brand. We're a global brand. So one of the things we highlight in the public is that we literally have something for everyone. But as we continue to get more affordable, I think that's going to continue to drive a lot more growth for us.

And next, we'll go to Ron Josie at Citi.

Great, thanks for taking the question. Brian, I wanted to ask a little bit about your comments on first-time bookers and just trying to understand a little bit more on the drivers that are attracting these new bookers. Are they doing this directly through the brand Airbnb, through the app? And just trying to understand a little bit more as you're expanding the pie and getting more supply, how users are coming to the site, point number one. And the second question is just on projects with experiences. If there's any update there. Thank you.

Yeah, I mean, Dave, you can feel free to jump in on this, but at the highest level, We generally are seeing that the vast majority of first time bookers still come direct to Airbnb. So, you know, I'll just kind of step back. The number one way reason people come to Airbnb is because a friend or a family member told them about Airbnb. And so we primarily grow through word of mouth. After that, then we have a lot of earned media. You know, we have five, six hundred thousand press articles a year. I mean, the share of voice of Airbnb compared to most travel companies is overwhelming. We have a greater share of voice than almost all the other major travel brands combined. We also have a huge amount of presence on social media. You might have heard a few months ago about the Barbie House rent in Airbnb or the Shrek House. So we get a lot of earned media. And then beyond that, we do these pretty big brand campaigns. And, you know, the vast majority of our marketing spend that we do spend advertising is not performance marketing. It's brand marketing. It's really marketing education around our unique product offering. So we do do performance marketing, but we think unlike other travel companies, it's not necessarily a way to buy customers. It's literally more like a laser that we use to hone in on balancing supply demand, and we really can use it to optimize certain markets. So a lot of it remains direct. Again, 90% of our traffic is direct or unpaid. I think that's been pretty consistent. On experiences, Again, I don't have anything new to share now. I'll just say the following. We are actively working on updates to this product. As much as people love homes, I think 84% of people who book Airbnb and leave a review leave a five star. We even have a higher customer satisfaction experience with 94% of people leave five star reviews. So, you know, we haven't updated this product yet because we've just had our hands full really trying to focus on the most perishable opportunities, which was recovering from the pandemic, improving our core service, and addressing the needs of customers. But we should have some updates coming in the coming, obviously coming next year and beyond on this product. And so you'll see we're continually investing in this product.

We'll go next to Kevin Koppelman at TD Cowen.

Thanks a lot. Could you touch on your vision for building more of a travel community on Airbnb and maybe the timeline you expect for rolling out some of the new community features that you've talked about a little bit? Thanks.

Hey, Kevin. Yeah, I think, let me just explain what I even mean by a travel community. I think one of the biggest visions that we have as a company isn't just to be a marketplace to book home, but to build literally quite literally a global travel community where you can get homes and experiences and a variety of other services all in one place, and we can provide a lot of offerings for guests and hosts, and that we can use some emerging technologies like generative AI, like take the GPT-204 model, where the Airbnb app could be like the ultimate travel agent. So to do this, there's a number of things that we've been investing in. The first thing is identity and account structure. So on most travel companies, you can book as a guest, and they don't even have account information. And you can sign up with an account. But you can also check out with the guests, and they don't have the same robust account information that we do. On Airbnb, 100% of the bookers and 100% of the hosts have to have a verified ID associated to their account. They have robust profiles. About 70% of people on the guest and host side leave reviews to the other people. So this really does demonstrate how Airbnb is a little bit of a different community. We think that if we continue to invest in the profile, and we can continue to invest in our system of trust, Then as we learn more about guests and hosts, we can then match them for more types of offerings on Airbnb. And so this is, I think, really what we're starting to see. And the reason that AI is so powerful is I'll just cover two opportunities. Number one, I think that AI is going to affect, this is an obvious statement, I think, digital businesses more than brick and mortar businesses. So Airbnb and OTAs are probably going to benefit more quickly from AI than, say, a hotel will just because, Airbnb and OTRs are more digital. And so the transformation will happen at the digital surface sooner. One of the areas that works specifically in the benefit is customer service. Right now, customer service is really, really hard, especially compared to hotels. The problem is imagine you have a Japanese host booking with a, hosting a German guest and there's a problem and you have these two people speaking different languages calling customer service. There's a myriad of issues. There's no front desk. We can't go on premise. We don't understand the inventory. And we need to try to adjudicate an issue based on 70 different policies that can be up to 100 pages long. AI can literally start to solve these problems where agents can supervise a model that can, in seconds, come up with a better resolution and provide front desk level support in nearly every community in the world. But probably more importantly, Kevin, is what we can do by reimagining the search experience. You know, travel search has not really changed much in 25 years since really Expedia, Hotels.com. It's pretty much the same as it's been in Airbnb. We fit that paradigm. There's a search box, you enter a date location, you refine your results, and you book something. And it really hasn't changed much for a couple decades. I think now with AI, there can be entirely different booking models. And I think this is like a Cambrian moment for like the internet or mobile for travel, where suddenly an app could actually learn more about you. It could ask you questions, and it could offer you a significantly greater personalized service. Before the internet, there were travel agents, and they actually used to learn about you. And then travel got unbundled, it became self-service, and it became all about price. But we do think that there's a way that travel could change, and AI could lead the way with that. So these are some of the things we're thinking about, and I think it's really, really exciting. And we're just at the beginning for this.

We'll move next to Justin Post at Bank of America.

Great. Thanks for taking my question. Supplies up 19%. How do you think about that as a leading indicator for night growth, and how do you maybe accelerate night growth to capture that? And then the second question is on ADRs. Is that supply coming in higher, lower, similar ADRs? And I don't know, Dave, if you can give us any thoughts on positive and negative drivers for ADRs next year. Thank you.

Sure. Yeah, I'll start with ADR and I'll go back to growth. I mean, on the ADR side, you know, it varies a little bit by market. We have seen, depending on the market, the ADRs of new listings coming in, you know, a little bit higher than they were in the average current ones. But what actually ends up happening is people are booking lower ADR places. And so that's kind of the offset is it depends on what's available and versus what's booked. And it does vary a little bit by region between North America and Europe. on what the prices are. In North America, we're seeing more of the prices come down, and I think that's been a good indicator of strength for us going forward. And in Europe, the ADRs have been a little bit more elevated, and we're hoping that with some more of the work that we've done to improve host tools and give greater visibility to hosts and how they're pricing, that we'll continue to be able to kind of moderate ADRs in Europe going forward too. That's on the leading indicator. I do think that the strength of 19% listings growth is a great leading indicator of what we're capable of growing over time. As I said earlier, you know, the overall growth of Airbnb since 2019, Knight's growth has been actually relatively in line with the total growth of supply. And I'm really bullish that we can get more supply coming on, which will have more quality supply coming which will also can drive down actually the prices because the more supply that comes on board, maybe back to your first question, then the more likelihood that we can actually bring prices down in the market or at least moderate them so they don't grow as fast as competing supply. So I'm really bullish on our overall growth. It's been great to see the strength of our listings grow up this year.

And maybe Justin, I'll just say that like, this is my intuition having done this for almost 16 years of my life. I think that supply is even more important than it seems on the surface. Ultimately, you know, when you're tiny and no one ever hears about you, one of the big levers is awareness. But once you're a brand like Airbnb, that's known as really a noun ever abused all over the world. So supply growth becomes a very important, like long-term leading indicator. And so long as we make sure we have healthy supply growth and then we continue to improve reliability and promote Airbnb globally around the world, then that is a very, very healthy long-term indicator. And we'd love for that number to be higher.

We'll go next to James Lee at Mizuho. James, your line is open. You may be muted.

great uh thanks for taking my question uh two questions here dave i remember at the beginning of the year you know when you were guiding uh adr down about this single digits you were talking about leverage and like variable expenses like um payment and cloud i just wonder where you are in that process how much up to unlock going forward and secondarily on sales and marketing looks like supplies great demand right now is it fair to assume we're shifting more demand side advertising going forward, and can you talk about the implications there? Thanks.

I'll start with sales and marketing. We're not actually shifting more to demand-side marketing. I think what we're seeing is exactly the success that Brian talked about earlier on the call. The vast majority of our traffic is direct or unpaid. The first reason why people come to Airbnb is they're referred to us by family and friends. They come directly to us. The brand marketing certainly kind of helps talk about all the features and benefits of Airbnb. And we use our search engine marketing as kind of a laser to focus on areas where maybe we have less demand than we have supply or in specific countries where we want to focus and kind of grow the overall kind of pie for us. So it is not the primary driver of it, but this overall strategy of leading with brand And then following with surgical on our search engine marketing continues to work really well for us. And then in terms of the ADR, you know, I think that the, you know, unlock of the variable expense improvements we've been making has, you know, just continued to enable us to drive profitable growth, right? We have our fixed cost growth discipline has been excellent. We probably grow our fixed head count this year, approximately 4%. So we're growing our head count. and fixed expenses less than revenue. We continue to make great strides and improvement in our operations and support. And Brian talked about a lot of the opportunities we have going forward in customer service. And then we're, you know, continue to make good strides in cost of payments, our infrastructure costs, et cetera. That's not our primary driver. Like our primary focus is still on growth, growth of the business and making hosting mainstream. perfecting the core service and expanding down the core. And the fact that I can do all of those things and do it while still doing it profitably and actually expanding our overall margins this year is something that I'm just very proud of.

And we'll move to our next question from Lloyd Walmsley at UBS.

Thanks. My question, you know, you guys have been talking a lot about innovating on the search experience, like working on Gen AI. the community side, things like co-hosting. Do you see a path where some of these features over the longer term, like community and search, drive enough differentiation that you could bring on more traditional supply, things like boutique hotels, in such a way that you kind of expand your addressable market and revenue per user while still sort of preserving enough that's unique about Airbnb? Is that... Is that sort of makes sense or is that just too far out there?

No, Lloyd, that absolutely makes sense. And I think that's inevitability. Just to back up for a second, we are very much supportive of having hotel inventory on Airbnb. And we acquired Hotel Tonight for the pandemic because we believe so much in this. Over the last few years, you know, we had to make some decisions, especially when our business initially contracted. And we made some decisions. We said, well, we have to really just get focused on our core. And our core were individual people renting homes, sharing homes. That is the most differentiated thing. It's inventory you can't find anywhere else. It's the thing that is most defensible. It's the thing that attracts all the direct traffic. That being said, I mean, let's just take New York, for example. We still have a lot of traffic of people searching for New York. And we now have a lot less inventory than we used to have. So there's a real opportunity for us to supplement that. what used to be homes with Batik hotels. They're already on Hotel Tonight and others, and we can certainly put those in New York. And I generally think for sure, as Airbnb becomes a little more of a, you know, so-called like AI travel agent, which is what I think all travel apps will trend towards to some extent, I think there's opportunities for us to do things in a differentiated way, even with slightly less differentiated inventory. I think our bread and butter for accommodations are always going to be homes. I think that's where our heart and soul is. I also think that's where the biggest growth opportunity is. But you should not think of our total supply, adjustable market of supply as only homes. We've had hotels. We've just been prioritizing homes because we've wanted to be really focused.

Next, we'll move to Kenneth Borowski at Wells Fargo.

Hi, thank you so much. Appreciate it. Two questions, if I may. um i want to go back to supply i know you you've talked a lot about it uh the room night's up 19 with double digit growth in all territories yet every week we read about new str regulations at least in north america could you help us reconcile this this kind of uh this this contrast for the financial markets like what what are we missing as investors here uh where is that supply growth really happening especially in in the kind of western markets And then my second question, to be a bit more specific, I know you called up the volatility in room nights and on the demand side in 4Q. Are there any specific regions that you would call out, or is it more broad-based? And just on a timing standpoint, did this start in October, or did you see some of this volatility start in 3Q? Thank you.

Yeah, maybe I'll go for it, Dave.

Well, I'll just start with the volatility and room nights. There's not a specific region where we're seeing it. I think maybe the biggest thing we've seen is that it's more broad-based on a global basis right now, which is why we've kind of called out the macroeconomic and potential geopolitical issues as a potential driver to it. We saw maybe some of it just late September, and it's kind of been early October. And again, it's just a little too early to tell how much volatility we see going into the rest of the quarter. That's why we continue to highlight the revenue growth that we're still expecting this year between 12 and 14% growth overall. And then on the regulation side, I mean, I think it's a lot of what Brian said earlier that 80% of our top total markets already have regulation. I think the headlines, they tend to make good headlines when, you know, when people are highlighting kind of issues with short-term regulation, but in many ways, outside of New York city, I've never been felt better about our overall regulatory landscape on a global basis. We, we have really good partnerships with many cities around the world and things like our city portal. A lot of things, you know, has made us continue to collaborate extremely well with the vast majority of cities. So I think those are outliers, but Brian.

Yeah. Yeah. And I just say like, again, we're not, you know, we're in like a hundred thousand cities around the world and, you know, you know, for every headline you read, there's cities that actually have very workable solutions. There's not a lot of activity. We're actually seeing growth and supply across all types of markets, not just big cities where you see in headlines. And I think vacation rental destinations, in fact, there's a U.S. Census report that we looked at that I think said that two-thirds of markets where Airbnbs exist, there aren't even hotels. So if you just think about it that way, there's a lot of markets where there aren't even hotels, especially the vacation rental and the non-urban areas. So The way I'd reconcile it is just to say that, like, while you read headlines about a few cities, they actually represent a very small percentage of the overall market concentration that we have.

And we'll take our next question from Connor Cunningham at Mellius Research.

Hi, everyone. Thank you. Just on the two-thirds of the hosts that are using the pricing tools today. As you add new supply, you mentioned that ADRs of new supply is at a higher rate, but are those people more likely to use the discounting tools that you've kind of mentioned after they've listed before? And then maybe on the implications for take rate when you move into international markets, you're tracking towards over 50% of your rooms that are going to be there. Is take rate going to eventually just kind of bleed lower as that expands? Just curious on your thinking about that overall. Thank you.

Yeah, I can take the first one, Connor. On tools, generally new hosts adopt new tools at a higher rate than existing hosts. And the reason why is like when you sign up, like we have this really great onboarding and you're immediately presented with all the tools. Now, we do have a percentage of our hosts, maybe like call it a million hosts, that are highly, highly engaged, and they're going to be really engaged on a lot of these tools. But every new host, as far as they're concerned, every tool is exactly how you're supposed to use Airbnb, whereas an older host, there's an adoption where you have to get them onto the new tools, and they're used to hosting a certain way. So we're generally seeing that new hosts would probably adopt new tools at a faster rate than existing hosts. That being said, you know, the ADR-related new host might also be related to the mix shift. You know, we're getting a lot of inventory in non-urban areas. There are larger homes. So there's a lot of different reasons I can explain that. Dave, I can hand over to you.

Yeah, and to give you the second question, again, it was to create an international host.

Yeah, just as you expand internationally, is there going to be a natural reduction in take rate overall as that kind of tracks 150% of your overall rooms at some point? Thank you.

No, I mean, actually, I think over time, the way we think about our take rate is that it's been very stable. We've actually made no underlying kind of recent changes to our absolute take rate. And what we want to be able to do is as we add more services and capabilities, that would be the way to further kind of monetize Airbnb. So what have we done? Things like adding guest travel insurance has been a nice add for kind of incremental monetization. It's small, but it's growing nicely. And then, as Brian said, as we kind of expand young, poor, and add more services for hosts and guests, that would be the way to kind of increase it.

And you could theoretically, you could argue the inverse, which is to say that as we expand a new market, they might be more interested in new services that we can offer because hosting is newer to them. So as we expand a new market and as we expand to new host services, we want to make sure that new hosts and new markets are presented those opportunities.

And there are no further questions at this time. I would like to turn the conference back to Brian Chesky for closing remarks.

All right. Well, thanks, everyone, for joining today. Just to recap, revenue was $3.4 billion, 18% higher than a year ago. Net income and adjusted EBITDA were both Q3 records. And the last thing I just want to highlight is our trailing 12-month free cash flow was $4.2 billion. And this represents a free cash flow margin of 44%. And so I just want to call out the real incredible hard work that the team's done over the last three years. We've been really, really disciplined. try to make this business a cash-generating machine and to be really focused. And I think the team has made some great progress. Next week, we're going to take a leap forward in making Airbnb more reliable with some big updates as part of our 2023 winter release. So I hope you can tune in. It's next Wednesday, November 8th, to learn more. And I'll see you then.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.