Airbnb Notches First Full-Year Profit

Airbnb has an answer for all those skeptics who claimed for years that it was a typical Silicon Valley unicorn with a penchant for growth at the expense of black ink — the short-term rental giant in 2022 recorded its first profitable year.

Airbnb said Tuesday that it had its most profitable fourth quarter ever at $319 million. That was part of the company’s first profitable full year on a GAAP (generally accepted accounting principles) basis as it generated $1.9 billon of net income. That compared to a net loss of $352 million for full-year 2021.

The company attributed its fourth quarter profit mark to revenue growth and cost discipline. Fourth quarter revenue grew 24 percent year over year to $1.9 billion. Full-year 2022 revenue climbed 40 percent to $8.4 billion.

Challenges to Come

A couple of trends point to positives and challenges for 2023. Airbnb said it is seeing a return to its once-core urban nights (up 22 percent by one measure in the fourth quarter) and cross-border travel (up 49 percent year over year), while demand in other non-urban locales and domestic travel remains strong.

Airbnb forecast for the first quarter of 2023 that its average daily rates would be “slightly lower” year over year, and that for the full-year average daily rates would face “downward pressure” because of a change toward urban stays, the resumption of cross-border travel, and increased bookings from certain regions where rates tend to be lower.

A new discounting tool that will be introduced for hosts to help them remain competitive because of the new displays of total pricing before taxes introduced late last year could also contribute to the rate headwinds, the company said. Airbnb CEO Brian Chesky said that the impact of that new way to display rates, with all of the fees except taxes optionally viewed by consumers at first glance, has been “neutral.”

There had been a fear that Airbnb might be adversely impacted by comparisons with competitors that were still showing rates before fees were added in.

“The impact has been neutral on bookings in the short run, but I actually think the impact on booking in the long run is going to be very positive because it’s just a better experience, and it gives people more control,” Chesky said. “The second thing is we are now prioritizing better value listing in search results. So in other words, we’re going to take the total price in the total price into account when we’re prioritizing bookings.”

Artificial Intelligence Could Be a Positive

Asked whether search engines (such as Bing) introducing “conversational AI (Artificial Intelligence)” might pose a competitive challenge, Chesky argued that Airbnb could “uniquely benefit” from the technology.

“Every single one of our 6.6 million listings are unique,” he said. “Guests left more than 100 million reviews last year. And you’ll parse through all these reviews is very laborious. And I think that AI is going to really benefit our longtail of data. And the fact that our search problem isn’t really a search problem, so much as a matching problem, right? If there’s like 50,000 homes in a city, what’s the right one for you, that’s less of a search problem than a matching problem. And I think that AI is going to be a really good opportunity for us. And just stay tuned for some developments there.”

Airbnb Added More Than 900,000 Listings

In other developments, Airbnb said it now has 6.6 million global active listings, which is more than 900,000 listings greater than the the company had at the start of 2022 when excluding China, which Airbnb dropped out of. Not all of these are new listings; some are hosts re-listing their properties in urban areas after having dropped out during the onset of Covid in their cities.

That build-up of listings for Airbnb contrasts with Expedia Group’s Vrbo, which stated last week in a financial filing that it had more than 2 million listings, roughly the same amount as a year earlier.

One financial analyst asked Airbnb execs during Airbnb’s fourth quarter and full-year 2022 earnings call whether they feel pressure from one of their competitors (namely Vrbo) that’s poised to debut a loyalty program in short-term rental bookings.

“The best loyalty program is building a product people love so much they want to come back and you don’t have to pay them to come back,” said Airbnb co-founder and CEO Brian Chesky. “And we just take a full funnel approach to marketing around PR (public relations), and we think of our general advertising is really educating people on new products.”

The pace of Airbnb’s nights and experiences booked, which increased 20 percent in the fourth quarter, was in step with the Expedia Group’s booked room nights, which jumped 19 percent from a much smaller base in the fourth quarter.

Airbnb’s stock price was up more than 9 percent to around $132 per share in after-hours trading Tuesday night after beating analysts’ expectation on earnings per share and revenue.