Airbnb's Playbook Is to Beat Hotels on Price and International Expansion

Flush after a profitable second quarter, Airbnb executives laid out what they see as the growth opportunities: Provide better value than hotels; expand into under-penetrated markets in Europe, Latin America and Asia-Pacific; and provide new services to hosts.

Co-founder and CEO Brian Chesky told analysts Thursday he believes the company is still relatively small compared with the hotel industry, perhaps one-tenth the size. He added that he took to heart feedback last year that Airbnb was becoming less affordable compared with hotels.

However, in the second quarter, Airbnb saw its rates rise just 1% globally, and they were down 1% in North America. The hotel industry saw rates rise 4-10%, he said.

"Hosts have started lowering their prices, and some of them are offering weekly and ... monthly discounts," Chesky said, noting that the company rolled out new pricing tools for hosts several months ago. "And as more hosts adopt these tools, we believe we'll be able to drive greater affordability and value for guests."

Airbnb's International Expansion

Executives pointed to Brazil and Germany as two of Airbnb's fastest-growing markets. Brazil saw its "gross nights booked" rise 110% in the second quarter versus the same period in 2019. In Germany, now one of Airbnb's largest markets, that metric was up 63%.

"So we're going to take that playbook, and we're going to bring it to Asia, and we're starting with Japan and Korea," Chesky said. "But Asia-Pacific is a frontier. It's a huge opportunity for growth. I think that is just one of many markets, including Latin America."

Expansion in Asia-Pacific, however, does not mean re-entering domestic China, a market that Airbnb withdrew from in 2022.

More Services for Hosts and Guests

Airbnb's net income margin expanded 8 percentage points to 26% in the second quarter, and Chesky sees opportunities to increase it further.

Chesky said Airbnb would see profit margin expansion by launching incremental services for guests and hosts and he referred to it as a "near-term" opportunity.

Expanding services to hosts might be offering cleaning services, for example.  "I think that whether it's at Amazon or Etsy or Alibaba, they've shown there's an entire suite of services that you can offer for hosts," Chesky said.

Opening up Airbnb to advertisers is not an opportunity that the company is focusing on, Chesky added.

Airbnb Beats on Revenue and Earnings

Airbnb beat analysts' expectation on revenue ($2.5 billion, up 18% year-over-year), and adjusted EBITDA ($831 million, excluding foreign currency headwinds, and that was a 15% increase.)

However revenue, nights and experiences booked (an 11% jump), and gross booking value (a 13% leap) all decelerated in growth compared with the second quarter of 2022. It was a tough comparison: A year earlier, nights and experiences booked climbed 25% as Europe shed the Omicron virus in the first quarter, and bookings got pushed into the second quarter.

Airbnb's net income increased 74% to $662 million, its largest for a second quarter.

On other closely followed metrics, Airbnb stated that stays of 28 days or longer were stable at about 18% of gross nights booked. Airbnb stated it grew its active listings 19% to 7 million with a lot of the growth taking place in Latin America and Asia-Pacific.

Airbnb's Outlook for the Third Quarter and Full-Year 2023

Airbnb expects revenue to grow 14-18% in the third quarter year-over-year, while nights and experiences booked would grow modestly compared with the second quarter. Its adjusted EBITDA margin would likewise increase "modestly" in 2023 versus 2022.

Airbnb's potential to launch sponsored listings received a lot of hype a few months ago, but there was no news on that front Thursday, and Chesky indeed said growing its advertising business is not a priority.

There was also no news on Airbnb Experiences, with the company pausing adding new listings several months ago.