Airbnb, Inc. Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2023; filed November 1, 2023. Airbnb operates a global marketplace connecting Hosts and guests for stays and experiences.
Financial Performance
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $3.397 billion | $2.884 billion | $7.699 billion | $6.497 billion |
| Operating income | $1.496 billion | $1.203 billion | $2.014 billion | $1.567 billion |
| Net income | $4.374 billion | $1.214 billion | $5.141 billion | $1.574 billion |
| Diluted EPS | $6.63 | $1.79 | $7.74 | $2.31 |
| Adjusted EBITDA | $1.834 billion | $1.457 billion | $2.915 billion | $2.397 billion |
| Adjusted EBITDA margin | 54% | 51% | 38% | 37% |
| Operating cash flow | $1.325 billion | $964 million | $3.821 billion | $2.967 billion |
| Free cash flow | $1.310 billion | $958 million | $3.791 billion | $2.950 billion |
Q3 operating margin was approximately 44%, compared with 42% in the prior-year quarter. Reported net margin was approximately 129%, compared with 42% previously, primarily because of a $2.8 billion discrete tax benefit from releasing valuation allowances on U.S. deferred tax assets; this benefit is not indicative of recurring operating profitability.
- Nights and Experiences Booked increased 14% to 113.2 million in Q3 and to 349.4 million for the nine months.
- Gross Booking Value increased 17% to $18.3 billion in Q3 and 16% to $57.8 billion for the nine months.
- Q3 revenue increased 18% year over year, or 14% on a constant-currency basis. Nine-month revenue increased 19%, or 18% on a constant-currency basis.
- Interest income increased to $192 million in Q3 and $529 million for the nine months, driven by higher cash and investment balances and interest rates.
- Stock-based compensation increased to $286 million in Q3 and $830 million for the nine months, compared with $234 million and $676 million, respectively.
Liquidity, Cash Flow, Debt and Capital Allocation
- Cash and cash equivalents were $8.175 billion at September 30, 2023, compared with $7.378 billion at December 31, 2022.
- Short-term investments were $2.787 billion, resulting in $10.962 billion of cash, cash equivalents and short-term investments.
- Airbnb held an additional $5.986 billion of funds receivable and amounts held on behalf of customers, matched by a corresponding payable.
- Total assets increased to $21.439 billion from $16.038 billion, primarily reflecting the deferred tax asset recognized following the valuation allowance release and higher customer funds.
- Outstanding debt was approximately $2.0 billion of 0% convertible senior notes due 2026. No amounts were drawn under the $1.0 billion revolving credit facility; letters of credit totaled $28 million. Airbnb was in compliance with its financial covenants.
- Nine-month investing cash flow was negative $567 million, principally from purchases of short-term investments. Financing cash flow was negative $1.259 billion, primarily from $1.5 billion of share repurchases and $1.023 billion of taxes paid on net share settlements.
- Airbnb repurchased 3.7 million shares for $500 million in Q3 and 12.1 million shares for $1.5 billion in the first nine months. Remaining authorization under the 2023 program was $1.5 billion at quarter-end.
Material Changes Versus Prior Comparable Period
- Revenue growth accelerated the platform’s scale, with bookings and GBV rising 14% and 17%, respectively, in Q3.
- Operating income increased 24% in Q3 and 29% for the nine months; total costs and expenses grew more slowly than revenue as a percentage of revenue.
- Adjusted EBITDA increased 26% in Q3 and 22% for the nine months, with margin expanding three percentage points in Q3 and one point for the nine months.
- Operating cash flow increased 37% in Q3 and 29% for the nine months; free cash flow increased 37% and 28%, respectively.
- Interest income increased substantially, while other income declined because of foreign-exchange losses.
- No restructuring charges were recorded in 2023, compared with $89 million in the first nine months of 2022.
- Airbnb implemented a new enterprise resource planning system for most financial accounting systems during the quarter and stated that the most significant planned modules had been implemented. Management concluded that disclosure controls were effective as of September 30, 2023.
Outlook, Commentary, Risks and Unusual Items
Management attributed performance to continued travel demand, growth across all regions, a modest increase in average daily rate, and cost discipline. Revenue and Adjusted EBITDA are seasonally highest in the third quarter, while cash flow is affected by booking timing, advance collections and changes in unearned fees. The filing does not provide a specific quantitative forward guidance range in the supplied text.
- Key risks include macroeconomic conditions, inflation, interest rates, foreign-exchange movements, travel demand, supply of Host listings, competition, platform safety, cybersecurity and regulatory developments.
- Short-term-rental, lodging-tax, consumer-protection and other regulations could restrict Hosts, increase costs or expose Airbnb to fines and additional liabilities.
- Accrued lodging-tax obligations totaled $115 million for estimated liabilities where Airbnb may be jointly liable, and the reasonably possible additional loss for certain matters was estimated at $30 million to $40 million.
- Accrued Host withholding-tax obligations totaled $137 million; reasonably possible additional exposure was estimated at $90 million to $110 million. Certain transactional and business-tax exposures in excess of accrued amounts were estimated at $260 million to $280 million.
- In Italy, tax authorities recommended a formal assessment of €779 million against an Airbnb subsidiary related to Host withholding obligations. Airbnb disputes liability and stated that it cannot estimate the possible loss or range of loss.
- An IRS examination includes a proposed adjustment that could result in approximately $1.3 billion of additional income tax, plus penalties and interest, exceeding the company’s current reserve by more than $1.0 billion. Airbnb disputes the proposed adjustment.
- Airbnb is subject to various legal and regulatory proceedings, including an Australian Competition and Consumer Commission action concerning currency representations. Management stated that current pending matters are not expected to have a material adverse effect, but outcomes remain uncertain.
- Foreign-exchange derivatives were used to manage exposure; a hypothetical adverse 10% currency movement would have resulted in an estimated $37 million loss on net monetary assets and liabilities at September 30, 2023.
Investor Verification Items
- Separate recurring operating performance from the $2.8 billion discrete tax benefit and assess the realizability of remaining deferred tax assets.
- Review the status, reserves and potential cash impact of the IRS examination and the €779 million Italian tax assessment.
- Monitor lodging-tax, withholding-tax and transactional-tax exposures, including amounts disclosed as reasonably possible but not accrued.
- Evaluate the sustainability of booking, GBV, revenue and Adjusted EBITDA growth after seasonal effects and foreign-currency impacts.
- Assess the effect of stock-based compensation, share repurchases and cashless equity exercises on diluted share count and per-share value.
- Confirm continued compliance with the 2026 convertible notes and revolving credit facility, and the availability of liquidity after customer funds and restricted amounts are excluded.