Airbnb, Inc. 2021 Q3 Form 10-Q Summary
Business Context and Reporting Period
Airbnb operates a global marketplace connecting hosts and guests for stays and experiences. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared primarily with the same periods in 2020 and, where noted, 2019.
Management reported continued travel recovery despite COVID-19, supported by domestic and short-distance travel, stronger North American and EMEA demand, and accelerating Latin American activity. Asia Pacific remained comparatively depressed.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | Change | 9M 2021 | 9M 2020 |
|---|---|---|---|---|---|
| Revenue | $2.237 billion | $1.342 billion | +67% | $4.460 billion | $2.519 billion |
| Income from operations | $852.0 million | $418.7 million | +103% | $353.8 million | $(490.0) million |
| Net income (loss) | $833.9 million | $219.3 million | Improved | $(406.5) million | $(696.9) million |
| Adjusted EBITDA | $1.101 billion | $501.4 million | +119% | $1.260 billion | $(230.2) million |
| Adjusted EBITDA margin | 49% | 37% | +12 pts | 28% | (9)% |
| Operating cash flow | $523.2 million | $335.7 million | +56% | $1.809 billion | $(490.6) million |
| Free cash flow | $517.7 million | $328.0 million | +58% | $1.788 billion | $(520.1) million |
Q3 GAAP operating margin was approximately 38%, compared with 31% in Q3 2020; net margin was approximately 37%, compared with 16%. For the nine-month period, GAAP operating margin was approximately 8%, compared with negative 19%, and net margin was approximately negative 9%, compared with negative 28%.
- Nights and Experiences Booked were 79.7 million in Q3, up 29% from 61.8 million, and 227.2 million for the nine months, up 55%.
- Gross Booking Value was $11.9 billion in Q3, up 48% from $8.0 billion, and $35.6 billion for the nine months, up 98% from $18.0 billion.
- Q3 revenue and GBV exceeded the comparable 2019 and 2020 periods, according to management.
- Cash, cash equivalents, and marketable securities totaled $7.9 billion at September 30, 2021. Funds held for bookings and payable to customers totaled approximately $3.9 billion and are separate from corporate liquidity.
- Total debt was $2.0 billion, consisting primarily of 0% convertible senior notes due 2026. The company had no borrowings outstanding under its $500 million revolving credit facility and was in compliance with its financial covenants.
Material Changes Versus the Prior Comparable Period
- Revenue growth reflected increased bookings, higher average daily rates, and substantially lower customer incentives and COVID-19-related cancellation payments. Customer payments reducing revenue declined to $50.2 million in Q3 2021 from $54.5 million and to $109.6 million for nine months from $347.2 million.
- Total costs and expenses increased 50% in Q3, less than the 67% revenue increase, reducing expenses to 62% of revenue from 69%. Sales and marketing increased 156%, primarily from increased brand marketing; product development increased 61%, largely from stock-based compensation.
- Stock-based compensation increased to $210.8 million in Q3 and $673.1 million for nine months, compared with $29.4 million and $108.8 million, respectively. This remains a significant recurring expense excluded from Adjusted EBITDA.
- The company repaid $1.995 billion of first- and second-lien loans in March 2021 and recognized a $377.2 million debt-extinguishment loss, including $212.9 million of prepayment penalties.
- Airbnb issued $2.0 billion of 0% convertible senior notes due 2026 for net proceeds of $1.979 billion and purchased related capped calls for $100.2 million.
- Operating cash flow improved substantially, aided by higher bookings and a $484.5 million increase in unearned fees. Financing cash flow also benefited from a $1.809 billion increase in funds payable and amounts payable to customers.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
The filing does not provide a specific numerical revenue or earnings forecast. Management expects travel demand to remain strong into 2022 and stated that Thanksgiving-week U.S. nights booked were more than 40% above the comparable 2019 level as of the end of September. Management expects 2021 capital expenditures to exceed 2020 levels but remain significantly below 2019 levels.
- COVID-19 remains a material uncertainty, including potential new variants, travel restrictions, vaccination developments, cancellations, and changes in travel behavior.
- The company expects continued seasonality, with revenue and Adjusted EBITDA historically highest in the third quarter. Free cash flow is affected by the timing of bookings, check-ins, and unearned fees.
- The IRS proposed a 2013 transfer-pricing adjustment that could result in approximately $1.3 billion of additional tax, plus penalties and interest. Airbnb is contesting the proposal; the potential assessment exceeds its recorded reserve by more than $1.0 billion.
- Reasonably possible additional exposure for certain withholding and transactional tax matters was estimated at $100 million to $120 million beyond accrued amounts, although the filing states that outcomes remain uncertain.
- Accrued lodging-tax obligations, including estimated penalties and interest, were $57.3 million at September 30, 2021. Lodging-tax litigation and regulatory disputes could result in additional liabilities or increased booking costs.
- Airbnb Ireland faces Dutch fee-related claims and purported class actions. A Dutch Advocate General issued a non-binding opinion recommending rulings adverse to Airbnb on certain issues; potential liability could be significant. Airbnb Ireland also received an €8.1 million Paris fine and was considering an appeal.
- Q3 restructuring charges produced a $0.5 million benefit; nine-month restructuring charges were $112.1 million, including $112.5 million of long-lived-asset impairments in operating cash-flow adjustments.
- Foreign-exchange derivative notional amounts were approximately $1.7 billion at quarter-end. Management stated that a hypothetical 10% adverse currency movement would not have had a material impact at that date.
Facts Investors Should Verify
- Whether booking volume, GBV, average daily rates, and revenue remain above pre-pandemic levels as international and Asia Pacific travel recover.
- The sustainability of the 49% Q3 Adjusted EBITDA margin after normalizing for seasonality and excluding $210.8 million of stock-based compensation.
- The cash-flow effect of unearned fees and customer funds, which may not represent recurring corporate cash generation.
- The terms, potential dilution, and conversion conditions of the $2.0 billion 2026 convertible notes, including the capped-call protection.
- Developments in the IRS examination, lodging-tax disputes, Dutch fee litigation, and other regulatory matters.
- The effect of COVID-19 variants, travel restrictions, cancellations, foreign exchange, and increased marketing and product-development spending on future profitability.