Airbnb, Inc. Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022; filed November 2, 2022. Airbnb operates a global marketplace connecting Hosts and guests for stays and experiences. The interim financial statements are unaudited and prepared under U.S. GAAP.
Key Financial Metrics
| Metric | Q3 2022 | Q3 2021 | Change |
|---|---|---|---|
| Revenue | $2.884 billion | $2.237 billion | +29% |
| Income from operations | $1.203 billion | $852 million | +41% |
| Operating margin | 42% | 38% | +4 pts |
| Net income | $1.214 billion | $834 million | +46% |
| Diluted EPS | $1.79 | $1.22 | +47% |
| Adjusted EBITDA | $1.457 billion | $1.101 billion | +32% |
| Adjusted EBITDA margin | 51% | 49% | +2 pts |
| Operating cash flow | $966 million | $535 million | +81% |
| Free cash flow | $960 million | $529 million | +81% |
| Free cash flow margin | 33% | 24% | +9 pts |
Nine-month performance: Revenue was $6.497 billion, up 46%; operating income was $1.567 billion versus $354 million; net income was $1.574 billion versus a $407 million loss; Adjusted EBITDA was $2.397 billion versus $1.260 billion; operating cash flow was $2.967 billion versus $1.931 billion; and free cash flow was $2.951 billion versus $1.910 billion. Nine-month operating margin was 24% versus 8%, and Adjusted EBITDA margin was 37% versus 28%.
Operating Activity and Margins
- Nights and Experiences Booked were 99.7 million in Q3, up 25% year over year and 16% above Q3 2019. Nine-month bookings were 305.5 million, up 34% year over year and 22% above the comparable 2019 period.
- Q3 Gross Booking Value was $15.6 billion, up 31% from $11.9 billion. Nine-month GBV was $49.7 billion, up 40%. On a constant-currency basis, GBV growth was 40% for Q3 and 47% for the nine-month period.
- Revenue growth reflected higher booking volumes and higher average daily rates. Q3 revenue growth was 36% on a constant-currency basis; nine-month growth was 52%.
- Total costs and expenses were 58% of revenue in Q3 versus 62% in the prior-year quarter. Product development, general and administrative, and restructuring costs declined as percentages of revenue, while cost of revenue and sales and marketing remained approximately 14% and 13%, respectively.
- Stock-based compensation remained significant at $234 million in Q3 and $676 million for the nine-month period.
Cash, Liquidity, and Debt
- At September 30, 2022, cash and cash equivalents were $7.524 billion and marketable securities were $2.104 billion, for total reported liquidity of approximately $9.6 billion. Airbnb also held $4.805 billion of funds receivable and amounts held on behalf of customers, matched by corresponding customer-related liabilities.
- Cash, cash equivalents, and restricted cash increased to $12.259 billion from $9.727 billion at December 31, 2021. The increase included $2.967 billion of operating cash flow, partly offset by a $1.0 billion share repurchase and a $625.9 million adverse foreign-exchange effect.
- Long-term debt was $1.986 billion, consisting primarily of $2.0 billion principal amount of 0% convertible senior notes due March 2026. The notes had an estimated fair value of $1.7 billion at September 30, 2022.
- No amounts were drawn under the $500 million 2020 revolving credit facility at September 30. On October 31, 2022, Airbnb replaced it with a five-year unsecured $1.0 billion revolving credit facility; no amounts were drawn as of the filing date.
- Airbnb repurchased and retired 8.6 million shares for $1.0 billion during Q3 under a $2.0 billion authorization. $1.0 billion remained available at September 30.
Material Changes and Unusual Items
- The company recorded $89.1 million of restructuring charges for the nine months, primarily from impairments of lease right-of-use assets and leasehold improvements related to its shift to a remote-work model. The comparable 2021 period included $112.1 million of restructuring charges.
- Nine-month 2021 results included a $377.2 million loss on extinguishment of debt and a $292.0 million warrant fair-value charge. These items did not recur in 2022, materially improving year-to-date earnings comparability.
- Interest income increased to $83.4 million for the nine months, primarily due to higher interest rates, while interest expense declined to $18.9 million from $435.1 million.
- The company revised previously issued nine-month 2021 cash-flow classifications. Operating cash flow was increased and financing cash flow decreased by $122 million; management concluded the errors did not materially misstate the previously issued financial statements.
Outlook, Commentary, and Risks
Management reported strong travel recovery across all regions, with Q3 bookings exceeding 2019 levels and pre-pandemic seasonality returning in 2022. The filing does not provide a clear numerical quarterly or annual revenue, EBITDA, or booking outlook.
- Key uncertainties include COVID-19 variants and travel restrictions, inflation, higher interest rates, depressed consumer spending, recession risk, geopolitical conflict, sanctions, and a strengthening U.S. dollar.
- Foreign-exchange exposure remains material. The company uses derivatives to manage certain exposures; a hypothetical adverse 10% currency move at September 30 would have produced an estimated $18.9 million loss.
- The company collects and remits lodging taxes in approximately 31,300 jurisdictions. Lodging-tax obligations recorded in accrued liabilities were $327.9 million, and estimated jointly liable lodging-tax reserves were $64.7 million.
- Management estimated reasonably possible additional losses of $165 million to $185 million above accrued amounts for certain withholding and transactional tax matters. The final exposure could be greater.
- The IRS has proposed an increase in taxable income that could result in approximately $1.3 billion of additional tax, plus penalties and interest, exceeding the company’s recorded reserve by more than $1.0 billion. Airbnb disputes the proposal and is pursuing administrative and potential judicial remedies.
- The company faces regulatory and legal proceedings, including an Australian Competition and Consumer Commission matter concerning currency representations. Management stated that currently pending matters are not expected to have a material adverse effect, although outcomes remain uncertain.
- The Inflation Reduction Act introduces a 15% corporate minimum tax and a 1% excise tax on share repurchases beginning in 2023; the company was still assessing the impact.
Investor Verification Points
- Verify whether booking and GBV momentum remains above 2019 levels as macroeconomic conditions and foreign-exchange headwinds evolve.
- Reconcile GAAP net income and cash flow with Adjusted EBITDA and free cash flow, particularly the effects of stock-based compensation, restructuring, working-capital timing, and customer funds.
- Monitor the IRS tax dispute and the estimated $165 million to $185 million of additional reasonably possible non-income-tax exposure.
- Assess the effect of the $1.0 billion repurchase completed in Q3, the remaining authorization, and the new 1% excise tax on repurchases.
- Review the 2026 convertible notes, potential dilution, liquidity requirements, and the terms and covenant compliance of the new $1.0 billion revolving facility.
- Evaluate regulatory, lodging-tax, consumer-protection, privacy, competition, and short-term-rental restrictions across jurisdictions.
- Consider the continued material use of stock-based compensation and its effect on per-share economics and dilution.