Airbnb, Inc. 2023 Q1 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 months ended March 31, 2023, with comparisons to the three months ended March 31, 2022. The filing was signed May 9, 2023.
Management reported continued strong travel demand, with growth across all regions and sustained elevated average daily rates. The business remains seasonal, with revenue and Adjusted EBITDA generally highest in the third quarter and free cash flow typically strongest in the first two quarters because of booking-related cash collections.
Financial Performance and Key Metrics
| Metric | Q1 2022 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $1.509 billion | $1.818 billion | 20% increase |
| Operating loss | $5 million | $5 million | Unchanged |
| Net income (loss) | $(19) million | $117 million | Improved by $136 million |
| Net margin | (1)% | 6% | Improved |
| Adjusted EBITDA | $229 million | $262 million | 14% increase |
| Adjusted EBITDA margin | 15% | 14% | Down 1 percentage point |
| Net cash from operating activities | $1.202 billion | $1.587 billion | 32% increase |
| Free cash flow | $1.196 billion | $1.581 billion | 32% increase |
| Free cash flow margin | 79% | 87% | Improved |
| Nights and Experiences Booked | 102.1 million | 121.1 million | 19% increase |
| Gross Booking Value | $17.2 billion | $20.4 billion | 19% increase |
Constant-currency revenue growth was 24%, indicating that foreign exchange reduced reported growth. Net income benefited substantially from interest income, which increased from $5 million to $146 million because of higher cash and investment balances and higher interest rates. Excluding interest income, the filing does not present a comparable adjusted net income measure.
Revenue growth was accompanied by higher expenses. Sales and marketing increased 30% to $450 million, primarily because of Airbnb It, I’m Flexible and Categories campaigns, search engine marketing, advertising, and payroll. Stock-based compensation increased from $195 million to $240 million. Product development expense increased 16% to $420 million, while cost of revenue increased 18% to $428 million.
Balance Sheet, Liquidity, Debt, and Cash Flow
- Cash and cash equivalents were $8.2 billion at March 31, 2023, compared with $7.4 billion at December 31, 2022.
- Short-term investments were $2.4 billion, resulting in $10.6 billion of cash, cash equivalents, and short-term investments.
- Airbnb held $7.8 billion of funds for bookings before guest check-in, with a corresponding liability to customers. These customer funds are not available for general corporate use.
- Total assets were $20.0 billion and total stockholders’ equity was $5.3 billion at March 31, 2023.
- Outstanding debt was approximately $2.0 billion, consisting primarily of 0% convertible senior notes due 2026. The estimated fair value of the notes was $1.8 billion.
- The $1.0 billion revolving credit facility was undrawn, with $28.5 million of outstanding letters of credit. Airbnb was in compliance with its financial covenants.
- Operating cash flow increased to $1.587 billion, primarily reflecting net income, $240 million of stock-based compensation, a $989 million increase in unearned fees, and a $226 million increase in accrued expenses and other liabilities.
- Investing activities used $183 million, primarily from purchases of short-term investments, net of sales and maturities.
- Financing activities provided $2.286 billion, principally from the $2.913 billion increase in funds payable and amounts payable to customers, partly offset by $493 million of share repurchases.
Material Changes Versus the Prior Comparable Period
- Revenue increased 20%, driven by 19% growth in Nights and Experiences Booked and GBV.
- Airbnb shifted from a $19 million net loss to $117 million of net income, although operating results remained approximately break-even because operating expenses increased with the business.
- Interest income increased by $141 million and was the principal factor supporting pre-tax profitability.
- Adjusted EBITDA increased, but its margin declined from 15% to 14%.
- Operating cash flow and free cash flow each increased by approximately $385 million.
- Airbnb repurchased 4.0 million shares for $492.7 million during the quarter. Only $7.3 million remained under the then-existing $2.0 billion authorization at March 31, 2023.
- On May 8, 2023, the board authorized a new share repurchase program of up to $2.5 billion.
- Stock-based compensation increased 23% to $240 million, remaining a significant recurring expense excluded from Adjusted EBITDA.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
The filing does not provide a clear numeric revenue, earnings, Adjusted EBITDA, or free cash flow guidance for future periods. Management expects continued sensitivity to travel demand, seasonality, macroeconomic conditions, inflation, interest rates, recession risk, unemployment, foreign currency movements, Host supply, competition, regulation, and potential future effects of COVID-19 or other infectious diseases.
- Foreign exchange remains a material risk. Management estimated that an adverse 10% change in foreign exchange rates applied to net monetary assets and liabilities would have produced an approximately $13.3 million loss at March 31, 2023.
- A hypothetical 100-basis-point increase in interest rates would have reduced the fair value of the investment portfolio by approximately $18.6 million.
- The IRS has proposed an adjustment that could result in approximately $1.3 billion of additional tax, plus penalties and interest, exceeding Airbnb’s recorded reserve by more than $1.0 billion. Airbnb disputes the proposal and is pursuing administrative and potentially judicial remedies.
- Reasonably possible additional losses related to withholding, transactional, and business taxes were estimated at $262 million to $282 million above accrued amounts, although the ultimate exposure remains uncertain.
- Lodging-tax obligations collected from guests and payable to jurisdictions increased to $423.6 million. Additional estimated lodging-tax obligations totaled $77.8 million, and Airbnb stated that ultimate liabilities could exceed recorded reserves.
- The company is involved in various legal and regulatory matters, including Australian Competition and Consumer Commission proceedings concerning currency representations. Management believes current pending matters are not expected to have a material adverse effect, but legal outcomes are inherently uncertain.
- Airbnb retains risk under Host protection programs, including up to $3.0 million of Host Damage Protection per covered claim and specified liability coverage generally up to $1.0 million per occurrence, subject to stated limitations and insurance arrangements.
- The company adopted a new derivatives and hedging accounting standard during the quarter without a material financial statement impact. It was evaluating the impact of a recently issued fair-value measurement standard not yet adopted.
Most Important Facts for Investors to Verify
- Whether booking growth, GBV growth, and revenue growth remain durable as travel seasonality normalizes and macroeconomic conditions change.
- How much reported profitability depends on elevated interest income rather than operating margin expansion.
- The sustainability and dilution implications of stock-based compensation, which was $240 million in Q1 2023.
- The ultimate outcome and cash impact of the IRS examination and proposed $1.3 billion tax adjustment.
- Potential additional lodging-tax, withholding-tax, transactional-tax, and employment-tax liabilities beyond recorded reserves.
- Whether the new $2.5 billion repurchase authorization affects liquidity, share count, and capital allocation priorities.
- The availability and use of customer funds and the distinction between customer-held booking balances and Airbnb’s $10.6 billion of corporate cash and investments.
- Exposure to foreign currency movements, investment-rate changes, regulatory restrictions on short-term rentals, litigation, and other risks referenced in the company’s 2022 Form 10-K.