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Ann Berry
For
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Friday, May 15, it's Brew Markets Daily and I'm Ann Berry. Travel what about favorite topics here on Brew Markets and one that's currently just riddled with puzzles on consumer behavior? Are wars in the Middle east and Ukraine changing appetite for travel? Is inflation hurting vacation budgets? And for those who are on the move, are hotels or short term rentals where they want to rest for the night? Well, to break it all down, we welcome to today's show Ellie Mertz, Chief Financial Officer of Airbnb. We catch Ellie at a particularly interesting moment in the company's evolution because exactly one year ago, almost to the day, Airbnb unveiled its hard launch into offering more experiences and services. So we take this opportunity to try to get a financial update on how exactly those are going. We're just a week away from the strong earnings report that Airbnb came out with, so we unpack why the share price has yet to reflect acceleration in growth markets like Brazil. And just a few days from now will be this year's hotly anticipated summer release where Airbnb will unveil its newest product features. So we ask how the company will continue to try to differentiate from a booking.com or a VRBO that's plainly going head to head with the company that changed travel accommodation for good. It's a conversation you won't want to miss, and it's coming up in just a moment. But first, this episode is brought to you by Charles Schwab Is recency bias
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Host Mark Reape, head of the Schwab center for Financial Research, and his guests offer actionable insights on what you can do to help fight off those decision making biases. Download the latest episode and follow@schwab.com financialdecoder or wherever you listen. And now my conversation with Ellie Mertz, Chief Financial Officer of Airbnb. I wanted to start, Ellie, by looking back literally one year to exactly this day is when Airbnb unveiled a big push into curated experiences. This was a huge focus for you last year. I do have your shareholder letter in front of me from your most recent earnings, and I have to admit, I don't see a ton of detail in this around how those experiences are going. So would you mind talking about them how at scaled and what kind of financial impact you're now seeing coming through?
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Ellie Mertz
Yeah. So just as Randy and first, thanks for having me. Last year, at our previous summer release, we unveiled a couple of things. One was obviously a reimagined experience offering. So this is things to do while you're traveling that make your trip that much better to experience authentically the place that you're visiting. The second was Airbnb services. These are things like photography and chefs and more recently, things like airport pickups that make your trip easier, more convenient, and kind of fill in those commodity service offerings that are really needed to make your trip flawless. And more broadly, we unveiled a brand new app that brought all of those services into one place, such that you could have the entire Airbnb experience, where we are increasingly putting together your itinerary with not just the accommodations, but obviously those experiences, the things that you do during the day, and then those services again that make your stay with us even better.
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Ann Berry
So what proportion of your revenue roughly for this quarter came from services as distinct from knights booked?
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Ellie Mertz
So today they're relatively small. We obviously had the big launch just a year ago. We've been very focused on making sure that we have the right product market fit in terms of what we're offering to our guests on both fronts, both experiences and services. And with experiences. Over the last year, we've taken a market by market approach, starting with specific pilot cities, for example, Paris, to make sure that the inventory that we have there fits our various guest segments. So, for example, if you're visiting Paris for the first time, there's some iconic things that you will want to do. For example, obviously visit the Eiffel Tower. Want to make sure that we have the best high quality curated offerings for you to go do that. If you are a, say, frequent visitor to Paris, there's a whole set of additional things that you will probably want to do because you've already, say, gone to the Louvre and visited the Eiffel Tower. You want a little bit more differentiated experience to, to understand Paris. And then the third category is if you're local, we want to be able to offer you something that's also interesting enough for a local to do on the platform that is highly differentiated. And so what we've been doing city by city is making sure that we have the right inventory to meet those different segments where they are and to ensure that we have something that's high quality and curated and in many cases different than what you'll find elsewhere.
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Ann Berry
So let's dig a little bit more, if you don't mind, Ellie, into our backyard. Let's talk about the US Market hit the highlights for us on recent performance in the United States.
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Ellie Mertz
Yes. So what I would say, and this is a big underpinning of our strong Q1 results, is that we've seen really nice strength in terms of the US consumer. I think organically we are seeing that relative to last year and then more broadly, several of the product initiatives that we have rolled out in recent quarters are having a disproportionate impact in terms of lifting the bookings that we see from both our U.S. and Canadian consumers. So what we saw in Q1 was a nice acceleration quarter over quarter from Q4 to Q1 in terms of overall demand coming from North American guests. And we feel quite good in terms of the outlook for that segment, which is a large portion of our business.
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Ann Berry
It does feel, though, as though when you look at the competitive landscape, folks are coming for you. So I actually interviewed in recent weeks, the booking holding CEO, Glenn Fogel.
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Ellie Mertz
Yes.
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Ann Berry
And he pointed to a 9% year over year increase in alternative accommodation listings, which is literally going head to head with you. At Airbnb, Uber recently announced a partnership with Expedia and made it very clear that vacation home listings is next to come onto that platform. How, how do you look at these moves, Ellie? Is this, do you look at this, obviously, you know, validation for your model, because imitation is the best form of flattery. But as you plan out in the CFO seat for this year and next year, how does this rise in competition domestically affect your forecasting for the U.S. market specifically?
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Ellie Mertz
Yes, a great question. So if we, if we look at the market share dynamics, they're very different by region. So booking has obviously been very focused for several years in terms of increasing their market share in the US and, and what I would say today is that by far, Airbnb remains the market leader in the US in particular for non hotel offerings. We have not seen any change in that dynamic. In fact, what we've seen very consistently for several quarter is that both on a global basis as well as a regional basis, we are gaining market share. And when I say market share, I'm not just speaking about alternative accommodations, I'm talking about total accommodations. When we look at our market opportunity, we're obviously including those days that currently happen in hotels. And under that basis, we continue to see nice market share gains both in the US and obviously rest of world.
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Ann Berry
Let's talk a bit more about hotels, Ellie, because Airbnb is scaling its boutique and independent hotel pilot. Can you talk to us about the pilot and then what you've learned from it and where it might take you next?
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Ellie Mertz
Yeah, absolutely. So when we think about the market opportunity around us, hotels are, you know, arguably an obvious adjacency that we've had some presence in historically, but not a concerted effort to support and to scale. And what we've done over the last several quarters is two things. One is reframe the booking experience for hotels on Airbnb so that when a guest comes, they know so exactly what a hotel is versus a home. We're giving them the right information, what room, what the overall property looks like, what the amenities are, such that it's easier for them to find the right property for them. We've also been scaling our boutique and independent hotel offering across the platform. And if we step back just for a second to kind of think of the strategy behind this, like why is Airbnb going into hotels? It's a couple of factors. So one, I think that the most obvious but short term is just filling in those markets, markets where we have supply gaps. So there's a handful of markets where we are regulatory constrained and yet we have a huge amount of guest demand. So people are, for example, coming to Airbnb searching for a home in New York. And based on the regulatory environment, we don't have ample supply. So this is a perfect opportunity for us to bring on some high quality independent boutique hotels and fulfill that demand. The second opportunity around hotels is if you look at our very loyal set of past guests, for many past guests, they love Airbnb, they use this quite frequently. But even for them, there are some use cases where a hotel is a better option. So those would be short term stays. It could be a one night trip into a city, you're checking in at 11pm and maybe checking out at 7am you're traveling by yourself. A hotel is a great offering for you. And so we want to be able to fill in more of the travel share for those customers that they love Airbnb, but sometimes they need to stay in a hotel. And then the third opportunity here is if you, if you step back and you think about the market share dynamics for accommodations today there are eight to nine hotel stays for every stay in an Airbnb. And when we think about how do we better penetrate those nights, part of it is increasing consideration among guests who continue to think about themselves as hotel guests. And so as we bring more hotels onto the platform, it's a great onboarding ramp to get people to be comfortable with using Airbnb the first time they may try a hotel. And when they come back, we're likely to be able to merchandise them to stay in a home. What we shared in the last investor letter was that of the people who are booking hotels on the platform right now, over half of them come back and book a home. So we're seeing a nice on road there and frankly very excited about the scaling that we're seeing in the hotel product.
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Ann Berry
Let's take a break. When we come back, more of my conversation with Ellie Mertz. This episode is brought to you by Charles Schwab. Overconfidence, loss aversion, Recency bias Could attribution bias be messed with your retirement plan? Financial Decoder, an original podcast from Charles Schwab explains how these pesky biases can affect the decisions you make about your financial life. Host Mark Reape, head of the Schwab center for Financial Research, and his guests offer practical strategies on what you can do to help beat back these decision making biases. Download the latest episode of follow@schwab.com financialdecoda orever you listen
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Ann Berry
And now back to my conversation with Ellie Mertz, Chief Financial Officer of Airbnb. And let's talk about some of the other markets you're in. Let's talk about Brazil and India because, you know, you're so well known in the United States and you broke the MO of the actual model. How's it going in some of the emerging markets that you've been planting flags in?
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Ellie Mertz
Yeah, it's going quite well. If you look at our three strategic growth priorities. The second is around expanding Airbnb around the globe. And the interesting thing about our business model is that we have had a presence across the globe for many years. You know, we're in 220 countries and regions around the world and yet what we see is that the penetration level across those markets is highly varied. We continue to be very concentrated in what we call our five core markets. That would be us, uk, Canada, France and Australia. And so what we've done the last couple of years is target key expansion markets to bring much more localized marketing comms policy efforts as well as localize the product where it can be impactful. Brazil is a, is a market where we've been doing that for several years and we've seen great results. You know, if we, if we look at the scaling of that market back after the pandemic, it was a top 10 market and now it's consistently of our top five and it continues to compound at over 20%. More recently we've been focusing on India. It's our fastest growing market right now. And if we look at the Indian market, it's a really exciting opportunity for us at this moment in that, that that market is looking to build out its domestic tourism industry and there isn't the infrastructure of hotels that you would see in another market, which gives us a huge amount of growth Runway to, to capture.
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Ann Berry
Ellie, have you seen any other markets where Airbnb has tried to go in and get that level of interest geared up? And for whatever reason, whether it's cultural, it just hasn't worked. Have you just found some places where it's just been. It just hasn't seen the take up that you expected.
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Ellie Mertz
So I would say each of the adoption curves has been different. I called out the five core markets because those have been, I would say, very organically scaled through our global product. What we have found in the handful of markets that I just mentioned in many others is that there is a local touch that's required. We need to do more in terms of both our messaging and product to show up to the local consumer as a local product. And so that's, that's a big focus area for us, I would say in terms of, you know, the, the region with the most opportunity that we have not yet captured is it's absolutely apac. And that really requires obviously a country by country approach to understand, you know, what's required to be local. What is the, what are the particular product nuances that are important for the consum. Do we have enough Supply. And I think what you should take from our approach is that we're not trying to throw down the same playbook in every country. Instead, we're trying to be very nuanced to understand what's relevant and therefore what we should do to modify our global playbook at a local level.
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Ann Berry
It's interesting because when you look at global players and traditional travel accommodation in hotels, the way in which they have sought to get that local touch exactly. You've described, make sure there is that local flavor is by finding franchise partners and really sort of delegating some key operational items with a playbook. But to make sure there's an on the ground local partner. What are your thoughts at Airbnb about franchising versus keeping everything in house and fully under Airbnb control?
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Ellie Mertz
So I think one of our, one of our key global assets is absolutely our global brand. So that is a, you know, a platform that we have historically done everything around and it's particularly important because of the amount of cross border travel. We, you know, we've never tried to create a independent cut country level brand because we know that there are huge benefits to having a single global brand that no matter where you're going, you think of Airbnb versus the local company. I would say the other thing about kind of the franchise model, the way that we are truly local on the ground in any of these countries, is our hosts. Our hosts are local citizens of these countries. They are our brand ambassadors. They are the people who provide the real product and hospitality. And so the identity of Airbnb is very much linked to those local host partners on the ground versus necessarily a local corporate franchise.
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Ann Berry
One of the innovations that Airbnb has had over the last sort of two years has been leaning into support for hosts in particular. And I remember your release when Airbnb said that you were going to double down on helping hosts with their real estate management and other sorts of ancillary service. How could that be going?
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Ellie Mertz
What they need more from us? I would say the one area that we have been particular, I would say two areas that we've been particularly focused on is making sure that we have an increasing quality bar on the platform. What you've seen from us the last couple of years is increasingly, you know, one taking down listings that are not great experiences for our guests and then also working with our hosts to make sure that they understand how they meet the expectations of the guests and ensure a great stay. So there's a continued effort there which is not just good for the guest and for Airbnb, it's really good for the guests, excuse me, the hosts, to make sure that they're constantly improving and providing five star hospitality. The other area where we continue to double down in terms of supporting our hosts is increasingly providing them better pricing tools. What we see across our platform is that the majority of hosts are individual hosts, so they're not professionally managed listings. And in the case of individual hosts, they don't always know what the right price, price for their home should be. And so we have increasingly provided them better tools, better tips, better variable pricing to make sure that they know how to appropriately price their home to achieve their earnings goals.
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Ann Berry
Well, you've also put in place something else to protect your hosts, which is I catch you just in time for Memorial Day, which is the no party policy, which is getting a lot of press. Give us a couple of comments on that. Was that something were hosts coming to you getting nervous about entering the summer period and particularly with so many events coming up, specifically, specifically the FIFA World cup, you can see the sort of, this sort of a jovial element to it that perhaps hosts were getting ready for.
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Ellie Mertz
Yeah.
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Ann Berry
How did that policy get formed?
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Ellie Mertz
I mean, we are always looking at ways to make sure that our homes that are, you know, the homes that are on our platform are treated appropriately and that, you know, the amount of safety on the platform is high. So we are constantly trying to root out any issues where, where there may be, you know, trust and safety concerns. We know that, that, you know, one of the hurdles for more people hosting is the concern that there could be a party in their home. And so we want to be very clear with our guests what the expectations are in terms of, of how they use the properties on our, our platform.
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Ann Berry
Well, I want to talk about some of your financial results more specifically. I do have them in front of me. So first of all, I want to talk about the fact that you raised your guidance for the full year.
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Ellie Mertz
Yes, we did.
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Ann Berry
2026, which given everything that is going on geopolitically at the moment, giving everything that's going on around airfares and tick, what are the assumptions underlying that when you look at the geopolitical outlook at the moment?
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Ellie Mertz
Yes, I would say, just if you, to reiterate what you shared at our last earnings call last week, we raised the full year revenue guidance on the business. And really that increased optimism about our outlook was underpinned by the performance we've delivered year to date. And just to spend a moment there, if you, if you look at our Q1 results. It was the fourth quarter of consecutive acceleration of our gross booking value. So the full amount that guests are paying to to book trips in any given period. We have been very focused at reaccelerating growth of this business and have consistently begun to deliver that over the last couple of quarters. And based on the, the results that we've seen from our growth initiatives, we, we feel, you know, we obviously felt comfortable in terms of raising the outlook. We're seeing, I would say a greater stability in terms of volume demand. We're seeing stickier adr. So there's the average daily rates that consumers pay and we're starting to see good signs in terms of our monetization efforts getting a slightly higher take rate from our bookings than previously. It's a combination of those three things that are driving the increased outlook in terms of the macro environment. Certainly something that we focus on a lot given the susceptibility of travel demand to macro events. We've obviously been watching quite closely the impact of the war in Iran and the resulting increase in gas prices. And what we shared last week is that yes, there was a modest impact to the Q1 results. We noted a 100 basis points headwind to our nights. We also called that out in terms of our Q2 outlook. But more broadly, what we've seen, and I would say this period is very similar to other macro disruptions that we've seen in the past. We've seen that consumers want to travel. And in particular on our platform, what we've seen is that when a particular corridor is closed or a particular type of travel is blocked, or in this case maybe some types of trips become more expensive, consumers are obviously innovative and adaptive to find ways to continue to travel. So in particular, what we're seeing right now is that after the attacks in Iran at the end of February, we saw a deceleration in long haul travel. So you know, those guests who are choosing destinations that are say, you know, more than 3,000 miles away at the same time, what we saw was an acceleration in nearby travel. So, you know, maybe guests are choosing not to take that international trip this year, but they're still traveling. They're finding somewhere else that's probably closer that allows them to still travel but fit within their budgets.
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Ann Berry
So, Ellie, everything you've just described, you've raised your guidance, which not every public company has done. Okay. You've shown resiliency in the face of headwinds that most people say that is a real risk to travel. You've shown accelerated growth Your free cash flow is strong. I'm just looking again here. $1.7 billion for the first quarter. You do have a share buyback program in place. You're returning capital to your shareholders, but your share price is still not moving with the kind of acceleration or frankly in this interaction you'd expect. What is the market just not understanding? What are your investors mental missing?
- [22:33]
Ellie Mertz
Well, I think, you know, Brian and I have shared for several quarters that our goal is to reaccelerate the growth of this company and we are doing that. I think, you know, given the choppiness of the post pandemic period and our in our top line growth, you know, the market wants us to show that consistently quarter over quarter and that is exactly what we're doing and we intend to continue doing.
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Ann Berry
When you speak to investors, when they're coming to your shareholder meetings, when you're doing the fireside chats, at the various banks conferences, what kind of questions are you getting? What are people digging into? There's obviously consistency, but are you getting fundamental questions around how defensible your position is in the us? What are the toughest questions that you're getting?
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Ellie Mertz
You know, I think there continues to be just a focus on growth as I just shared. Investors seem to be encouraged by the results of the last couple of quarters, but would like to ensure that it is compounding and we can maintain elevated levels of growth which I just shared is is our intention. I think they're also interested in terms of understanding market dynamics, understanding the scaling of our new businesses and the timelines over which they will contribute to growth. And then I think not dissimilar from frankly all other companies right now. Everyone's very focused on the impact of AI both in the environment around us, but also in terms of how we're leveraging across the platform.
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Ann Berry
And what do you say to that? I know that there's a lot of coverage on 60% of your coding being done using AI now, but in terms of the actual interface with the consumer humor, can we expect in your summer release coming up to see something exciting and new when it comes to AI and how that actually changes your consumers booking process or their actual user experience?
- [24:14]
Ellie Mertz
Yes. So what we've been doing on the AI front is obviously as we, as we shared, a huge number of our engineers are absolutely using AI to write code. As you quoted that the 60% of code today is co authored with our engineers and AI. More broadly, what we've been doing in terms of the consumer experience is starting at the bottom of the Funnel in particular, starting with customer service. Customer service on Airbnb can be very challenging because we're mediating between likely two individuals that speak different languages across different parts of the world. There's a million different permutations of why people contact us. That's where we started our AI efforts in terms of where the consumer has seen them. We're seeing great results there in terms of of delivering great resolution to people who contact us through our RCS agent, which is delivering nice efficiencies across the P and L. I say we're starting at the bottom of the funnel because that is kind of the belly of the beast in terms of starting with customer service. What we've more increasingly done is move up funnel to look across surfaces of the product where leveraging AI can just make it better for the user. So, for example, when we show you a particular listing that we think you're going to like, we are increasingly using AI to personalize what we highlight for you, knowing your preferences or particular amenities that you are looking for as we progress up the funnel. Obviously the desire is to reinvent the overall travel planning opportunity and we're working aggressively at that.
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Ann Berry
I'm going to wrap Ellie by talking a bit about your career, which is really quite something to read about. In June of last year, you had a little bit of a homecoming. You joined the board of Netflix.
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Ellie Mertz
Yes.
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Ann Berry
You'd previously been a vice president of finance at Netflix from 2006 to 2013. So roll forward 12 years. There you are on the board. What is it like? Talk to us about what it's like to go back to a company that you were at for a long time and actually then be part of the group overseeing the management team that you are a member of.
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Ellie Mertz
Honestly, it's an honor and a privilege. Netflix is a very special company where I feel I had the opportunity to grow as a professional, learn ton about culture. Obviously, Netflix is very famous for its culture and I feel that my time there actually informs a lot of the work that I do today and how I manage my team. So really a privilege to have that homecoming and obviously be part of the company at its outstanding scale and its continued growth.
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Ann Berry
And how did you feel when Reed Hastings announced that he was stepping down from the point board?
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Ellie Mertz
Well, obviously, personally, a little bit sad. Reid has certainly been a huge inspiration throughout my career in terms of seeing someone who has unbelievable instincts, but also marries them with attention to data and ability to make bold calls and to really think ahead of maybe what's immediately possible. And I've always been quite inspired by that.
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Ann Berry
Elima, CFO of Airbnb, thank you for joining and do come back. We'd love to hear how the rest of the year is going.
- [27:22]
Ellie Mertz
Thank you. Nice to see you.
- [27:24]
Ann Berry
Well, huge thanks to Ellie Mertz for joining us. Lot going on, we'll be following Airbnb. That's it for today's Brew Markets Daily.
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Brew Markets Daily is hosted by Anne Barry and produced by John Couteau, Tarkov, Del Latif Avni leroya and Emily Millairn. Our technical director is Uchenawa Ogu, Brittany Dotako is our audio engineer booking by A.B. silver and the president of Morning Brew Inc. Is Devin Emery. If you have any feedback or company you'd like us to COVID leave a comment or send an email to brewmarketshoworningbrew.com
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have a great weekend and we'll see you back here on Monday. Same time, same place.
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