With slowing growth and "hidden thunder" in profits, will Airbnb's inflection point come?

After the U.S. stock market on February 13, Airbnb announced its fourth-quarter financial results for fiscal year 2023, with no surprises but a little scare, as follows:

1. Unit growth continues to slow down: In terms of key scale metrics, Airbnb's total bookings for the quarter were about $15.5 billion, which was broadly in line with expectations and there were no surprises. The year-on-year growth rate also slowed by 2pct to 15% quarter-on-quarter, and the real growth rate was 13% excluding the 2pct contribution of exchange rates. In terms of price and volume, the growth rate of room night bookings in the quarter also slowed from 14% to 12%, which was basically in line with market expectations. Although the average order value increased by 3% year-on-year, ADR actually increased by less than 1% when adjusted for favorable currency effects. The price increase cycle is also basically over.

As the market feared, the growth rate of the company's room night volume continued to slow, which seems to verify the weakening demand for wine and tourism. Regionally, Latin America and Asia-Pacific, which had previously driven the company's growth, have also seen a marginal slowdown (2-5pct decline). The source of motivation for the company's subsequent business growth seems to have become a problem.

2. Limited monetization improvement, no surprises in gross margin: In terms of revenue, Airbnb posted about $2.2 billion in revenue for the quarter, slightly better than expected. On the trend, revenue growth also decreased by 1pct to 17% quarter-on-quarter, which did not reverse the slowdown in order growth. From the similar trend of revenue growth and reservation growth, it can be seen that Airbnb's monetization rate has not changed much, at 14.2% in the quarter, a slight increase of 0.2pct year-on-year, resulting in the company's gross profit margin only slightly increased by less than 1pct, and finally achieved a gross profit of about 1.83 billion, which is generally in line with expectations.

3. Surge in one-time expenses, dragging down profits and cash flow: Airbnb still generally met or slightly exceeded expectations in terms of scale indicators such as booking amount and revenue this quarter, but the abnormal expansion of the expense side led to a significant deterioration in profit and cash flow metrics this quarter, which was the biggest "stain" on this performance.

After excluding equity incentive expenses, the proportion of operating support expenses, marketing and promotion expenses, and R&D expenses in revenue continued to decline in the quarter, reflecting that the company's operating leverage is still improving. However, the company's administrative expenses for the quarter reached 1.14 billion, which exceeded the average level of a full year.

Although the company explained that it was mainly due to the withholding tax and loging tax of more than 900 million yuan in the quarter. However, due to the abnormal expansion of administrative expenses, the operating profit under GAAP caliber in the quarter turned negative again to a loss of nearly 500 million yuan, and the operating cash inflow also shrank significantly to less than 50 million US dollars.

4. Guidance for Slightly Higher Quarterly Revenue, Order Volume Growth Continues to Decline: For the first quarter of 2024, the company guides revenue in the range of 2.03-2.07 billion, higher than the median forecast of 2.02 billion, but the difference is not too large. As for the growth trend of room night bookings, which the market is most concerned about, management expects the growth rate to continue to decline sequentially in the next quarter, which has not eliminated the market's concerns about the sustainability of demand. At the same time, room night unit price ADR will remain flat or slightly increased year-on-year.

Dolphin Investment Research Views:

Overall, Airbnb delivered results that met or slightly exceeded expectations in key scale metrics such as bookings, room nights, and revenue this quarter. Although there are no obvious shortcomings, it also fails to falsify or alleviate the market's concerns about the weakening demand for hospitality and accommodation in the future. Prior to the earnings announcement, high-frequency third-party data had already shown a weakening trend in demand, and both the actual room night growth in the current quarter and the growth guidance for the next quarter seemed to confirm the weakening demand trend, which would lead to more and more concerns about the medium-term growth of the follow-up companies.

In summary, Dolphin Investment Research believes that although the company will still be in a cycle of stable revenue growth and long-term upward profit margin for a period of time. However, while the recent performance is not outstanding, and the follow-up outlook has a marginal deterioration trend, the company's valuation is significantly higher than that of its peers, which creates space and motivation for valuation correction, and it is necessary to pay more careful attention to the subsequent trend of wine and tourism demand.

The following is a detailed interpretation of this quarter's financial report:

First, the growth of unit volume continues to slow down, and the sustainability of demand is the biggest concern

There were no surprises when Airbnb achieved a total booking of approximately $15.5 billion in the fourth quarter of 2023, broadly in line with expectations of $15.2 billion. The year-on-year growth rate also slowed further to 15% from 17% in the previous quarter, with the exchange rate contributing 2pct growth. The trend of slowing order growth continues.

In terms of price and volume, Airbnb's total bookings this quarter were about 98.8 million, and the growth rate also slowed from 14% to 12%, which is also in line with market expectations. And according to foreign investment banks, the demand for wine and tourism in Europe and the United States has weakened since the fourth quarter, and the company also guides the growth rate of booked room nights in the first quarter of 24 to further slow down quarter-on-quarter, in other words, the sustainability of hotel accommodation demand is the biggest concern at present.

On the price front, the average order rate for the quarter was $157 per night, up 3% year-over-year and slightly higher than the median estimate of $2. However, excluding positive exchange rates, ADR actually grew by less than 1% year-on-year. The price increase cycle is basically over.

By region, the company did not disclose the growth rate of orders in North America and Europe this quarter, but referring to the low growth in the previous quarter and the data of third-party research, Dolphin Investment Research reasonably guessed that North America and Europe were between a slight negative growth or a low-single-digit positive growth

Latin America and Asia-Pacific, which have recently driven the company's growth, are also experiencing a marginal slowdown after a recovery. Room night bookings slowed from 24% to 22% in Latin America and from 27% to 22% in Asia-Pacific.

Second, the increase in the realization rate is limited, and the gross profit of revenue is also no surprise

Airbnb reported revenue of about $2.2 billion in the quarter, which was in line with or slightly better than the expected revenue of $2.16 billion. Revenue growth also decreased by 1pct to 17% sequentially, not reversing the slowdown in order growth.

From the revenue growth rate and booking growth at the same frequency, it can be seen that Airbnb's monetization rate has not changed much. It was 14.2% in the quarter, a slight increase of 0.2pct year-on-year.

Due to the slight increase in the realisation rate, the company's gross profit margin only increased slightly by less than 1pct, and finally achieved a gross profit of about 1.83 billion, compared with the expected 1.77 billion, the lead is relatively limited.

3. The surge in one-time expenses has dragged down profits and cash flow performance

As can be seen from the above, Airbnb still delivered a performance that met or slightly exceeded expectations in terms of order amount, revenue and other scale indicators this quarter, but due to the abnormal expansion of the expense side in this quarter, the profit and cash flow indicators in this quarter deteriorated significantly and unexpectedly, which is the biggest "stain" on this performance.

From the perspective of excluding equity incentive expenses, operating support expenses and marketing and promotion expenses, which are highly related to the growth of business scale, increased slightly year-on-year, but the proportion of revenue decreased. As for product research and development expenses, they have decreased year-on-year in absolute terms, reflecting that the company's operating leverage is still improving.

However, the company's administrative expenses for the quarter amounted to $1.14 billion, which is higher than the usual level for the whole year. Although the company explained that it was mainly due to the withholding tax and loging tax of more than 900 million yuan in the quarter.

However, due to the abnormal expansion of administrative expenses, the operating profit under GAAP caliber in the quarter turned negative again to a loss of nearly 500 million yuan, and the operating cash inflow also shrank significantly to less than 50 million US dollars. Despite the company's claims that the impact was one-off, there is no denying the obvious deterioration in profit indicators this quarter, and whether this will happen again in the future is also a question that investors have to watch out for.