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Overestimation is a sin? Good performance can't help Airbnb.

After the US stock market closed on August 3 (Beijing Time), Airbnb released its Q2 2022 financial report. Generally speaking, this quarter, Airbnb's revenue and profit growth remained strong, but were in line with market expectations. However, the performance of room night bookings this quarter and the guidance for next quarter were both below expectations, causing the market to worry about whether strong demand for travel can be maintained. Dolphin Analyst speculates that this may be the main reason why Airbnb's stock price fell by 8% after the performance announcement. The detailed points of the financial report are as follows:

1. Strong price but weak volume, is the decline affecting? : This quarter, the total amount of housing rental bookings (GBV) was US$16.98 billion, which was basically in line with market expectations and still grew strongly at 73% compared to the same period in 2019.

However, from the perspective of price and volume drivers, the total number of room night bookings this quarter was 104 million, which was lower than the company's previous guidance and the market's expectations of 106 million times. The average room night price (ADR) this quarter was US$165, significantly higher than the market's expected US$159. Therefore, the decent GBV performance this quarter is the result of the strong price and weak volume offsetting each other.

In terms of performance in different regions, Europe, which is experiencing a slower recovery pace, is accelerating its growth this quarter, while the growth rate of room night bookings in North America (compared to 2019) has slowed significantly from 55% in the previous quarter to 37%.

The lower-than-expected housing bookings will make the market worry whether the demand for travel and tourism, which is optional and highly elastic, will significantly cool down in the second half of the year, especially under the background of the US economic decline and the decline of residents' real income.

2. Steady increase in monetization rate, revenue continues to grow rapidly: The company achieved revenue of RMB 2.104 billion this quarter, slightly higher than the market's expected RMB 2.095 billion. Although the year-on-year growth rate of the Gross Booking Value (GBV) has slowed down, due to the year-on-year increase of 2.4 percentage points to 12.4% in the monetization rate, the company's revenue growth rate still reached 58%. As the only C2C homestay rental platform, Airbnb's monetization potential will be significantly higher than traditional 2B OTA platforms. With the continuous launch of new services, the steady growth of the monetization rate this quarter is another core driving factor for Airbnb's performance growth except for GBV.

3. Scale effect & personnel streamlining, significant improvement in profit release ability: As the company's revenue scale continues to grow rapidly, the scale effect is further released, and the company immediately slows down its pace of personnel recruitment, which reduces the inflation pressure. The cost and expense ratio of the company in this quarter has significantly narrowed, and the profit margin has increased significantly.

Among them, due to the unexpectedly strong ADR, the gross profit margin increased by 2 percentage points to 80% year-on-year, while except for R&D investment, the operating support, marketing, and management expense ratio all significantly narrowed.

Therefore, this quarter's Non-GAAP operating profit margin, after deducting stock incentive expenses, reached 29%, achieving a Non-GAAP operating profit of US$620 million, more than double the same period last year.

4. Third quarter booking volume fell short of expectations again, reinforcing recession concerns:

Looking ahead to the third quarter, the company's revenue guidance is between 2.78 billion and 2.88 billion U.S. dollars, with the market expectation of 2.78 billion at the lower end of the guidance, indicating that the revenue guidance is actually good. However, the problem is that the booking volume guidance for the third quarter is 106 million, which is once again lower than the market expectation of 109 million.

Dolphin Analyst's Point of View:

Overall, Airbnb's performance this quarter is basically in line with expectations. And beyond expectations, from the trend of the company's operating performance, the revenue maintains a high growth rate, the monetization rate steadily improves, the cost control is appropriate, and the release of profits under the scale effect is also significantly improved. It can be said that the company's performance this quarter is excellent, and the company's revenue guidance for the third quarter is also exceeding expectations.

So why did Airbnb's stock price fall instead of rise after its excellent financial performance and guidance? Dolphin Analyst believes that the main reason lies in the stage of the tourism market and Airbnb's still high valuation (about twice that of Booking).

Against the background of low base in the same period last year and the retaliatory release of tourist demand by residents after the epidemic, the travel market in the first and second quarters of this year can be said to be quite prosperous. However, with the continuous recession of the U.S. economy and the decrease in residents' actual income, the impact on optional consumption should be more significant. So after the pent-up travel demand is released, whether the current prosperous tourism market will quickly turn cold is currently the mainstream consensus of the market. Therefore, after the booking volume for this quarter and the next quarter fell short of expectations, verifying the market's concern that the tourism market may rise to a peak and then decline, funds have chosen to shift to targets with an upward inflection point in industry prosperity and a safer valuation cushion.

However, although there may be headwinds at the beta level, Airbnb's own business performance is still outstanding and worth continuous attention to find the right position to enter.

Dolphin Analyst will share the conference call summary with the dolphin user group on Longbridge App later. Interested users are welcome to add WeChat: "dolphinR123" to join the Dolphin Investment Research Group and get the conference call summary as soon as possible.

I. Firm price but weak volume, hidden recession concerns already present?

For Airbnb, because the company's revenue is almost entirely composed of commissions on the total amount of housing rentals on the platform, its structure is simple. At the same time, booking amount and order volume are the core factors driving performance, so we start from this point.

This quarter, the company's gross booking value (GBV) for housing rentals is 16.98 billion U.S. dollars, which is basically consistent with the market expectation of 16.9 billion, with a growth rate of 73% compared with the same period in 2019, which is consistent with the growth rate in the previous quarter and shows no signs of slowing down.

Combining with US macro data for the second quarter, it can be seen that even with price inflation removed, entertainment and accommodation spending in the US still maintains significant year-on-year growth, far outpacing weak commodity consumption in the context of the recovery of offline activities (travel and entertainment). Therefore, Airbnb's overall strong booking amount is within expectations.

Although the overall growth is strong, there is some hidden concern from the perspective of value and volume driving. The number of room nights booked on the Airbnb platform this quarter is not as expected, and the main driving factor is the higher-than-expected growth of ADR (average daily rate). Details are as follows:

The total number of booked room nights on the company's platform this quarter is 104 million, an increase of 23.6% from the same period in 2019, lower than the company's previous guidance of 25-26% and the market expectation of 106 million. It is clear that the actual demand for renting is not as strong as expected.

At the same time, the average daily rate this quarter was $165, unchanged year-on-year. However, with the expectation of the full recovery of travel, the structure of rented accommodation will shift from North America to the world, and from vacation travel to business travel. The company had previously guided that ADR would fall slightly in the previous quarter, and the market expectation for this quarter's ADR was only $159. Therefore, the performance of ADR is actually stronger than expected.

So what are the reasons behind the weak "quantity" and strong "value"?

In terms of regional performance, room night bookings in North America increased by 37% compared to the same period in 2019, significantly lower than the growth rate of 55% in the previous quarter;

Room night bookings in Europe, America, and the Middle East increased by 26% compared to 2019, with a higher growth rate than the previous quarter. It can be seen that Europe, which had previously had a relatively slow recovery pace, is also accelerating in its recovery.

In addition, in South America, the growth rate is 64% compared to the same period in 2019, which is the same as the growth rate in the previous quarter. Dolphin Analyst believes that in immature markets such as South America, the logic of increasing the penetration rate of the homestay industry and increasing Airbnb's market share has helped the company achieve sustained high-speed growth in South America.

In summary, Europe is accelerating its recovery this quarter, South America remains strong, and growth in North America (primarily the United States) is significantly slowing down, as well as the continued weakness in the Asia-Pacific region, which should be the main reason for the lower-than-expected increase in orders. However, the unexpected increase in prices may have been caused by inflation leading to a rise in average rent, while lower-than-expected housing bookings have alarmed the market. Against the backdrop of a US economic recession and a decline in residents' actual income, the question remains whether the booming demand for travel and tourism, as optional consumption with great elasticity, can be sustained in the current situation or will turn downward in the second half of the year.

Secondly, the 3Q guidance still indicates "strong prices but weak volumes," confirming the risk of recession again.

Looking ahead to the third quarter, the company guided revenue to be between 2.78 billion USD and 2.88 billion USD, with market expectations at the lower end of the guidance of 2.78 billion USD, and actual revenue guidance slightly exceeding expectations.

However, similar to this quarter, the company's guidance for the third quarter's accommodation booking volume is 106 million, which is only about 24% higher than the same period in 2019, but lower than the market expectation of 109 million. However, the average daily rate (ADR) is expected to increase year-on-year, reaching more than $149 per night, while the market expects it to decline year-on-year to $145.

With accommodation bookings again falling short of expectations, it reinforces the market's concerns about the potential downturn in future travel and accommodation demand.

Third, revenue and monetization rate expand as expected

After hedging against price and quantity, Airbnb's GBV this quarter was basically in line with expectations, and the company's performance on the revenue side was completely in line with the market's expectations. Specifically, the company achieved revenue of 2.104 billion yuan this quarter, while the market expected 2.095 billion yuan. However, driven by the increase in monetization rate, revenue growth this quarter still reached 58%. Although the growth rate has slowed slightly, it is still in a period of high-speed growth.

As for the monetization rate, due to the significant seasonality of accommodation needs, the company's orders are generally at their peak in 3Q and at their lowest in 1Q. The monetization rate also has a similar seasonality, so the analysis mainly focuses on a year-on-year basis.

This quarter, the company's monetization rate was 12.4%, a 2.4% expansion compared to the same period last year and a 1.9% increase compared to the same period in 2019. It can be seen that the company's monetization rate is still on a steady upward trajectory. As the only C2C home-sharing platform, the monetization potential of the company is obviously higher than that of traditional OTA platforms, which are largely B2C. Therefore, changes in monetization rate are another core driving factor of the company's performance, which needs to be closely tracked.

However, in terms of expected differences, the market's expected monetization rate this quarter was also 12.4%, and the strong ADR that exceeded expectations this quarter was already favorable to the monetization rate, so the pace of the company's improvement in monetization rate did not exceed expectations.

Fourth, the release of scale effects and the recovery of profits, but equity incentives are still a significant expense. Due to Airbnb's recent listing, the scale and volatility of stock-based compensation expenses are large, and when considering costs and expenses, the caliber of excluding equity-based compensation expenses is adopted to better observe the trend of the company's expenses.

Overall, the scale effect of the rapid growth of the company's revenue side and the company's measures to streamline personnel helped the company to achieve a comprehensive narrowing of the ratio of costs and expenses to revenue in the context of inflation.

Specifically, due to the unexpectedly strong growth of ADR, the company's gross profit margin increased to 81%, higher than the market's expected 80%; a YoY increase of 2 percentage points.

In addition, except for the obvious expansion of product R&D expenses (matched with the company's continuous launch of new functions), the proportions of operating support expenses, marketing expenses, and management expenses to revenue have all narrowed significantly compared to the same period last year.

According to research by outsiders, since April, Airbnb has been reducing the number of new hires, and in the background of the macroeconomic downturn, the company has also rapidly slowed down its pace of recruitment, reducing the negative impact of employee wage inflation.

Therefore, under the increase in gross profit and good operating leverage, the company's Non-GAAP operating profit margin reached 29% in this quarter after excluding equity-based compensation expenses, achieving a Non-GAAP operating profit of USD 616 million, an increase of more than twice YoY. After deducting equity-based compensation expenses that account for 12% of total revenue, the GAAP-caliber operating profit also achieved a profit of USD 369 million and a profit margin of 18%, demonstrating the company's steadily increasing profit release capability.

(Pictures were omitted)

Previous Studies:

Earnings Season

May 4, 2022, Telephone Conference Call: "The Eastern Wind of the Rideshare Industry's Recovery (Airbnb Conference Call Summary)".

May 4, 2022, Earnings Review: "As Coronavirus Recedes, Airbnb Is Making A Comeback". Depth

On June 1, 2022, "Airbnb: Growing Momentum, but Low Valuation for Money" was published.

On June 1, 2022, "After the Epidemic, Airbnb and Disney Finally Made it Through." was published.

On April 6, 2022, "Airbnb: Pariah of the Epidemic, Why It Resurrected While Others Perished?" was published.

On April 7, 2022, "Airbnb: Heavy Crown, Fast Valuation" was published.

Risk Disclosure and Statement of this Article: Dolphin Analyst Disclaimer and General Disclosure

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