Airbnb: 1Q25 Business Update
Core Business Strong Enough to Launch Their Next Chapter
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1Q25 Business Update.
Revenues grew +6% y/y (+8% ex-FX) in 1Q25. However, they noted that if you excluded the impact of FX and calendar impacts (Easter and inclusion of a leap day in the comp), revenues would have been +11% y/y.
If you recall, last quarter was very positive because they reversed a multi-quarter drop off in revenue growth—they fell from +18% y/y to +10% y/y before reaccelerating back to +12%.
While this quarter’s +11% y/y adjusted-revenue growth is solid (even if it is a deceleration from the +12% ex-FX figure they put up last quarter). The bigger disappointment was Gross Booking Value, or GBV.
GBV fell to just +7% from +13% y/y last quarter. (Adjusted for FX these figures are +9% and +13%, respectively).
As a reminder, there is a delay between GBV and revenue growth as GBV is counted at booking and revenue is recognized at check-in. This means it can be a leading indicator for revenue.
Although, Airbnb has not seen the same level of softness across the business as many feared. Instead, only certain travel corridors have been impacted. CFO Elinor Mertz noted that foreign travel to the U.S. has been affected.
Although foreign travel to the U.S. is a small portion of their business, which they estimate at 2-3% of their total bookings. They also noted that the “forgone travel” to the U.S. seems to have been diverted elsewhere. Below Mertz notes that Canadian travel to the U.S. has dropped, but they are still traveling to other destinations. This shows the benefits of having a global platform.
They also noted that “in the U.S., we’ve seen relatively softer results, which we believe has been largely driven by broader economic uncertainties.” This resulted only a low single digit nights booked growth (from mid-single digit last Q). EMEA slowed too from low double digit nights booked to mid-single digit. Latin America (Brazil in particular) and Asia Pacific have been stronger, growing nights low 20s and mid-teens, respectively.
Remember, these results do not include the greater economic uncertainties that were kicked up after “Liberation Day”, when the Trump Administration announced broad sweeping Tariffs. While many would seem to believe this would drive even softer results for 2Q, given that travel is generally a discretionary, non-essential good and tends to be pulled back on first in economic slowdowns, Airbnb’s guide does not imply a further slowdown. Their 2Q outlook was for revenues to grow +9 to 11% y/y.
They noted that bookings that are in <2 weeks out are unimpacted, but they are seeing more softness in bookings more than a month out. However, they gained some “comfort” in the fact that they had seen booking lead times shift out many times in the past, but it typically hasn’t led to lower bookings. Instead, it is consumers that are a little more hesitant to commit given the uncertainty. Having said that, if the economy does actual deteriorate and people lose their jobs and businesses make less money, it seems likely that travel bookings will be adversely impacted.
Moving down the P&L, EBIT margins were pressured, down 300bps y/y to 1.7% for the quarter. Note that margins are a bit “seasonal” as 1Q tends to be their slowest quarter, with 2Q and 3Q being the strongest for them. The margin pressure is largely driven by growing R&D expenses as they get ready to “go beyond places to stay”. We will pick back up on this later.
Their reported TTM free cash flow is $4.4bn, but that includes SBC and interest income from their large cash pile of $10.6bn (this does not include a further $5.9bn of cash from customer deposits). However, if you back out TTM SBC of $1.5bn and interest income of $0.75bn, free cash flow is closer to $2.1bn. Free cash flow has been slightly pressured by their increase in investments; they noted they plan to spend $200 to $250mn in investing in new businesses in 2025.
After the call notes below, we will move on to some general business commentary and updated thoughts on valuation.
1Q25 Notes.
Supply
Supply grew in line with nights booked
Capital Allocation
Repurchased $807mn in stock.
Authorization to repurchase up to $2.5bn.
TTM repurchases of $3.5bn
$11.5bn in cash and cash equivalents
Guidance
Revenue of $2.99 to $3.05bn for 9-11% y/y growth (includes a 2 point benefit from Easter)
Full-year Adjusted EBITDA Margin of at least 34.5%
Plan to invest $200 million to $250 million towards launching and scaling new businesses in 2025
Macro
During April, they saw strong demand for Easter travel from Latin America–which remains their fastest growing region.
In the U.S., they’ve seen relatively softer results, which they believe has been largely driven by broader economic uncertainties.
Geographic Expansion
For the past five quarters, the average growth rate of gross nights booked on an origin basis in their expansion markets significantly outperformed their core markets
Average growth rate was more than twice that of their core markets in 1Q25
North America
Saw low-single digits Nights and Experiences Booked growth in 1Q25 compared to 1Q24. ADR in North America increased +2% in Q1 2025Growth in short-term stays and entire homes continued to outpace long-term stays (trips of 28 days or more)
They saw softness in travel from Canada to the U.S. during the end of 1Q25, Canadian guests continued to travel on Airbnb. For instance, nights booked by Canadian guests to destinations in Mexico increased +27% y/y in March. Additionally, global y/y nights booked from Canadian guests in March was higher than in 4Q24.
EMEA
Mid-single digits Nights and Experiences Booked growth y/y
ADR in EMEA increased +2% y/y
Latin America
Low-20s Nights and Experiences Booked growth y/yADR in Latin America declined -7% (+2% FXN)
Brazil fastest growing market in the world
Brazil origin nights booked grew + 27% y/y–an acceleration from 4Q24. First-time booker growth also picked up sequentially, reaching over 30%.
Introduced a local payment method last year, Pix, which led to an uplift in bookings and first-time bookers. As they continue to expand globally, product localization will remain a key priority for each country.
Asia Pacific
Mid-teens Nights and Experiences Booked growth y/y
ADR in Asia Pacific declined 1% y/y
Late last year, in order to raise awareness of Airbnb to Japanese travelers, launched a brand campaign centered on domestic travel.
Early but encouraged by the results so far. Saw both first-time bookers and domestic nights booked in Japan increase double digits with domestic nights growing over +20% y/y
Product Expansion
One expansion is hotels. “One of the things you saw was we just did a promotional HotelTonight, so now if you booked a hotel in HotelTonight, we're offering 10% credit towards an Airbnb booking.”
“To expand beyond homes, we needed an app that could support entirely new offerings. So we spent the past few years rebuilding the Airbnb app on a new technology stack. With this new platform, we can innovate faster and introduce a range of new businesses in the years ahead.”
Business Commentary.
Airbnb’s is continuing to grow the home sharing market with their internation growth running at almost twice the clip of their 5 core markets (U.S., Canada, Australia, U.K., and France). These 5 core markets make up about 70% of their business and simply expanding the level of penetration they have there to more markets could help boost growth above double digits for many years to come.
They note that they are getting good traction in Brazil, Germany, Italy, and Spain currently, and have ambitions to penetrate further the big 4 countries in Asia: China, India, Korea, and Japan. In addition to international growth, they are focused on improving conversion through making the site easier to use and making an Airbnb experience more consistent.
Brian Chesky loves to note that there are 9 hotel stays for every Airbnb stay and they only need to get one more of those nights to double in size. Key to getting there though is offering improved consistency. They have started to address this with “guest favorites”, which have higher customer satisfaction and fewer surprises.
If you recall, in 2019 they acquired HotelTonight, which gave them access to a lot of boutique hotel supply. This was helpful in particular in NYC when shorter stay Airbnb’s were banned, allowing them to at least show users some listings. HotelTonight has sat on the backburner as they focused on improving their core experience, but for the first time in years, they shed some more light on how they plan to use this asset.
This isn’t just expanding Airbnb’s offerings to include hotels, but is a step to partnering with more traditional travel partners. Many years ago they teased the idea of getting into flights and a connected trip, but have long since abandoned that effort. Instead, they want to focus on creating experiences that are unique and that they are well positioned to handle. One use of AI they have teased is leaning on it to help become more of a travel assistant that can help book an entire trip. This though is likely a smaller initiative compared to the new businesses they are planning on launching on May 13th.
While they haven’t said much about it yet, they have noted a full relaunch of “Experiences”, which are activities that locals host like a pasta making class in Italy or a surfing class in Laugna beach. We republish below a section on this from our 4Q24 business update below, where we covered this in-depth.
Call options on the new businesses aside, Airbnb is executing on their core and continues to roll out new user experiences. They are very good at taking customer feedback and reiterating their products, which overtime doesn’t just result in a markedly better consumer experience, but also improves conversion.
We will say a bit about valuation after the SuperApp section below.
(Section below originally published in our 4Q24 business update)
BlueSky Option: SuperApp.
Before you dismiss a SuperApp as fanciful, you should know that Wang Xing, Founder of Meituan built a very large hotel booking business in China by coupling it with a food delivery business. 80% of Meituan’s users who booked a hotel used another one of their services first. With success in the food delivery and hotel booking business, Meituan continued to add a slew of different services like beauty, home renovation, bike-share, pharmacy, and many other local services. While not everything was successful, they definitely proved that once you have a user on your app, it is much easier to acquire them for another service.
This also isn’t a tactic exclusive to a handful of “SuperApps”. As we wrote in this memo on SuperApps:
Ben Thompson’s Aggregation Theory points out that in a zero-distribution cost, internet-enabled world competitive dynamics shift as physical barriers that previously contained competition are removed. This results in an increased focus on customer acquisition and retention since distribution is no longer a differentiator.
A classic means of increasing retention is to get a user to use your product more often. This is commonly done by growing offerings. Convenience stores are commonly paired with gas stations to increase frequency of visits. Markets traditionally may have sold primarily just groceries, but “Supermarkets” have not just a butcher and bakery too, but also may have a flower shop, pharmacy, bank, and coffee shop, in addition to selling a ton of household items. This is all to drive more traffic and build consumer habit, but there is also the ancillary benefit that the more offerings you carry, the greater your ability to monetize.
A supermarket groups together various offerings in hopes that each offering help feeds traffic into other offerings, while simultaneously allowing them to monetize better. The more offerings an individual consumer utilizes, the less likely they are to go elsewhere and the more valuable they become.
A SuperApp is no different.
A “SuperApp” is just an app that has an essential, high-frequency service that allows them to use that point of customer contact as a low-cost funnel for future customer acquisition of new products. The trouble most have with a SuperApp is building a strong enough foundation where it is a service that isn’t replaced and is used in high enough frequency that the app can cross-sell. It makes sense that Tencent’s WeChat—initially a messaging service—holds the title as the best SuperApp. In this context, it is also clear why Airbnb has been trying to improve in-app usage and not just in-app bookings (which increased from 55 to 60% most recently).
In-app usage is important because it grows the users relationship with the app and keeps them top of mind, which is important to cross-sell services. This is why Chesky was alluding to helping users do more in-app once the trip was booked. Brian Chesky basically realized that once you build a marketplace for something, you can sell anything. However, Airbnb needs to increase the user reliance on the app for more opportunities to cross-sell so new service don’t just stay dormant and unused.
He's laid out his vision clearer than ever before in this excerpt from the (4Q24) earnings call:
I think we're now ready for this next platform, next chapter to expand beyond our core where Airbnb is just a place to stay. And to do that, here's a couple of philosophies, couple of principles we have with our philosophy I'll share, and I'll also tell you a little bit about the friction.
Number one, I think, we can do this quite efficiently, because we are not going to launch separate apps or separate brands. We're going to have one app, one brand, the Airbnb app. And we want the Airbnb app kind of similar to Amazon to be one place to go for all of your traveling and living needs. A place to stay is just really, frankly, a very small part of the overall equation. Every new business we launch, we'd like to be strong, and I think it's standalone, but it makes the core business stronger. I think that each business could take three to five years to scale. A great business could get to $1 billion of revenue. It doesn't mean all of them will. And you should be able to expect like one or a couple of businesses to launch every single year for the next five years.
We're going to start initially with things very closely adjacent to travel. So when people book an Airbnb, there's a lot of like experiences and services and other things that would make their stay more special, and it would even include things they wouldn't think to search for. And from there, we're just going to keep expanding, and we're going to expand out to more host services to enable them to become better host, and then eventually, we'll move further and further away from our core. I think like, maybe the analogy of Amazon is a really good one, which is to say, they started with books. The nearest adjacency to books was DVDs and CDs back when people bought physical media. And then they went to like, I don't know, maybe toys and other things and eventually, they end up with fashion and pretty soon, they were doing things pretty far adjacent from media and books
So we're going to probably follow that path. So we're going to really, really start adjacent to travel. And part of the reason why is, a traveler booking a home, what else would they want to book. And the other great thing is that, we offer these other experience and services that could potentially bring in new guests that then book more homes in Airbnb. And I think one of the ultimate goals is, Airbnb is used by, like, I think, 1.6 billion devices a year. So it's got pretty big volume of users, but we're not a very frequently used app. People typically use us once or twice a year. And I would love Airbnb one day for people to use us once or twice a week. And so that's kind of one of the goals over the long term.
As we mentioned in our research report, it is likely they start with tangential services like a cleaning/ housekeeping marketplace so Airbnb hosts can offer housekeeping services and compete more against hotels. Co-hosting–where a host who doesn’t own a property and is connected to someone who has a property, but doesn’t want to host–is sort of small step in this direction. Over time though, really any service can be added to the app. It is more a matter of user receptivity to using Airbnb for all of these services and their ability to build network density for new offerings.
The big thing is creating verified users with preloaded payment information to reduce friction, which they already have for many users. (And is also why they have pushed people to upload photos and fill out more info–it could be useful for other services down the line). The push into Experiences, which is a unique offerings, could further help bolster the number of user profiles, while also getting people more used to using the app for a variety of different things. At the extreme, Experiences could be used by people to book services while they are in the city they live in—not just for tourist. This would greatly expand usage and eventually could bleed into Yelp territory (which has been an incredibly under monetized asset and missed business opportunity).
While this all may be fun to think about, it is all very, very hard to execute on. Some of the more tangential opportunities like cleaners seem to be very reasonable, but as they get farther out of their core, getting a successful 2-sided network for each of these business is much harder.
Read our Memo on SuperApps here.
Valuation.
Airbnb’s stock is currently trading...
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