Motley Fool Hidden Gems Investing - Airbnb Goes Beyond Stays

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Starting point is 00:00:27 Because we have your number. And what that tells you a little bit about travel is that travel is obviously a high ticket, discretionary, and highly considered purchase. And what we've seen both in this most recent period, but also historically, is that consumers often hesitate in terms of making that purchase on a particular day. But fundamentally, people do want to travel, and in most cases, they do come back and book with us. I'm Ricky Mulvey and that's Ellie Mertz, Chief Financial Officer of Airbnb.

Starting point is 00:01:04 Mertz joined Motley Fool co-founder and CEO Tom Gardner and Chief Investment Officer Andy Cross for a conversation about where Airbnb is going next, the state of travel in 2025, and Mertz's message to the investors who have hung on to Airbnb stock since the IPO maybe haven't seen the long-term return that they expected. Maybe we'll just hear in your words how you would describe what Airbnb is today and what it is becoming with the new announcements a few weeks ago and all of the innovation that the company has been focused on. Who is Airbnb today, as we know it and as you know it, and where do you think it is moving to in years ahead?

Starting point is 00:01:54 So, you know, what you think about Airbnb today is about stays. We've obviously spent more than the last decade scaling our homes business. We've really transformed the way people book travel. So if you think about, you know, where travel has been with the invention of Airbnb, you're able to book a home as easily as you book a hotel. And through doing so, we've opened up millions of entrepreneurial opportunities around the world for hosts who can open their homes to guests. We've been incredibly scaling that product, not only globally, but in terms of scale. Last year, we did over $80 billion of gross booking value. However, that has been on one offering, so our core stays business. And over the last

Starting point is 00:02:36 few weeks with our 2025 summer release, we've expanded beyond stays. Just three weeks ago, we launched three new things. First, Airbnb services. These are incredible services that allow you to bring various service providers in and around the home to make your stays even more special. We also launched a reimagined Airbnb experiences offering. These are unforgettable experiences that are hosted by locals who know their cities best. And then finally, we launched a completely redesigned app that allows you to book not just homes, but also services and experiences all in one place. And really, it allows you to have an app that travels with you throughout both the trip planning as well as the actual trip. By the way, thank you so much for

Starting point is 00:03:21 joining us. It's great to hear directly from CFOs because we have so many retail investors who follow your company. And we've obviously invested into it as long-term investors as well. But I do want to just get a sense, it's too early to have the experiences from services and, sorry, results from services and experiences. But just talk about the first few months of the year. It's been obviously a very dynamic year, and we've listened to the call, but I just want to hear, in your words, how is the year unfolding so far? It has indeed been a very dynamic year, obviously, given all of the macro headlines, the new administration, and then, more recently, a lot of noise around tariffs. What we have shared is that, obviously, those macroeconomic headlines

Starting point is 00:04:02 impact the consumer, and it's something that we track quite closely in terms of understanding the strength of overall travel demand. So let me share a little bit about what we've seen from travelers since the beginning of the year. In particular, what we saw in Q1 is that there was some volatility in terms of the timing of guest demand. In particular, what we saw was that from January to February, with the decline in consumer sentiment, we did see a decline in bookings. But what we saw by the end of Q1 is that people had come back and booked. And what that tells you a little bit about travel is that travel is obviously a high-ticket, discretionary, and highly considered purchase. And what we've seen, you know, both in this most recent period,

Starting point is 00:04:47 but also historically, is that consumers often hesitate in terms of making that purchase on a particular day. But fundamentally, people do want to travel. And in most cases, they do come back and book with us. And, you know, as a result, our Q1 results were effectively right in line with what we would have anticipated despite some intra-quarter volatility. I would say the same in terms of what we shared quarter to date for Q2 as of our May earnings call. You know, people were traveling in very strong numbers for Easter. And what we shared in terms of just a little bit of macro softness was what we were seeing in particular in the U.S. Two things to call out. First is that, you know, year to date, we and others in travel have seen that the U.S. as a destination is less popular than it has been in the past for foreign travelers.

Starting point is 00:05:40 But two interesting things to note about that. One is that despite the noise of the tariffs and its impact on the inbound corridor, that inbound corridor to the U.S. is a relatively small portion of our overall platform. It's about two to three percent of global nights booked. The other thing to note is that travel on Airbnb is very adaptable. So what we've seen in particular for that corridor is that, for example, Canadians have been traveling less to the United States, but it doesn't mean that they're traveling any less. In fact, they're traveling more domestically and they're simply choosing other destinations

Starting point is 00:06:17 to travel on our platform, which I think gives you a sense of the importance of the breadth and diversity of offerings on Airbnb that we're able to adapt to changes in consumer behavior. For good and bad, do you have an Airbnb tribe of guests that you know pretty well and maybe there aren't as many, the downside would be there aren't many expansions off of that. At the most extreme, maybe not the most extreme, but I was studying the other day a company that I've never recommended, regrettably, because Ferrari has been a great stock. I wasn't aware the extent to which people who own Ferraris own Ferraris, plural. They go back and buy another Ferrari and a third Ferrari. I mean, I think 80% of buyers already have one Ferrari. So is that

Starting point is 00:07:02 kind of your view right now where Airbnb is today, that the guest population is well known by you all? And it's pretty consistent. The great thing is multiple trips across that tribe, but not a lot of expansion of new users of Airbnb at this point? So I would say when we think about our growth opportunities, they sit in both categories of guests. One is how do we encourage our past guests to book more frequently with us? And then second, how do we attract new users to try the service? And I would say when we look at both opportunities, the opportunity set is large in both. What we see in terms of past guests is that we have many millions of loyal customers. What we also see is that, you know, those customers don't necessarily use us exclusively. And what we've

Starting point is 00:07:50 been doing over the last few years is really looking into what are those gaps where a past guest might not use us for a future trip and really trying to close those gaps. So one example of that is all of our efforts to improve the quality of the platform and in doing so drive incremental, both satisfaction, but also booking confidence. We've done this in terms of taking down listings that don't meet our quality bar as well as introducing merchandising elements like guest favorites that allow guests to have a better clear view of what are those listings on their our platform that they're nearly guaranteed to have a fantastic experience at so that's on the past guest site but it also has applicability in terms of new guests when we think about the opportunity

Starting point is 00:08:36 set on new guests we know a couple of things i would say one is that the majority of um guests or travelers in our core markets are aware of airbnb but not all of them yet consider airbnb to be a brand for them and so many of our efforts are really at you know picking apart those consideration gaps to encourage more people to try the service and one of those things that's relevant for our most recent 2025 summer release is services what we know about travelers is that approximately 70 percent of travelers look at services available to determine what accommodations they will book and so with the advent of airbnb services we begin to fill that gap vis-a-vis hotels and attract an incremental segment of new users to the platform ellie just maybe give an

Starting point is 00:09:26 example of some services just for just to make sure we all understand where just giving us give an example of some typical services and same same with the experiences because this is a big i mean it's a 200 to 250 million dollar investment you're making into these offerings yes so on the services side we launched with things like photography uh massages personal trainers home chefs makeup services those things that you know sometimes you would see at a at a hotel but have previously been unable to book azure airbnb and with the launch of that marketplace you can now book those services alongside your listing. In terms of experiences, this is both classic sightseeing experiences, but also more differentiated, what we call Airbnb originals, where we are going out and finding the

Starting point is 00:10:13 most interesting people in each market that can allow travelers to get a better local experience in those markets. This includes food and drink activities. This includes landmarks, fitness, a variety of things that you do in market while traveling. New from Nespresso, blend wellness into your coffee routine with the Coffee Plus range, infused with functional benefits. Choose the coffee you love with added B vitamins, like Coffee Plus B12 to help support immune function and Coffee Plus B6 to keep your day moving. Or go with the flow and choose Ginseng Delight, our new double espresso with ginseng Extract. Whatever lies ahead, don't change your morning. Let your morning change you.

Starting point is 00:10:59 Discover Coffee Plus on Nespresso.com. Let us go with maybe an age-old cliche business exercise from business school, looking at Horizon 1, Horizon 2, and Horizon 3, where Horizon 1 is what we're doing today. Horizon 2 is what we are releasing and talking to the market about. And Horizon 3 are our big dreams out in the future. Do you think that Airbnb as CFO is properly allocating across those three horizons? And if you were to be advocating in an executive team meeting for a shift on any of those, would you be focused on optimizing the work right now, making good investments in the next stage of the company, or planting more seeds in the wildcard future out five-plus years?

Starting point is 00:11:51 Yeah. So the growth strategy that we've laid out for investors over the last year plus really takes that framework into a mind, thinking about what are the various horizons in front of us and how and when will they deliver incremental growth to the business? So let me just take a moment to articulate what we put in each of those buckets. In the first bucket, the kind of near-term horizon is what we call our perfecting the core optimizations. And this is really just looking at our core business and identifying where there are opportunities for us to, frankly, do more, make the product work more effectively for our guests and hosts, and in doing so, drive long-term, or excuse me, near-term growth. The particular areas that we have focused on

Starting point is 00:12:35 are things like affordability, usability, quality, and reliability, because we know that they have direct impact in terms of people who are booking the core offering today. In terms of the kind of near to medium-term horizon, we look at the opportunity that we have to expand our core business in global markets. The interesting thing about our business composition is that historically, it has been, on the one hand, very broad-based. So, Airbnbs exist across 220 countries and regions in the world, yet we're highly concentrated in our five top markets. So, those would be U.S., Canada, U.K., Australia, and France. And yet, we have a huge opportunity past those top five markets to drive incremental growth. And so,

Starting point is 00:13:19 you've seen us invest in these expansion markets over the last several years and have some particular success in key markets like Brazil and the rest of Latin America. I put those in the kind of short to medium term bucket because they will take time. And, you know, the time required is to scale these currently relatively small markets to become a larger portion of our global total. And in doing so be, you know, meaningful medium term growth tailwinds to the consolidated business. And then the third bucket is really all those incubation ideas. We just launched, you know, Airbnb services and experiences that fall into that bucket, you know, just in the last month. But what you should assume is that those are just the first two of many ideas in terms of

Starting point is 00:14:05 how we continue to expand the marketplace to provide more products and services for both our guests and hosts. Ellie, can you give us a little peek behind the curtain to some of the, not what you're working on, but just how did the services and experiences- You know, some future-looking statements as well. No, no, no, definitely not. Definitely not. I'm just very curious, how do ideas germinate how do they spread how do they go from a all the way to z to where you're releasing them in one of your big releases and maybe even just specifically with services and experiences how long did it take and anything you can give us some ideas of how ideas flow through the organization yes so you know if you if you followed our story we have been uh talking

Starting point is 00:14:46 about a vision of expanding beyond the core for some time um that vision uh certainly had a bit of a pause in 2020 with with the onset of the pandemic and um you know the work we had to do that year and the years following in terms of recovering from the pandemic but it really has always been part of the vision and in particular brian's vision in terms of how we move beyond what is a you know fantastic scale global core business to you know not just a single product offering but but a multi-product platform and what we've done in the last few years is done a lot of the infrastructure work with our tech stack to enable the beginnings of that multi-product platform, which you saw really the launch of in the last few weeks. I'm wondering now,

Starting point is 00:15:33 the company has been public about five years. The stock is pretty much where it was at the point of IPO. I don't know how much or how little you know about The Motley Fool, but our orientation and our guidance to our members is to invest for a minimum of five years. It's too easy to trade, get lost in the short-term data. There is no great executive of any public company in the 31 years that we've been in business that I've spoken to that places an intense focus on the next 90 days as a determining, you know, set of inputs as to whether or not that's going to be a good investment. So, we're very long-term in our business orientation. But we're five years in now. I'm a long-term believer in Airbnb. I'm wondering whether you think that the company was just very richly

Starting point is 00:16:17 priced at the IPO, whether there's just the natural process of going through business or whether the markets are not appreciating Airbnb as much as you'd like. I'm sure you would like to have seen the stock up over the period, over these five years. But any reflection for shareholders on time horizon and your thought process on where the business and investment is today? I think where we look where we are today, we have spent the last several years making upgrades to the core business and, in fact, upgrades to the infrastructure that will allow us to grow meaningfully in the coming years. So, I would say, you know, where we are today, there has been significant investment in terms of the platform. And it's just been recently where

Starting point is 00:17:02 we've brought, you know, the benefits of that platform in the form of new products and services to the marketplace from which we can deliver incremental growth. So, we are very mindful of, the desire and ambition to grow more quickly than where we are today. And that is what our growth levers are intended to deliver in the coming years. So, if somebody at a barbecue says to you, Ellie, I bought your stock at $160 two or three years ago. I'm trying to figure out what to do with this. And you obviously are not going to be giving the personal advice on it. One of Warren Buffett's many great lines is, you get the investors that you deserve. So, if you're going to play the short-term speculative and turn your whole operating business into levering

Starting point is 00:17:43 up and buying a cryptocurrency and counting on that to be how your valuation rises, or you're going to operate your business, how would you guide people to think in terms of the investors that Airbnb seeks to have? I would ask investors to really track the delivery against our three growth initiatives and the respective horizons. We've started to see really nice performance in terms of some of the core optimizations, but they are accumulating over time. We've also seen really nice deliverance of incremental growth from our expansion markets, but it will take time for those to scale to be an incremental or a more meaningful portion of our overall business to drive an incremental or larger contribution

Starting point is 00:18:29 to growth. Then finally, in terms of the expansion to new products and services with the launch in the last few weeks, it's really just the early days. We have tried to set very clear expectations that the opportunity set and the opportunity in terms of the contribution to growth of those businesses will be large, but it will take us some time in order to scale them. As always, people on the program may have interests in the stocks they talk about in The Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers, advertisements,

Starting point is 00:19:07 or sponsored content provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. I'm Ricky Mulvey. Thanks for listening. We'll be back on Monday. Thank you.

Motley Fool Hidden Gems Investing - Airbnb Goes Beyond Stays

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