Airbnb: Is it truly climbing out of the trough, or is it just a 'last-ditch effort'?

Leading alternative accommodation provider Airbnb$Airbnb(ABNB.US), announced its Q3 FY2025 financial results after the U.S. stock market closed on November 7. Overall, despite the monetization rate falling short of expectations, resulting in mixed financial metrics and continued margin contraction issues, the more crucial operational indicators showed accelerated growth quarter-on-quarter. The guidance for next quarter's GBV growth also exceeded expectations, suggesting a potential rebound in business growth. Specifically:

1. Business Growth Rebound: Total booking value (GBV) increased by 14% year-on-year, accelerating significantly by over 3 percentage points compared to the previous quarter, clearly outperforming market expectations. Even after excluding the favorable impact of exchange rates, the quarter-on-quarter acceleration remained at 3 percentage points.

Although the average order value contributed more to the GBV growth, this quarter it increased significantly by nearly 5% year-on-year, benefiting from favorable exchange rates and a shift in order structure towards higher-value products (a trend already indicated by pre-performance research).

More importantly, the volume—total nights booked this quarter grew by 8.8% year-on-year, accelerating by 1.7 percentage points compared to the previous quarter, also exceeding market expectations. Although the extent of the outperformance is not large, considering the signals from high-frequency data sources like AirDNA before the performance were not optimistic, it can still be considered an important directional turning point.

2. North America Not as Bad as Expected: Regionally, the main contributor to the unexpected order volume growth this quarter was the company's largest market—North America performed better than feared (the market was not optimistic about the company or the entire OTA, mainly due to concerns about the U.S. hospitality market). This quarter, the growth rate of nights booked improved from low single digits last quarter to mid-single digits.

Meanwhile, the average order value increased across all regional markets operated by the company. Excluding exchange rate effects, there was a general year-on-year increase of 2%~5%, with the largest increase in the North American market.

3. Monetization Decline, Financial Metrics Not Outstanding: Mainly due to this quarter's monetization rate declining by 68 basis points year-on-year, marking the largest drop in recent years. As a result, Airbnb's revenue grew by 9.7% year-on-year this quarter, underperforming GBV growth, only roughly meeting expectations.

According to the company, the decline in monetization rate this quarter was mainly due to changes in the interval between user subscription and check-in, affecting the calculated monetization rate. Additionally, product structure factors may also have an impact.

Similarly affected was this quarter's gross margin, which narrowed by about 0.9 percentage points compared to last year, leading to gross profit growing by 8.5% year-on-year, slowing more than the growth in booking value and revenue, turning from outperforming to underperforming expectations.

4. Expenses Not as High: However, expenses did not increase as significantly as the company guided. Total operating expenses grew by 10.3% year-on-year this quarter, slowing compared to last quarter and below the market expectation of 13.3%. The situation excluding SBC is consistent.

Although profit margin (adj.EBITDA) indeed declined by about 2.4 percentage points, it was slightly better than market expectations. Profit grew by about 4.8% year-on-year, not as bad as feared.

Among them, marketing expenses increased by 24% year-on-year (excluding SBC) and the growth rate continued to rise, reflecting the company's significant efforts in customer acquisition and new business promotion. However, partially offset by negative growth in operational support and management expenses, the company implemented "internal adjustments" to control total expense growth.

Dolphin Research View:

Overall, although dragged down by the monetization rate, the company's performance in revenue, gross profit, and adjusted profit metrics this quarter was not outstanding, fluctuating between slightly better than expected and underperforming expectations, with profit margins indeed continuing to narrow year-on-year.

However, financial metrics more reflect previous business performance (such as last quarter's bookings) and are lagging indicators. In contrast, the real-time and more critical operational indicators, benefiting from improvements in the North American market, show a trend of improvement in nights booked, average order value, and final booking value growth.

Combined with the company's guidance for the next quarter, the company guides revenue midpoint at $2.69 billion, roughly in line with the market, implying a year-on-year revenue growth rate of 8.5%, slightly slower than this quarter. More importantly, in terms of operational indicators, the company expects GBV growth to remain above 10%, significantly outperforming the market expectation of 6.8%, indicating the momentum of growth improvement can be maintained.

While nights booked growth will slow from nearly 9% this quarter to mid-single digits due to last year's high base, it also meets market expectations. This means that strong growth in average order value will continue to be the main driver of GBV growth next quarter.

Thus, whether from this quarter or the guidance for the next quarter, Airbnb's business growth is stronger than expected. This alleviates one of the market's biggest concerns, the worry of sustained low growth and the possibility of further slowdown.

In terms of profit, due to the company's guidance again for "investment in new business development," next quarter's adj.EBITDA will decline year-on-year, worse than this quarter. However, the market originally expected this, and based on this quarter, it cannot be ruled out that the company deliberately lowered expectations.

Regarding the company's logic judgment, from a long-term perspective, Airbnb originally stood out in the OTA market and enjoyed a valuation premium for a long time mainly because:

1) Unlike other OTAs that generally operate in a B2C model, Airbnb is the only platform with a C2C model, thus having more "exclusive supply" and higher bargaining power within the C2C model;

2) The "alternative accommodation" sector where the company operates is a higher growth segment within the hospitality industry. The company was once a "oligopoly" player in this segment.

Currently, the advantage of point 1 above has not significantly weakened, but regarding point 2, on one hand, the growth advantage of the "alternative accommodation" segment itself is no longer as apparent, and the gap between Bookings and Expedia's alternative accommodation supply and Airbnb is narrowing.

According to disclosures, Booking's booking value in alternative accommodation is already equivalent to at least 70% of Airbnb's. The company's growth is no longer significantly ahead of competitors. This is the underlying reason why the company's recent market revenue and order value growth can no longer outperform competitors.

From a short to medium-term perspective, the company faces the problem of sustained low growth mentioned earlier, and the expansion of expenses due to business development leading to profit decline. The worst-case scenario where neither growth nor profit is favorable. Although this performance did not fundamentally eliminate concerns about profit (margin) decline, it at least alleviated growth issues. Therefore, given the company's stock price trend is sluggish and market expectations are low, the market response is still mainly positive.

On the business level, recent company dynamics include:

1) The "experience" business, intended as a second growth curve, continues to grow slowly. According to statistics, the "experience" supply in major global cities like New York and London is still only in the hundreds, and has only grown 1~2 times since its launch in May. It is difficult to contribute significant incremental growth.

2) To stimulate core traditional business and new business development, the company's expenses are in a trend of re-expansion. Meanwhile, management has stated that they will not focus on improving monetization in the near term, and the trend of profit margins is still not favorable.

3) In addition to competitors moving closer to Airbnb, the company has recently started increasing traditional hotel supply in major cities like New York. However, the company states this is limited to a few major cities with excess demand and does not intend to fully introduce traditional hotels and weaken the company's uniqueness. If this is the case, it will not bring significant incremental growth through the hotel business.

Therefore, the improvement signals revealed this quarter are more likely due to overall macro market improvement rather than the company's own improvement. Dolphin Research is more inclined towards the former.

From a valuation perspective, given the current outlook, the company's future profit growth is relatively limited, the company's market value before performance corresponds to net profit for 2026/27, equivalent to 26x and 24x PE respectively. Corresponding to a profit growth expectation of around 15%, Dolphin Research believes this valuation reflects a certain premium for Airbnb as a vertical leader, generally neutral to slightly high.

Therefore, overall, Dolphin Research believes this performance more alleviates medium-term concerns but is not enough to return to a long-term bullish logic. Dolphin Research believes either the valuation needs to be more attractive, or the company's business and profit growth can again outperform competitors. At least one of these two is a clearer signal.

Detailed Commentary:

I. Average Order Value Rise Contributes Most, Night Growth Also Reverses Decline,

This quarter, Airbnb's platform total booking value (GBV) increased by 14% year-on-year, accelerating significantly by over 3 percentage points compared to the previous quarter, clearly outperforming market expectations. Although there is a favorable impact from exchange rates, even excluding this effect, the quarter-on-quarter acceleration remains unchanged. The key significance of this signal is that one of the biggest doubts about Airbnb in the market is the sustained low growth of booking value, and this quarter finally released a signal of stabilization.

In terms of driving factors, more importantly, the volume—total nights booked this quarter grew by 8.8% year-on-year, accelerating by 1.7 percentage points compared to the previous quarter, also exceeding market expectations. Before performance, high-frequency data sources like AirDNA did not give optimistic signals, expecting this quarter's growth to be between meeting and slightly below expectations, so the actual performance of night growth, although the extent of outperformance is not very large, is still an important directional turning point.

Meanwhile, the average order value contributed more to the GBV growth, this quarter average order value reached $171 per night, increasing significantly by nearly 5% year-on-year, according to the company's explanation mainly due to favorable exchange rates and a shift in order structure towards higher-value products.

According to the company's disclosed regional performance, the North American region's night booking volume year-on-year growth improved from low single digits last quarter to mid-single digits this quarter, the improvement in night growth this quarter is mainly attributed to the largest market—North America's performance not being as weak as expected.

Additionally, the emerging Latin American market's night volume growth this quarter also accelerated from last quarter's high-teens (around 16%~19%) to over 20% this quarter, performing well.

Across all regional markets operated by the company, this quarter's average order value, excluding exchange rate effects, generally increased by 2%~5% year-on-year, with the largest increase in the North American market.

II. Monetization Rate Decline, Revenue and Gross Profit Not Outstanding

However, despite the good performance of operational indicators, the company's financial metrics this quarter were mixed. The main reason is this quarter's monetization rate declined by 68 basis points year-on-year, marking the largest drop in recent years.

As a result, Airbnb's revenue grew by 9.7% year-on-year this quarter, underperforming GBV growth, and only roughly meeting expectations.

According to the company, the decline in monetization rate this quarter was mainly due to changes in the interval between user subscription and check-in (since revenue actually corresponds to earlier bookings, while the calculated monetization rate is derived from this quarter's revenue divided by this quarter's bookings, the interval between booking and check-in does indeed affect the monetization rate). However, such a large change, Dolphin Research believes, may also be influenced by more long-term factors such as product structure.

Similarly, due to the decline in monetization rate in financial metrics, this quarter's gross margin also narrowed by about 0.9 percentage points compared to last year, leading to gross profit growing by 8.5% year-on-year, slowing more than the growth in booking value and revenue, turning from outperforming to underperforming expectations.

III. Expenses Not as High as Expected, Profit Decline Not as Bad

Another issue the market is most concerned about with Airbnb is the company's management repeatedly stating that there will be a significant increase in investment in new business, leading to continued margin contraction.

Although gross margin slightly underperformed expectations this quarter, expenses did not increase as significantly as the company guided. Total operating expenses grew by 10.3% year-on-year this quarter, slowing compared to last quarter and below the market expectation of 13.3%.

The situation excluding SBC is consistent. Therefore, although profit margin indeed declined, adj.EBITDA margin declined by about 2.4 percentage points but was slightly better than market expectations. Profit grew by about 4.8% year-on-year, not as bad as feared.

Specifically, marketing expenses increased by 24% year-on-year (excluding SBC) and the growth rate continued to rise, reflecting the company's significant efforts in customer acquisition and new business promotion. However, partially offset by negative growth in operational support and management expenses, it is evident that the company adopted "expense adjustments" to avoid excessive growth in expenses.