Airbnb’s earnings surge following ‘incredibly effective’ shift in marketing spend

Airbnb has reported its most profitable fourth quarter ever, two years after slashing its overall marketing investment but shifting spend from performance channels into brand building.

Adjusted EBITDA reached $506m (£417m) in the final three months of the financial year, up from $333m (£274m) a year prior. The profit boost came amid a 24% rise in revenues to $1.9bn (£1.6bn) over the period, Airbnb’s highest fourth quarter revenues to date.

For the full year, adjusted EBITDA hit $2.9bn (£2.4bn), up from $1.6bn (£1.3bn) in 2021, as revenues surged 40% to $8.4bn (£6.9bn). The business also reported its first full year profit, with a 23% net margin and net income of $1.9bn (£1.6bn).

As revenues have increased, so too has Airbnb’s sales and marketing spend. Over the year spend rose by 27.8% to $1.5bn (£1.25bn), including a 19.7% jump in Q4 spend to $490m (£337m). The vast majority of marketing spend remains focused on brand-building.

The travel accommodation business first announced it would be making a permanent cut to its overall marketing investment in February 2021, having noted that slashing spend during Covid had little impact on traffic. The cut meant shifting investment away from performance marketing and SEO into brand and PR.

CEO Brian Chesky said Airbnb now looks at the role of marketing as one of “education”, not “to buy customers”. The business launched its first large-scale brand marketing campaign in five years in early 2021, ‘Made Possible by Hosts’.

We’re getting more efficient and effective at the timing, and we think bringing forward a little bit more marketing into Q1 is a more effective use of our dollars.

Dave Stephenson, Airbnb

However, PR is Airbnb’s “most important” channel, Chesky has said. Indeed, some 600,000 articles were written about the business in 2022 and nearly 90% of the platform’s traffic remains direct, he confirmed on a call with investors last night (14 February).

CFO Dave Stephenson added that the “strategic change” in marketing spend has proven to be “incredibly effective” from 2020 through to 2022.

“The majority of our bookings come from past guests, and it’s actually been the strong guest retention that we’ve had for years since the beginning of Airbnb that’s been a powerful driver of our growth,” Stephenson explained.

“But I think what’s also interesting is that we’ve introduced Airbnb to millions of new users since Covid, and the performance of those new users, the booking frequency of those new users from ’21 and that we saw into ’22, has been very strong. And so we’re really pleased with the new users that we’ve been able to attract that look very, very similar to the historic type of users that we’ve had on Airbnb.”

The number of nights and experiences booked increased 20% in the fourth quarter to 88.2 million, and 31% over 2022 to 393.7 million.

Looking ahead, Airbnb has identified three strategic priorities for 2023: making hosting mainstream, perfecting the core service, and building the foundation for future products and services.

According to Chesky, this will mean marketing investment to drive awareness and educate travellers about Airbnb’s new services and offerings, such as Airbnb Categories.Marketers almost twice as likely to focus purely on brand over performance

The business expects to maintain its adjusted EBITDA margin in 2023, bar a slight decrease in the first quarter as the brand pulls marketing spend forward. Sales and marketing will be approximately 150 basis points higher as a percentage of revenue in the first quarter, but flat for the full year.

“We’re getting [out] even earlier in the year to make sure that we’re getting our message out to guests all around the world so they’re ready to make their bookings for [the] peak summer travel season,” Stephenson explained.

“We’re getting more efficient and effective at the timing, and we think bringing forward a little bit more marketing into Q1 is a more effective use of our dollars.”