Earnings Season Recap #25

This issue covers Constellation Software’s and Berkshire Hathaway’s Annual Shareholder Meetings, and Walt Disney’s and Airbnb’s recent earnings calls. Read our gathered quotes to stay up-to-date with the latest trends.

Price increases, churn, capital allocation framework, and the shareholders you want to have.

-> Average customer relationships and churn: It varies by customer type, the bigger and software type. And so obviously, the bigger customers are more stable and stay longer. When you're selling to real estate agents or individuals, you tend to get a lot shorter customer lifespan, but you also have more customers that you can get, but there's a larger churn in those. Typically, if you have a mission-critical back-office software and you treat your customers well, you'll have them forever. In fact, I started out with Volaris in the first acquisition. And I imagine that those -- some of those companies that were there that I had negotiated contracts with some 28, 30 years ago are likely still customers. – Dexter Salna, Director (00:18:48)

-> Price increases: It varies by business unit and by contracts. And sometimes, you'll have these very large customers that have contracts that limit the amount of increases. And also, it's the managers. Sometimes the managers are on the customer side and they don't want to give them an increase that equals or exceeds inflation, especially since we've gone through the last decade or more at kind of 2%, 2.5% inflation and to go and all of a sudden give your customer a 10% increase or 8% increase. I think it's just a human thing that they don't want to do it. I press a lot of my managers to at least keep up with inflation and try to limit also if they're not going asking the customer for more money, it's hard to justify to give your employees inflationary or extra inflationary increases. So I hope that answers the question. – Dexter Salna, Director (00:28:32)

-> Cash is king: I think in the short term, there's just a lot of noise on the revenue side. So again, I don't get too fussed by these monthly and quarterly variances. Now that we've broken the business into 11 separate businesses, we're getting actual forecasts and ownership of these forecasts coming up. I think we're creating what we believe will be our revenues going forward. So I think I'm waiting for those to come in, and I think that's what I'll be more focused on. And I think on the cash flow side, I think you're seeing what you're going to see with pretty much any Constellation acquisition, right? We're very disciplined buyers and operators of these businesses. And cash is king, and we're going to focus and make sure we understand where the cash is going and make sure that we're monitoring that from the get go. So I'd say we might have more flexibility because we own the business forever. Where the revenues are going, we pay very, very close attention to the cash flows of any business, particularly in this business. – Jeff Bender, Director (01:25:52)

-> Happy to use debentures: We're happy to use debentures. We view it as a very friendly financing. So if we can raise more at attractive prices and deploy the capital intelligently, we'll do so. – Mark Leonard, Founder & President (01:39:24)

-> Capital allocation framework: Obviously, one of our targets is to try and redeploy our free cash flow. So the first thing we start with is what our free cash flow is going to be in the year and how we can try and achieve that. The second is to hopefully make intelligent deployments of capital. So obviously, we're not perfect. We've made mistakes in the past, but the goal is to not make mistakes, make sure we learn from our previous mistakes and hopefully, every acquisition we do ends up being what we expect, if not better. But that's really what we target is we want to deploy at least our free cash flow, and we want to make sure we limit the number of mistakes we make. And that's the ongoing challenge that we think about at the start of each year, I think. – Barry Symons (01:53:06)

-> The shareholders you want to have: Long term and engaged shareholders are two different things. We would like to have engaged long-term shareholders. Index funds are of no particular interest to us as investors, although we understand why they are interested in us as an investment. So the problem is coming up with the program that works for the kind of shareholders that we'd like to target without mistreating of the shareholders. So it's a challenging problem. And the branch system where you can pay for loyalty in some way, shape or form is interesting, but I don't think the evidence is in yet that it is a better system. – Mark Leonard, Founder & President (02:09:47)

-> Leonard quotes Benjamin Graham regarding market behavior: I don't think that's a useful thing on which we can comment. Markets are voting machines in the short-term and weighing machines in the long term, and we've been in the market for a very long time. And presumably, the stock price is at its appropriate level according to the market. – Mark Leonard, Founder & President (02:15:16)

What gives investors opportunities, the balance between short-term profits versus long-term defensibility, the recent banking crisis, and plenty of advise on both investing and life from Buffett and Munger.

-> What gives you opportunities is other people doing dumb things: I would argue that there's going to be plenty of opportunities. And part of the reason there are going to be plenty of opportunities, the tech doesn't make any difference or any of that. I mean, if you look at how the world has changed in the years since 1942, when I started, you can say, "Well, how does a kid that doesn't know anything about airplanes, that doesn't know anything about engines and cars and doesn't know anything about electricity and all that?". New things coming on don't take away the opportunities. What gives you opportunities is other people doing dumb things. In the 58 years we've been running Berkshire, I would say there's been a great increase in the number of people doing dumb things. And they do big dumb things. And the reason they do it, to some extent, is because they can get money from other people so much easier than when we started. So you could start 10 or 15 dumb insurance companies in the last 10 years and you could become rich if you were adroit at it. – Warren Buffett, Chairman & CEO (01:16:06)

-> The balance between short-term profit versus long-term defensibility: Well, the answer is to control your destiny, which we've been able to do at Berkshire. So we feel no pressure from Wall Street. We don't have investor calls. We don't have to make promises. We get a chance to make our own mistakes and occasionally find something that works well. But we've recognized that the people in this room and people like them are the ones that we're working for. And we're not working for a bunch of people that care about whether we meet the quarter estimate or anything. So we have a freedom that we get to use. And we're interested in owning a wonderful business forever. Well, there aren't very many wonderful businesses. But we do learn a lot as we go along. Charlie and I have often mentioned how we learned so much when we bought See's Candy, which we did. But we learned when we bought Ben Rosner's chain of women's dress shops spread all over the eastern part of the country. We learned when we tried getting into the department store business back in 1966. – Warren Buffett, Chairman & CEO (02:22:31) 

-> Understanding consumer behavior can be enough: We're learning all the time how consumers behave. I'm not going to be able to learn the technical aspects of businesses. But that'd be nice if I knew it, but it isn't essential. And we've got a business at Apple, which is larger than our energy business. And we may only own 5.6% or 5.7%, but our ownership goes up every year. And I don't understand the phone at all, but I do understand consumer behavior. And I know how people think about whether to buy a second car. I know how they go out to different, we own auto dealerships. We're learning all the time from all of our businesses, how people react versus selling them something else. And so See's was a sort of breakthrough, but we just keep learning as to more about how people behave and how a good business can turn into a bad business and how some good businesses can maintain their competitive advantage over time. – Warren Buffett, Chairman & CEO (02:23:54)

-> “That's what we've been about, and that's what we'll continue to be about”: We don't have some formula to approach people. But we can also tell, in 10 seconds, whether it's something of interest. I mean when I get these calls and they want to send decks, which is nonsense, I mean, it's a bunch of guys sitting that get paid for drawing up the projections of the future and everything like that. We don't know the future, but we do know certain kinds of businesses. And we know what the right price is, and we know what we think we can project out in terms of consumer behavior and consumers and threats to a business. And that's what we've been about, and that's what we'll continue to be about. We don't get smarter over time. We get a little wiser, though, following it over time. And you can do it while sitting in the office with the telephone, too, which we like. Charlie? – Warren Buffett, Chairman & CEO (02:25:24)

-> The tension between the U.S. and China: Well, there's been some tension in the economic relationship between the United States and China. I think that tension has been wrongly created on both sides. I think we're equally guilty of being stupid. If there's one thing we should do, let's get along with China, and we should have a lot of free trade with China in our mutual interest. And I just can imagine. It's just so obvious. There's so much safety and so much creativity that's possible. Think what Apple has done by engaging in a partnership with China as a big supplier. It's been good for Apple and good for China. That's the kind of business we were doing with China and more of it. And everything that increases the tension between the 2 companies is stupid, stupid, stupid. And if we stopped at each side, and each side will respond to the other side's stupidity with reciprocal kindness, that's my view. – Charlie Munger, Executive Vice Chairman (02:40:27)

-> Ready to buy cheap banks if the opportunity presents itself: The situation in banking is very similar to what it's always been in banking, that fear is contagious, always. And historically, sometimes the fear was justified and sometimes it wasn't. [...] And we want to be there if the banking system temporarily even gets stalled in some way. It shouldn't. I don't think it will, but I think it could. And I think that the incentives in bank regulation are so messed up and so many people have an interest in having them messed up, it's totally crazy. I mean if Fannie Mae and Freddie Mac were doing 40 or so percent of the mortgage business in the United States. That is huge. It's just those 2 companies were regulated by some group, I forget what they're called, but they had 150 people that were in charge of just figuring out whether Fannie and Freddie were doing the right thing. But I could have done it and Charlie could have done it. And I'm not sure they needed an assistant even to do it. But the incentives were all wrong. And Freddie and Fannie, which were doing fine in August of, or apparently doing fine in July and August of 2008, were put into conservatorship early in September. And the things that followed from that was just incredible. So there are second order and third order and fourth order effects that are somewhat unpredictable as to what they will be and the sequence and all that, but things change. – Warren Buffett, Chairman & CEO (04:19:02)

-> Skin in the game and First Republic Bank: If you take First Republic, for example, you could look at their 10-K and you could see that they were offering nongovernment guaranteed mortgages in jumbo amounts at fixed rates, sometimes for 10 years before they change the floating. And that's a crazy proposition. If it's to the advantage of the bank, they got to -- they get the guy coming in and says, I'll finance at 1.5%, then 1%. And if it's managed the other way, who keeps up 10 years. You don't give options like that, but that's what First Republic was doing. It was in plain sight. And the world ignored it until it blew up. And some of the stock in some of these banks that were held by an insider was sold and who knows whether they had a plan or whether they -- some plan that was innocent or the that they started sensing what was coming, but you do know that the directors are not going to be able to read some book or anything like that, but they do. They do have the ability to hold the CEO accountable. The CEO gets the bank in trouble, both the CEO and the director should suffer. The stockholders of the future shouldn't suffer. They didn't do anything. It doesn't teach anybody any lessons or anything. It teaches the lesson that if you run a bank and you screw it up, you're still a rich guy [...]. That is not a good lesson to teach people who are holding the behavior of the economy in their hands. – Warren Buffett, Chairman & CEO (04:27:15)

-> Munger on the investment banking culture: Well, a lot has happened in banking in my lifetime. I welcomed all that early banking of the deserving immigrants by the early Bank of America. And I think all the credit cards when they came in as original bank cards were a great contribution to civilization. But the game-ier it gets and the more it looks like investment banking, the less I like it as a citizen. I am deeply distressful in situations in which everybody wants to get rich and envies everybody else. I regard that atmosphere as utterly toxic. – Charlie Munger, Executive Vice Chairman (04:37:19)

-> The best investment is always in yourself: Your best defense is your own earning power. If you're the best doctor in town, if you're the best lawyer in town, if you're the best teacher in town or even if you're the 10th best or 10th, you will make a good living. I mean the economy is productive. And you will succeed with your talents. But you won't succeed by hoarding dollars, you'll just succeed by the fact that your value to the community, which is a rich community overall, is sustained. And so the best investment is always in yourself. That's the answer I would give you. – Warren Buffett, Chairman & CEO (04:49:34)

-> Major mistakes to avoid in both investing and life: Well, it's so simple, to spend less than you earn, invest truly and avoid toxic people and toxic activities and try to keep learning all your life, et cetera, et cetera and do a lot of deferred gratification because you prefer life that way. And if you do all those things, you are almost certain to succeed. And if you don't, you're going to need a lot of a luck. And you don't want to need a lot of luck. You want to go into a game where you're very likely to win without having any unusual luck. [...] The toxic people who are trying to fool you or lie to you, who aren't reliable in meeting their commitments. A great lesson of life is get them the hell out of your life. – Charlie Munger, Executive Vice Chairman (05:02:11)

-> The magic of world-class brands: If you have a product, you'd love to control the distribution and you're probably going to get better gross margins if they ask for you by name. I mean they just had an article about Bernard Arnault of LVMH and he's got a blue box at Tiffany and the blue box itself means something. And Coca-Cola, the bottle, meant something. In the 1920s, I think there was a study that kind of folks were blindfolded and a very high percentage of the population could recognize it was Coca-Cola. When they can recognize not only the product, but the container, you're going to have good gross margins. And if you're just another cola and there have been hundreds of them, and even if they have the distribution through something like Walmart, who has Sam's Cola, it just doesn't -- it's not the same. [...] Charlie and I both, have observed so many products, so many methods of retail, we really think we know quite a bit about it, and we also know how much we don't know about it at the same time. – Warren Buffett, Chairman & CEO (05:06:45)

-> “The number of phone calls that you can make at a time like that is very, very limited”: There's nobody else that can quite make a deal like we can under the right circumstances. And there could be a situation where a number of very decent companies have got a very uncomfortable borrowing structure and money comes due to them at the exact wrong time, and that's when they pick up a phone as did Tiffany and Harley-Davidson and, you name it. I mean, a whole bunch of companies in 2008. That sort of thing will happen again, whether it results in us getting the calls or what the world is exactly at that time. But the one thing we know is that the number of phone calls that you can make at a time like that is very, very limited, and there can be good companies. They don't want to sell the company necessarily, but they just may need $5 billion or $10 billion or $20 billion, depending on the company you're talking about. And that can happen. Our own shareholders can be selling the stock too but we'll never do anything to make them sell and we'll tell them the truth about what the business is. – Warren Buffett, Chairman & CEO (05:41:13)

-> Microsoft’s intent to acquire Activision Blizzard: I think Microsoft has been remarkably willing to cooperate with governing bodies. And I mean, they want to do the deal and they met them. The opposition it seems to me more than halfway, but it doesn't mean that it gets done if a given country, in this case, the U.K., wants to block it, they're in a better position to block it than the United States. But that’s just the way the world works, and that doesn't get solved by offering more money. So I don't know how it turns out. But if it doesn't go through, I don't think it's through any short coming by either Microsoft or Activision. But not everything that should happen does happen, and well, we ran into it when we made the deal with Dominion Energy 18 months ago, and they let us buy a good bit of what we wanted to buy. And then the government in effect said, you can't buy something else, which I think we would have done a better job with than anybody else did in which the states involved, they're not object to it, which the customers didn't object to. But you don't take on the United States government, and you try and figure out things that you won't have a problem with. I think, in that case, the U.S. government made a mistake. I think the British government is making a mistake in this case. – Warren Buffett, Chairman & CEO (05:57:44)

Creating a one-app experience for Disney+ and Hulu, subscriber growth and ARPU, signs of pricing power, and what sets Disney apart.

Revenue +13%
*Media and Entertainment +3.1%
*Parks, Experiences and Products +17%
EBIT -11%
*margin 15% (18)
EPS +135%
FCF +190%

Subscribers:
Disney+ (157.8m) -2%
ESPN+ (25.3m) +2%
Hulu (48.2m) 0%
Total subs 231.3m

-> One-app experience for Disney+ and Hulu: We're delivering progress on the number of fronts, including a reduction in streaming operating losses this quarter, and I'm very optimistic about our direct to consumer business longer-term. Combined, our brands, franchises, and robust library are a significant differentiator in the space, and the meteoric subscriber growth we've seen since our launch three years ago only further reinforces that. As I think about our path forward in streaming, we have a number of clear opportunities to further position our DTC business for success. First, as a significant step toward creating a growth business, I'm pleased to announce that we will soon begin offering a one-app experience domestically that incorporates our Hulu content via Disney+. And while we continue to offer Disney+ Hulu in ESPN plus a standalone options, this is a logical progression of our DTC offerings that will provide greater opportunities for advertisers while giving bundles of subscribers access to more robust and streamlined content, resulting in greater audience engagement and ultimately leading to a more unified streaming experience. We will begin to roll out this one-app offering by the end of the calendar year, and we look forward to sharing more details in the future. – Robert Iger, CEO (03:43)

-> Disney has only scratched the surface for advertising on Disney+: Over 40% of our domestic advertising portfolio is addressable, including streaming, which we expect will continue to grow over time. We're also focused on the growth opportunity in programmatic advertising, and we are well positioned to scale as the market improves and audiences continue to grow. We've added more than 1,000 advertisers over the past year, and now have 5,000 advertisers across our streaming platforms, with over a third buying advertising programmatically today. In addition, we plan to launch our ad tier on Disney+ in Europe by the end of this calendar year which will drive both increased inventory and revenue over the long-term. The truth is we have only just begun to scratch the surface of what we can do with advertising on Disney+. And I'm incredibly bullish on our longer term advertising positioning. Meanwhile, the pricing changes we've already implemented have proven successful and we plan to set a higher price for our ad-free tier later this year to better reflect the value of our content offerings. – Robert Iger, CEO (05:11)

-> What sets Disney apart: Turning to our parks, we see this business as a key growth driver for the company. This past quarter, we've been especially pleased with the performance of our parks internationally. We have several international expansions underway that will allow our parks to continue to build capacity and drive longer-term growth. [...] The unyielding popularity of our world-class parks business and our unparalleled content, powered by our brands and franchises, is what sets Disney apart. From the very beginning, 100 years ago, our timeless stories and characters have been the key to our success and hold a special place in the hearts of generations of fans and families. We're leaning into this across every segment of our business, as illustrated with our strong summer slate of theatrical releases, including Disney's The Little Mermaid, Pixar's Elemental, and Lucasfilm's Indiana Jones and The Dial of Destiny. As we've been looking at the structure of the company these past several months, what's become clear is that there is an enormous opportunity to harness our full potential by increasing alignment and coordination in marketing across our businesses. – Robert Iger, CEO (08:06)

-> Disney+ subscriber growth and ARPU: During the second quarter, Disney+ core subscribers grew modestly, with over 600,000 net additions. Core international subs, increased by close to $1 million. While domestic subs declined slightly in the quarter from continued impacts from the price increase, domestic ARPU increased sequentially by 20%, reflecting strong subscription revenue growth. And while the softness we saw in Q2 domestic Disney+ net ads may linger into Q3, we do expect core sub growth to rebound in Q4. At ESPN Plus and Hulu, subscribers increased slightly over the prior quarter. ARPU at Hulu was impacted by lower per-subscriber advertising revenue, in line with the comments we made last quarter regarding near-term softness in the addressable advertising space. DTC expenses, including programming and production costs, and SG&A, declined in the second quarter versus Q1. Our direct-to-consumer operating results in Q2 outperformed our guidance by about $200 million, due in part to timing shifts of marketing expenses driven by recent slate changes at Disney+ and Hulu. The shift of some of those costs into the third quarter will contribute to Q3 DTC operating losses widening by approximately $100 million versus Q2. – Christine McCarthy, CFO (16:42)

-> Signs of having pricing power: We were pleasantly surprised that the loss of subs due to what was a substantial increase in pricing for the non-ad supported Disney+ product was de minimis. There was some loss, but it was relatively small. That leads us to believe that we, in fact, have pricing elasticity. With that in mind, I think one of the things that we not only have discovered, but that we believe we have to do, is that we've got to widen the delta between the ad-free service and the non-ad supported service. Because we clearly would like to drive more subs to the ad-supported service, which we did in the quarter, by the way, the obvious reason, because of the ARPU potential of the ad service Disney Plus. And in fact, as we look to this up front and after careful and considerable discussion with our sales team, led by Rita Farrow, we see that there's going to be a substantial growth in digital advertising in this up front. I mean, quite substantial. Suggesting, for the obvious reason, because digital advertising is so attractive to advertisers, that there's an opportunity for us to really lean into ad-supported. – Robert Iger, CEO (25:40)

-> Optimistic about increased profitability going forward: Raising our prices on the ad-free, keeping the prices on the ad-supported relatively modest, maybe perhaps no increases, increasing the delta, driving more subs in a higher ARPU direction. So we're heartened by it, and we are optimistic. And that is one of the strategies that we believe will help lead us ultimately to profitability and growth, along with the second thing that you mentioned, which is the cost rationalization. And I'll tag team with Christine on this. Clearly, we, as she mentioned, we're on a path to meeting or exceeding $5.5 billion in growth, sorry, in cost reductions that we mentioned last quarter. That comes in two categories, content spend and SG&A. I'm going to let Christine handle the SG&A. But on the content spend, we said at the time, most of that will come starting in 2024 and into 2025, because we were committed to so much content already in 2023. I'll let Christine handle the timing of the SG&A reductions and what potential impact that would have. Clearly, again, the price increases, the pushing more viewers, sorry, more subscribers to the ad-supported, and the cost containment are among the things we are doing to get to profitability. – Robert Iger, CEO (27:03)

Record-breaking results, capital allocation, generative AI, the huge opportunity in Asia, and the cross-border network effects.

Nights and Experiences Booked +19%
Active Listings +19%
Revenue +20%
Adj. EBITDA +14%
*margin 14.6% (15.3)
FCF +32%
*margin 89%

-> A record-breaking quarter in several ways and buybacks: I'm excited to share our Q1 results with you now. We had a strong start to 2023. We had over 120 million Nights and Experiences Booked in Q1. This was a record high. Our revenue increased 24% year-over-year. Net income was $117 million, making this our most profitable Q1 on a GAAP basis. And free cash flow for the quarter was $1.6 billion. On a trailing 12-month basis, our free cash flow was $3.8 billion. This represented a trailing 12-month free cash flow margin of 44%. Because of our strong balance sheet, we were able to repurchase $2 billion of our stock in the last 9 months. And today, we're pleased to announce that our Board just approved a new repurchase authorization for up to $2.5 billion of our Class A common stock. Now during the quarter, we saw a number of really positive business trends. First, more guests are traveling on Airbnb than ever before. Knights and Experiences Booked increased 19% in Q1 compared to a year ago, and we've seen our highest number of active bookers ever despite continued macroeconomic uncertainties. During the quarter, we also saw guests booking trips further in advance, supporting a strong backlog for Q2. Second, more guests are traveling overseas and returning to cities. Cross-border gross nights booked increased 36% in Q1 compared to last year. – Brian Chesky, Co-Founder, CEO, & Chairman (01:59)

-> Strong growth in Asia and supply growth: Now we were especially encouraged by the continued recovery of Asia Pacific as nights booked in Q1 increased more than 40% year-over-year. And we saw international travel from other regions to Asia Pacific increased 160% during the quarter compared to this time last year. Additionally, cross-border nights booked to North America increased once again, with 34% of year-over-year growth in Q1 relative to 31% last quarter. And we've also seen high-density urban nights booked increased 20% year-over-year. Third, guests are continuing to use Airbnb for longer stays. In Q1, long-term stays were 18% of total gross nights booked. And over the past 3 years, we've seen new use cases emerge as guests across all regions and age groups use Airbnb for long-term stays. And finally, supply growth continued to accelerate. In Q1, we grew supply 18% year-over-year, and this is up from 16% in Q4. We saw double-digit supply growth around the world with the fastest growth in North America and Latin America. – Brian Chesky, Co-Founder, CEO, & Chairman (03:59)

-> Obsessing over every single detail: We want people to love our service, and that means obsessing over every single detail. Last week, we introduced over 50 new features and upgrades as part of our 2023 Summer Release. Everything we launched was based on direct feedback from our guests and hosts. This included pricing tools, transparent checkout instructions, faster customer service and more. And we also responded to input on rising prices, with the rollout of Airbnb Rooms, an all-new take on the original Airbnb. [...] And finally, we're expanding beyond our core. We have some big ideas for where to take Airbnb next. We're building the foundation for new products and services that we plan to launch in 2024 and beyond. At the same time, Airbnb is still underpenetrated in many markets around the world. So we're increasing our focus on these less mature markets, and we are already seeing positive results. [...] Last week, we introduced the most extensive set of improvements ever to Airbnb, and it was all based on feedback from our community. We took a design-driven approach to perfecting our core service. We created a blueprint of the entire experience: every screen, every policy and every interaction with customer service. We then analyzed millions of calls and thousands of social media posts. And we hosted listening sessions with guests and hosts all over the world. And we mapped all this feedback against our blueprint and we prioritized the most common issues. – Brian Chesky, Co-Founder, CEO, & Chairman (05:49)

-> Capturing the affordability segment with Airbnb Rooms: I'm very excited about Airbnb Rooms, because Airbnb Rooms is one of the most affordable ways to travel on Airbnb. We've been doing a lot of listening to guests on Airbnb. And one of the things they told us is, especially in this economic environment, they are looking for affordable ways to travel on Airbnb. And the average price of Airbnb Rooms is $67 a night. So it's an incredible value. What we wanted to do is offer a product that we thought could capture this affordability segment that we think more and more people are going to be interested in, in this economy and also launch a product that will be very relevant to the next generation of travelers. [...] And so that's why we launched the Airbnb Host Passport. I think this is going to help a lot of people that are looking to save money and are interested in the local travel experience, be encouraged to stay in Airbnb Rooms. We also added new privacy features to understand if there's a lock in the bedroom door, if the bathroom is private. – Brian Chesky, Co-Founder, CEO, & Chairman (11:07)

-> Generative AI: If you were to ask a question to ChatGPT, and if I were to ask a question to ChatGPT, we're both going to get pretty much the same answer. And the reason both of us are going to get pretty close the same answer is because ChatGPT doesn't know that it's between you and I, and doesn't know anything about us. Now this is totally fine for many questions, like how far is it from this destination to that destination. It turns out that a lot of questions in travel aren't really search questions. They're matching questions. Another is, they're questions that the answer depends on who you are and what your preferences are. So for example, I think that going forward, Airbnb is going to be pretty different. Instead of asking you questions like where are you going and when are you going, I want us to build a robust profile about you, learn more about you and ask you 2 bigger and more fundamental questions: who are you? And what do you want? And ultimately, what I think Airbnb is building is not just a service or a product. But what we are in the largest sense is a global travel community. The role of Airbnb and that travel community is to be the ultimate host. Think of us with AI as building the ultimate AI concierge that could understand you. And we could build these world-class interfaces, tune our model. Unlike most other travel companies, we know a lot more about our guests and hosts. This is partly why we're investing in the Host Passport. We want to continue to learn more about people. Brian Chesky, Co-Founder, CEO, & Chairman (14:55)

-> The huge opportunity in Asia: So we started with Germany and Brazil. And again, it was full funnel. It involved a lot of PRs. It involve brand marketing, bringing our marketing ad campaigns to pricing in the United States to these markets, localizing our product and working with local influencers. So it's a pretty full funnel approach. The results have been incredibly positive. These are now 2 of our fastest-growing markets. So we're now looking at bringing this playbook to other markets around the world. And I'll give you a couple of examples. Number one is Asia Pacific. We think there's a huge opportunity in Asia. We're massively underpenetrated. This is going to be probably the fastest-growing market internationally over the next 5 years. And the problem with Asia historically over the last few years is Asia market, as you know, is a very much cross-border market. And with the borders being historically kind of locked down and there hasn't been as much travel, the recovery in Asia has been delayed. Now people are starting to travel, and Asia disproportionately has a lot of young travelers. And Airbnb, as you know, is very popular among the young travelers. So we think Japan, Korea, China, India and Southeast Asia are going to be huge opportunities for growth. – Brian Chesky, Co-Founder, CEO, & Chairman (22:40)

-> Running the same playbook globally with cross-border network effects: We're very big in France. We're very big in the U.K. We're now seeing great growth in Germany. But there's a lot of markets in Europe. We haven't ever really run robust brand marketing campaigns. Now we're getting more aggressive in Italy. We're getting more aggressive in Spain, and we're now looking at other markets in Northern Europe. And I think there's actually a lot of greenfield in Europe because we've really only focused on a few of the really big markets. And when we see we focus the big markets like France and U.K., we are now really strong. And I think we can have similar penetration in other countries in Europe. And then finally is Latin America. We're seeing a lot of growth in Brazil, and we're now going to bring it to some other really large markets, like Colombia and some other markets within Latin America. So I think international is going to be a pretty big boom to growth over the next 2, 3 years. The one thing I've learned about Airbnb is no matter how different every country is, the playbook doesn't have to vary that much. It works quite well in every market. And especially, it works with Airbnb because it's very much a cross-border network effect business. – Brian Chesky, Co-Founder, CEO, & Chairman (23:55)

-> How to bring the next generation of travelers to Airbnb: I think our long-term growth is going to only be as strong as our supply. If we were to back out, what happened in 2020, 2021, as that demand grew faster than supply. And initially, this was a great thing. But the problem is when demand grows faster than supply and there's supply constraints, prices generally go up. And as prices have risen, while that's been good for the bottom line, affordability in this economy is a major issue. And so one of the most important things we can do to make Airbnb affordable is to make sure we have enough supply in the platform. [...] My hope is that while the hotel CEOs have said, they expect demand to drive prices up this summer, we want to actually have prices moderate. We think that's going to bring in a whole new generation of travelers to Airbnb. So ultimately, I think that's a very, very important consideration of the marketplace. The more affordable we are -- just like Amazon, the more affordable we are with a wider selection, the more people will come to Airbnb. So that's the high level. Now with regard to total price, this is primarily a U.S. issue. But in the U.S., as you know, there was a bit of an issue where some hosts had higher cleaning fees. And we heard a lot from guests. – Brian Chesky, Co-Founder, CEO, & Chairman (26:18)

-> Optionality; expanding beyond the core offering: We need people to first love our core service. So that's why over the last 3 years, we've been focused on really perfecting our core service. That being said, our core service is stronger than ever. It's more profitable than ever. And I think we're now ready to expand beyond the core. So as we speak, we are working actively on new products and services. These new products and services are going to be shipping. Beginning next year, you're going to see a number of things ship next May as part of the 2024 Summer Release. And we're going to see even more things shift later in the year and the years to come. Now obviously, there's a lot of opportunities. There's guest services, there's host services. I'm not going to go into a lot of detail. You obviously will have to tune in to talk. But I think it is important to note that I think that the biggest idea Airbnb has are in front of us. I don't want to think that the biggest idea I ever had was when I was 26 working with my 2 co-founders. I think that there's so much more Airbnb can offer. And part of it is just making sure we continue to learn more, build robust profile, build an extensible platform model, and continue to increase trust in the platform. – Brian Chesky, Co-Founder, CEO, & Chairman (34:29)

-> Nearly 90% of Airbnb’s traffic remains organic: I always believe that the best loyalty program is people loving your products. And if they love your products, they come back. And I think that's the reason why nearly 90% of our traffic is direct or organic, and we have a really strong rebooker rate. So I mean we haven't needed to have a loyalty program to have really good loyalty on Airbnb because people really love the experience. And ultimately, I think it's just a matter of continuing to innovate. Ultimately, we're in the inspiration business. People want to have good trips, and the best trip wins. And whatever company is most focused on listing the customer feedback, innovating as quickly as possible and taking giant leaps and experiences, I think it's going to be the most successful. So we're really bullish about this. Now that being said, for years, we've looked at a loyalty program. And I don't think a classic point program, which is essentially a subsidy to buy loyalty is the right approach for us. But we do think there's really compelling, interesting ways to reward our very best guests and something we've been actively thinking about. – Brian Chesky, Co-Founder, CEO, & Chairman (38:34)