Airbnb, Inc.: Form 10-Q for the period ended Jun 30, 2022

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report”). This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled “Risk Factors” of our 2021 Annual Report, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, and any subsequent filings, as well as those identified in this Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Revision of Previously Issued Financial Statements

As described in Note 2, Summary of Significant Accounting Policies, to our condensed consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q, we have revised previously issued financial statements to correct immaterial misstatements.

Overview

We are a community based on connection and belonging—a community that was born in 2007 when two Hosts welcomed three guests to their San Francisco home, and has since grown to over 4 million Hosts who have welcomed over 1 billion guest arrivals to over 100,000 cities and towns in almost every country and region across the globe. Hosts on Airbnb are everyday people who share their worlds to provide guests with the feeling of connection and being at home. We have five stakeholders and are designed with all of them in mind. Along with employees and shareholders, we serve Hosts, guests, and the communities in which they live. We intend to make long-term decisions considering all of our stakeholders because their collective success is key for our business to thrive.

We operate a global marketplace, where Hosts offer guests stays and experiences on our platform. Our business model relies on the success of Hosts and guests (collectively referred to as “customers”) who join our community and generate consistent bookings over time. As Hosts become more successful on our platform and as guests return over time, we benefit from the recurring activity of our community.

Impact of COVID-19 and Macroeconomic Conditions on our Business

In response to the outbreak of the novel strain of the coronavirus disease (“COVID-19”) in the first half of 2020, as well as subsequent outbreaks driven by new variants of COVID-19, governments around the world have implemented, and continue to implement, a variety of measures to reduce the spread of COVID-19, including travel restrictions, social distancing, shelter-in-place orders, vaccination mandates or requirements for businesses to confirm employees’ vaccination status, and other restrictions.

Throughout 2021, we continued to face lower demand for long distance travel and overall depressed Nights and Experiences Booked compared to 2019. However, in 2022, we have seen significant growth with Nights and Experiences Booked exceeding 2019 levels for the same period. While COVID-19 still plagues the world, for the three months ended June 30, 2022, Gross Booking Value (“GBV”) and revenue were $17.0 billion and $2.1 billion, respectively, which were both higher compared to the same periods in 2021, 2020 and 2019 (pre-COVID-19 pandemic).The trends in our recovery continue to vary by region due to a variety of factors, including the emergence of COVID-19 variants, vaccination rates, COVID-19 caseloads and associated travel restrictions, as well as historical cross-border compared to domestic travel dependence. In the second quarter of 2022, we saw strength in all regions relative to the same period in 2021 and growth in nights booked in EMEA and Asia Pacific compared to the first quarter of 2022.

The extent and duration of the impact of the COVID-19 pandemic over the longer term remain uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of COVID-19, the introduction and spread of new variants of the virus that may be resistant to currently approved vaccines and the continuation of existing or implementation of new government travel restrictions, the extent and effectiveness of containment actions taken, including mobility restrictions, the timing, availability, and effectiveness of vaccines, and the impact of these and other factors on travel behavior in general, and on our business in particular, which may result in a reduction in bookings and an increase in booking cancellations.

As we look forward, we recognize the challenging macroeconomic conditions, including inflation, depressed consumer spending and the strengthening of the U.S. dollar. To date, these conditions have not had a material impact on our business, results of operations, cash flows, or financial condition; however, the impact in the future of these macroeconomic events on our business, results of operations, cash flows, and financial condition is uncertain and will depend on future developments that we may not be able to accurately predict.

Key Business Metrics and Non-GAAP Financial Measures

We track the following key business metrics and financial measures that are not calculated and presented in accordance with GAAP (“non-GAAP financial measures”) to evaluate our operating performance, identify trends, formulate financial projections, and make strategic decisions. Accordingly, we believe that these key business metrics and non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance, and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results.

These key business metrics and non-GAAP financial measures are presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly titled metrics or measures presented by other companies. A reconciliation of each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP is provided under the subsection titled “— Adjusted EBITDA” and “— Free Cash Flow” below. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Nights and Experiences Booked

Nights and Experiences Booked is a key measure of the scale of our platform, which in turn drives our financial performance. Nights and Experiences Booked on our platform in a period represents the sum of the total number of nights booked for stays and the total number of seats booked for experiences, net of cancellations and alterations that occurred in that period. For example, a booking made on February 15 would be reflected in Nights and Experiences Booked for our quarter ended March 31. If, in the example, the booking were canceled on May 15, Nights and Experiences Booked would be reduced by the cancellation for our quarter ended June 30. A night can include one or more guests and can be for a listing with one or more bedrooms. A seat is booked for each participant in an experience. Substantially all of the bookings on our platform to date have come from nights. We believe Nights and Experiences Booked is a key business metric to help investors and others understand and evaluate our results of operations in the same manner as our management team, as it represents a single unit of transaction on our platform.

In the second quarter of 2022, we had 103.7 million Nights and Experiences Booked, a 25% increase from 83.1 million in the same prior year period, and a 24% increase compared to the second quarter of 2019 (pre-COVID-19 pandemic). For the six months ended June 30, 2022, we had 205.8 million Nights and Experiences Booked, a 40% increase from 147.5 million in the same prior year period, and a 25% increase compared to the same period of 2019 (pre-COVID-19 pandemic). Nights and Experiences Booked grows as we attract new customers to our platform and as repeat guests increase their activity on our platform. Our Nights and Experiences Booked increased from prior year levels largely driven by stronger results in North America, EMEA and Latin America, where we continued to see resilience in domestic and short-distance travel, as well as improvement in both longer-distance and cross border travel during the first half of 2022.

Gross Booking Value

GBV represents the dollar value of bookings on our platform in a period and is inclusive of Host earnings, service fees, cleaning fees, and taxes, net of cancellations and alterations that occurred during that period. The timing of recording GBV and any related cancellations is similar to that described in the subsection titled “— Key Business Metrics and Non-GAAP Financial Measures — Nights and Experiences Booked” above. Revenue from the booking is recognized upon check-in; accordingly, GBV is a leading indicator of revenue. The entire amount of a booking is reflected in GBV during the quarter in which booking occurs, whether the guest pays the entire amount of the booking upfront or elects to use our Pay Less Upfront program. Growth in GBV reflects our ability to attract and retain customers and reflects growth in Nights and Experiences Booked.

In the second quarter of 2022, our GBV was $17.0 billion, a 27% increase from $13.4 billion in the same prior year period. For the six months ended June 30, 2022, our GBV was $34.1 billion, a 44% increase from $23.7 billion in the same prior year period. The increase in our GBV was primarily due to an increase in Nights and Experiences Booked. The travel recovery we are experiencing has been dominated by our higher average daily rate (“ADR”) regions—North America and Europe, in particular, whereas Asia Pacific, one of our lowest ADR regions, remains depressed. Similar to Nights and Experiences Booked, our GBV improvement was largely driven by stronger bookings in North America, EMEA and Latin America, in particular with resilience in domestic and short-distance travel. On a constant currency basis, the increase in GBV was 34% and 50% for the three and six months ended June 30, 2022, respectively, as compared to the same periods in 2021.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance, and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation of each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP is provided below. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

The following table summarizes our non-GAAP financial measures, along with the most directly comparable GAAP measure, for each period presented below (in thousands):

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Adjusted EBITDA

We define Adjusted EBITDA as net income or loss adjusted for (i) provision for (benefit from) income taxes; (ii) interest income, interest expense, and other income (expense), net; (iii) depreciation and amortization; (iv) stock-based compensation expense and stock-settlement obligations related to the IPO; (v) acquisition-related impacts consisting of gains (losses) recognized on changes in the fair value of contingent consideration arrangements; (vi) net changes to the reserves for lodging taxes for which management believes it is probable that we may be held jointly liable with Hosts for collecting and remitting such taxes; and (vii) restructuring charges.

The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, or because the amount and timing of these items is unpredictable, not driven by core results of operations and renders comparisons with prior periods and competitors less meaningful. We believe Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations, as well as provides a useful measure for period-to-period comparisons of our business performance. Moreover, we have included Adjusted EBITDA in this Quarterly Report on Form 10-Q because it is a key measurement used by our management internally to make operating decisions, including those related to operating expenses, evaluating performance, and performing strategic planning and annual budgeting.

Adjusted EBITDA also excludes certain items related to transactional tax matters, for which management believes it is probable that we may be held jointly liable with Hosts in certain jurisdictions, and we urge investors to review the detailed disclosure regarding these matters included in the subsection titled “—Critical Accounting Policies and Estimates—Lodging Tax Obligations,” as well as the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Adjusted EBITDA has limitations as a financial measure, should be considered as supplemental in nature, and is not meant as a substitute for the related financial information prepared in accordance with GAAP. These limitations include the following:

• Adjusted EBITDA does not reflect interest income (expense) and other income (expense), net, which include loss on extinguishment of debt and unrealized and realized gains and losses on foreign currency exchange, investments, and financial instruments, including the warrants issued in connection with a term loan agreement entered into in April 2020. We amended the anti-dilution feature in the warrant agreements in March 2021. The balance of the warrants of $1.3 billion was reclassified from liability to equity as the amended warrants met the requirements for equity classification and are no longer remeasured at each reporting period;
• Adjusted EBITDA excludes certain recurring, non-cash charges, such as depreciation of property and equipment and amortization of intangible assets, and although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect all cash requirements for such replacements or for new capital expenditure requirements;
• Adjusted EBITDA excludes stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy as well as stock-settlement obligations, which represent employer and related taxes related to the IPO;
• Adjusted EBITDA excludes acquisition-related impacts consisting of gains (losses) recognized on changes in the fair value of contingent consideration arrangements. The contingent consideration, which was in the form of equity, was valued as of the acquisition date and is marked-to-market at each reporting period based on factors including our stock price;
• Adjusted EBITDA does not reflect net changes to reserves for lodging taxes for which management believes it is probable that we may be held jointly liable with Hosts for collecting and remitting such taxes; and
• Adjusted EBITDA does not reflect restructuring charges, which include severance and other employee costs, lease impairments, and contract amendments and terminations.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net loss and our other GAAP results.

For the three months ended June 30, 2022, Adjusted EBITDA was $711.1 million compared to $217.4 million in the same prior year period. This favorable change was due to our record high revenue combined with continued cost management.

Adjusted EBITDA Reconciliation

The following is a reconciliation of Adjusted EBITDA to the most comparable GAAP measure, net income (loss) (in thousands, except percentages):

(1) Excludes stock-based compensation related to restructuring, which is included in restructuring charges in the table above.

Free Cash Flow

We define Free Cash Flow as net cash provided by (used in) operating activities less purchases of property and equipment. We believe that Free Cash Flow is a meaningful indicator of liquidity that provides information to our management and investors about the amount of cash generated from operations, after purchases of property and equipment, that can be used for strategic initiatives, including continuous investment in our business, growth through acquisitions, and strengthening our balance sheet. Our Free Cash Flow is impacted by the timing of GBV because we collect our service fees at the time of booking, which is generally before a stay or experience occurs. Funds held on behalf of our customers and amounts payable to our customers do not impact Free Cash Flow, except interest earned on these funds. Free Cash Flow has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash provided by (used in) operating activities. Free Cash Flow does not reflect our ability to meet future contractual commitments and may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure.

For the three months ended June 30, 2022, Free Cash Flow was $794.7 million, representing 38% of revenue, compared to $782.0 million, representing 59% of revenue, for the three months ended June 30, 2021. The increase was primarily driven by revenue growth, margin expansion and significant growth in unearned fees. Due to seasonality, the first half of the year typically benefits from working capital as unearned fees are generated by bookings, but not recognized as revenue until future periods when guests check-in.

Free Cash Flow Reconciliation

The following is a reconciliation of Free Cash Flow to the most comparable GAAP cash flow measure, net cash provided by operating activities (in thousands, except percentages):

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Seasonality

Our business is seasonal, reflecting typical travel behavior patterns over the course of the calendar year. In a typical year, the first, second, and third quarters have higher Nights and Experiences Booked than the fourth quarter, as guests plan for travel during the peak travel season, which is in the third quarter for North America and EMEA. Our business metrics, including GBV and Adjusted EBITDA, can also be impacted by the timing of holidays and other events. We experience seasonality in our GBV that is generally consistent with the seasonality of Nights and Experiences Booked. Revenue and Adjusted EBITDA have historically been, and are expected to continue to be, highest in the third quarter when we have the most check-ins, which is the point at which we recognize revenue. Seasonal trends in our GBV impact Free Cash Flow for any given quarter. Our costs are relatively fixed across quarters or vary in line with the volume of transactions, and we historically achieve our highest GBV in the first and second quarters of the year with comparatively lower check-ins. As a result, increases in unearned fees make our Free Cash Flow and Free Cash Flow as a percentage of revenue the highest in the first two quarters of the year. We typically see a slight decline in GBV and a peak in check-ins in the third quarter, which results in a decrease in unearned fees and lower sequential level of Free Cash Flow, and a greater decline in GBV in the fourth quarter, where Free Cash Flow is typically lower. As our business matures, other seasonal trends may develop, or these existing seasonal trends may become more extreme.

We have seen COVID-19 overwhelm the historical patterns of seasonality in our GBV, revenue, Adjusted EBITDA, and Free Cash Flow as a result of travel restrictions and changing travel preferences relating to the COVID-19 pandemic. While we have seen COVID-19 distort the historical patterns of seasonality in 2020 and to a lesser extent, the first half of 2021 as a result of travel restrictions and changing travel preferences relating to the pandemic, we are seeing pre-pandemic patterns of seasonality return in 2022.

Results of Operations

The following table sets forth our results of operations for the periods presented (in thousands):

(1) Includes stock-based compensation expense as follows (in thousands):

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The following table sets forth the components of our condensed consolidated statements of operations for each of the periods presented as a percentage of revenue:

Comparison of the Three and Six Months Ended June 30, 2022 with the Same Periods in 2021

Revenue

(in thousands, except percentages)

Three Months Ended June 30, 2022 Compared with the Same Period in 2021

Revenue increased $768.9 million, or 58%, for the three months ended June 30, 2022, compared to the same period in the prior year, primarily due to a 25% increase in Nights and Experiences Booked combined with higher ADRs. On a constant currency basis, revenue increased 64% compared to the three months ended June 30, 2021.

Six Months Ended June 30, 2022 Compared with the Same Period in 2021

Revenue increased $1.4 billion, or 63%, for the six months ended June 30, 2022, compared to the same period in the prior year, primarily due to a 40% increase in Nights and Experiences Booked combined with higher ADRs. On a constant currency basis, revenue increased 68% compared to the six months ended June 30, 2021.

Cost of Revenue

(in thousands, except percentages)

Three Months Ended June 30, 2022 Compared with the Same Period in 2021

Cost of revenue increased $95.7 million, or 32%, for the three months ended June 30, 2022, compared to the same period in the prior year, primarily due to an increase in merchant fees of $87.2 million largely due to an increase in pay-in volumes, an increase in data hosting service costs of $7.2 million, and $5.8 million in chargebacks, partially offset by a decrease of $7.3 million in amortization expense for internally developed software and acquired technology. Cost of revenue as a percent of revenue decreased to 19% for the three months ended June 30, 2022, compared to 22% in the same period in the prior year, primarily due to growth in revenue outpacing growth in cost of revenue as a result of the significant increase in Nights and Experiences Booked combined with higher ADRs and cost saving initiatives.

Six Months Ended June 30, 2022 Compared with the Same Period in 2021

Cost of revenue increased $203.8 million, or 37%, for the six months ended June 30, 2022, compared to the same period in the prior year, primarily due to an increase in merchant fees of $180.0 million largely due to an increase in pay-in volumes, an increase in data hosting service costs of $16.2 million due to an increase in on-demand costs and reserved instances, and $13.9 million in chargebacks, partially offset by a decrease of $16.7 million in amortization expense for internally developed software and acquired technology. Cost of revenue as a percent of revenue decreased to 21% for the six months ended June 30, 2022, compared to 25% in the same period in the prior year, primarily due to growth in revenue outpacing growth in cost of revenue as a result of the significant increase in Nights and Experiences Booked combined with higher ADRs and cost saving initiatives.

Operations and Support

(in thousands, except percentages)

Three Months Ended June 30, 2022 Compared with the Same Period in 2021

Operations and support expense increased $50.1 million, or 24%, for the three months ended June 30, 2022, compared to the same period in the prior year, primarily due to a $37.5 million increase in third-party community support personnel and customer relations costs, and an $8.2 million increase in insurance costs due to a higher Host Liability Insurance (“HLI”) premium resulting from higher overall nights and a higher premium rate. Operations and support expense as a percent of revenue decreased to 12% for the three months ended June 30, 2022, compared to 16% in the same period in the prior year, primarily due to growth in revenue outpacing growth in operations and support expense as a result of the significant increase in Nights and Experiences Booked combined with higher ADRs and cost saving initiatives.

Six Months Ended June 30, 2022 Compared with the Same Period in 2021

Operations and support expense increased $97.7 million, or 25%, for the six months ended June 30, 2022, compared to the same period in the prior year, primarily due to a $68.5 million increase in third-party community support personnel and customer relations costs, a $16.9 million increase in insurance costs due to a higher HLI premium resulting from higher overall nights and a higher premium rate, and a $8.0 million increase in payroll-related expenses due to growth in headcount and increase in compensation. Operations and support expense as a percent of revenue decreased to 14% for the six months ended June 30, 2022, compared to 18% in the same period in the prior year, primarily due to growth in revenue outpacing growth in operations and support expense as a result of the significant increase in Nights and Experiences Booked combined with higher ADRs and cost saving initiatives.

Product Development

(in thousands, except percentages)

Three Months Ended June 30, 2022 Compared with the Same Period in 2021

Product development expense increased $25.3 million, or 7%, for the three months ended June 30, 2022, compared to the same period in the prior year, primarily due to a $20.9 million increase in payroll-related expenses due to growth in headcount and increase in compensation, and a $4.1 million increase in third-party service providers. Product development expense as a percent of revenue decreased to 18% for the three months ended June 30, 2022, from 26% for the same period in the prior year, primarily due to growth in revenue outpacing growth in product development expense as a result of the significant increase in Nights and Experiences Booked combined with higher ADRs and cost saving initiatives.

Six Months Ended June 30, 2022 Compared with the Same Period in 2021

Product development expense increased $25.2 million, or 4%, for the six months ended June 30, 2022, compared to the same period in the prior year, primarily due to a $13.2 million increase in third-party service providers for contingent worker and consultant support for infrastructure projects, quality assurance services and support of new product rollouts, including AirCover, a $4.8 million increase in payroll-related expenses (which reflects a large offsetting decrease of $24.7 million from stock-based compensation and associated employer taxes due to a lower employee stock purchase plan expense), and a $1.7 million increase in outside services. Product development expense as a percent of revenue decreased to 20% for the six months ended June 30, 2022, from 32% for the same period in the prior year, primarily due to growth in revenue outpacing growth in product development expense as a result of the significant increase in Nights and Experiences Booked combined with higher ADRs and cost saving initiatives.

Sales and Marketing

(in thousands, except percentages)

Three Months Ended June 30, 2022 Compared with the Same Period in 2021

Sales and marketing expense increased $64.6 million, or 20%, for the three months ended June 30, 2022, compared to the same period in the prior year, primarily due to a $32.1 million increase in search engine marketing and advertising spend, and a $26.6 million increase in marketing activities associated with our Made Possible by Hosts, Strangers, AirCover, and Categories marketing campaigns and launches, an $8.6 million increase in payroll-related expenses, and a $7.5 million increase in third-party service provider expenses. Total field operations and policy expense decreased $9.2 million, primarily driven by a decrease of $22.8 million related to the changes in the fair value of contingent consideration arrangements related to an acquisition completed in 2019, partially offset by increases in third-party service provider expenses and payroll-related expenses due to growth in headcount and increase in compensation. Sales and marketing expense as a percent of revenue decreased to 18% for the three months ended June 30, 2022, from 24% for the same period in the prior year, primarily due to growth in revenue outpacing growth in sales and marketing expense as a result of the significant increase in Nights and Experiences Booked combined with higher ADRs and cost saving initiatives.

Six Months Ended June 30, 2022 Compared with the Same Period in 2021

Sales and marketing expense increased $180.0 million, or 33%, for the six months ended June 30, 2022, compared to the same period in the prior year, primarily due to a $88.7 million increase in marketing activities associated with our Made Possible by Hosts, Strangers, AirCover, and Categories marketing campaigns and launches, a $68.4 million increase in search engine marketing and advertising spend, and a $14.4 million increase in third-party service provider expenses. Total field operations and policy expense decreased $4.9 million, primarily driven by a decrease of $11.4 million related to the changes in the fair value of contingent consideration arrangements related to an acquisition completed in 2019, partially offset by an increase in payroll-related expenses due to growth in headcount and increase in compensation. Sales and marketing expense as a percent of revenue decreased to 20% for the six months ended June 30, 2022, from 25% for the same period in the prior year, primarily due to growth in revenue outpacing growth in sales and marketing expense as a result of the significant increase in Nights and Experiences Booked combined with higher ADRs and cost saving initiatives.

General and Administrative

(in thousands, except percentages)

Three Months Ended June 30, 2022 Compared with the Same Period in 2021

General and administrative expense increased $25.0 million, or 11%, for the three months ended June 30, 2022, compared to the same period in the prior year, primarily due to an increase in other business and operational taxes of $14.8 million, largely related to the increase in revenue, an $8.9 million increase in payroll related expenses, an $8.7 million increase in bad debt expense, and an increase of $1.4 million in expensed software and equipment maintenance. These increases were partially offset by an $18.2 million decrease in legal contingency and payout expense. General and administrative expense as a percent of revenue decreased to 12% for the three months ended June 30, 2022, from 16% for the same period in the prior year, primarily due to growth in revenue outpacing growth in general and administrative expense as a result of the significant increase in Nights and Experiences Booked combined with higher ADRs and cost saving initiatives.

Six Months Ended June 30, 2022 Compared with the Same Period in 2021

General and administrative expense increased $45.8 million, or 11%, for the six months ended June 30, 2022, compared to the same period in the prior year, primarily due to an increase in other business and operational taxes of $23.8 million, largely related to the increase in revenue, a $14.3 million increase in professional services expenses, primarily due to audit and tax fees, a $10.7 million increase in bad debt expenses, and a $10.0 million charitable contribution to Airbnb.org to support Ukrainian refugees. These increases were partially offset by an $18.6 million decrease in legal contingency and payout expense. General and administrative expense as a percent of revenue decreased to 13% for the six months ended June 30, 2022, from 18% for the same period in the prior year, primarily due to growth in revenue outpacing growth in general and administrative expense as a result of the significant increase in Nights and Experiences Booked combined with higher ADRs and cost saving initiatives.

Restructuring Charges

(in thousands, except percentages)

* Not meaningful

Three Months Ended June 30, 2022 Compared with the Same Period in 2021

Restructuring charges totaled $0.6 million and $88.7 million for the three months ended June 30, 2021 and 2022, respectively. In the second quarter of 2022, we announced our shift to a remote work model, allowing our employees to work from anywhere in the country they currently work. The shift to a remote work model was in direct response to the change in how employees work due to the impact of COVID-19. As a result, we recorded a restructuring charge of $88.7 million during the three months ended June 30, 2022, which includes $80.3 million relating to an impairment of both domestic and international operating lease right-of-use assets, and $8.4 million of related leasehold improvements.

Six Months Ended June 30, 2022 Compared with the Same Period in 2021

Restructuring charges totaled $112.5 million and $89.1 million for the six months ended June 30, 2021 and 2022, respectively, which resulted from our May 2020 restructuring announcement that included a reduction in workforce resulting in restructuring charges that primarily included severance and other employee-related costs, lease impairments, and contract amendments and terminations. In March 2021, we ceased use of a leased office and made the office available for sublease resulting in an additional lease impairment. In the second quarter of 2022, we announced our shift to a remote work model, allowing our employees to work from anywhere in the country they currently work. As a result, we recorded a restructuring charge of $88.7 million during the second quarter of 2022, which includes $80.3 million relating to an impairment of both domestic and international operating lease right-of-use assets, and $8.4 million of related leasehold improvements.

Interest Income and Expense

(in thousands, except percentages)

Three Months Ended June 30, 2022 Compared with the Same Period in 2021

Interest income increased $17.3 million, or 588%, for the three months ended June 30, 2022, compared to the same period in the prior year, primarily due to higher interest rates. Our investment portfolio was largely invested in money market funds and short-term, high-quality bonds. Interest expense increased $1.0 million for the three months ended June 30, 2022, compared to the same period in the prior year, primarily due to higher fees, which includes letter of credit and revolving credit facility fees.

Six Months Ended June 30, 2022 Compared with the Same Period in 2021

Interest income increased $19.0 million, or 317%, for the six months ended June 30, 2022, compared to the same period in the prior year, primarily due to higher interest rates. Our investment portfolio was largely invested in money market funds and short-term, high-quality bonds. Interest expense decreased $415.2 million for the six months ended June 30, 2022, compared to the same period in the prior year, primarily due to the $377.2 million loss on extinguishment of debt resulting from retirement of two term loans in March 2021. Refer to Note 6, Debt, to our condensed consolidated financial statements included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q, for additional information.

Other Income (Expense), Net

(in thousands, except percentages)

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Three Months Ended June 30, 2022 Compared with the Same Period in 2021

Other income (expense), net increased $3.7 million for the three months ended June 30, 2022, compared to the same period in the prior year, primarily driven by a change from a foreign exchange loss to a gain.

Six Months Ended June 30, 2022 Compared with the Same Period in 2021

Other income (expense), net increased $301.8 million for the six months ended June 30, 2022, compared to the same period in the prior year, primarily driven by $292.0 million of fair value remeasurement on our warrants issued in connection with our second lien loan in the prior year, which were reclassified to equity and no longer require fair value remeasurement.

Provision for Income Taxes

(in thousands, except percentages)

Three Months Ended June 30, 2022 Compared with the Same Period in 2021

The provision for income taxes decreased $7.0 million for the three months ended June 30, 2022, compared to the same period in the prior year, primarily due to the inclusion of the U.S. jurisdictions in the annualized effective tax rate ("AETR"). Due to available U.S. tax attributes, the U.S. tax rate is significantly lower than the expected tax rate, and thus reduces the global estimated tax rate applied to consolidated year-to-date income. We anticipate that our foreign taxes will increase year over year.

Six Months Ended June 30, 2022 Compared with the Same Period in 2021

The provision for income taxes decreased $2.6 million for the six months ended June 30, 2022, compared to the same period in the prior year, primarily due to the inclusion of the U.S. jurisdictions in the AETR. Due to available U.S. tax attributes, the U.S. tax rate is significantly lower than the expected tax rate, and thus reduces the global estimated tax rate applied to consolidated year-to-date income. We anticipate that our foreign taxes will increase year over year.

Liquidity and Capital Resources

As of June 30, 2022, our principal sources of liquidity were cash and cash equivalents and marketable securities totaling $9.9 billion. As of June 30, 2022, cash and cash equivalents totaled $7.8 billion, which included $1.6 billion held by our foreign subsidiaries. Cash and cash equivalents consist of checking and interest-bearing accounts and highly-liquid securities with an original maturity of 90 days or less. As of June 30, 2022, marketable securities totaled $2.1 billion. Marketable securities primarily consist of commercial paper, highly-liquid investment grade corporate debt securities, and certificates of deposit. These amounts do not include funds of $7.5 billion as of June 30, 2022 that we held for bookings in advance of guests completing check-ins that we record separately on our balance sheet in funds receivable and amounts held on behalf of customers with a corresponding liability in funds payable and amounts payable to customers.

Cash, cash equivalents, and marketable securities held outside the United States may be repatriated, subject to certain limitations, and would be available to be used to fund our domestic operations. However, repatriation of such funds may result in additional tax liabilities. We believe that our existing cash, cash equivalents, and marketable securities balances in the United States are sufficient to fund our working capital needs in the United States.

On August 1, 2022, our board of directors approved a share repurchase program with authorization to purchase up to $2.0 billion of our Class A common stock at management’s discretion (the “Share Repurchase Program”). Share repurchases under the Share Repurchase Program may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions or by any combination of such methods. Any such repurchases will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The Share Repurchase Program does not obligate us to repurchase any specific number of shares and may be modified, suspended or terminated at any time at our discretion.

We assess our liquidity in terms of our ability to generate cash to fund our short- and long-term cash requirements. As such, we believe that the cash flows generated from operating activities will meet our anticipated cash requirements. In addition to normal working capital requirements, we anticipate that our short- and long-term cash requirements will include funding capital expenditures, debt repayments, share repurchases, and platform and systems transformation initiatives. We anticipate long-term cash uses may also include strategic acquisitions. On a long-term basis, we would rely on either our access to the capital markets or our credit facility for any long-term funding not provided by operating cash flows.

Convertible Senior Notes

On March 8, 2021, we issued $2.0 billion aggregate principal amount of 0% convertible senior notes due 2026 (the "2026 Notes") pursuant to an indenture, dated March 8, 2021 (the "Indenture"), between us and U.S. Bank National Association, as trustee. The 2026 Notes were offered and sold in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).

The 2026 Notes are senior unsecured obligations and will not bear regular interest. The 2026 Notes mature on March 15, 2026, unless earlier converted, redeemed or repurchased. The net proceeds from the 2026 Notes were $1,979.2 million, after deducting the initial purchasers’ commissions and debt issuance costs.

The initial conversion rate for the 2026 Notes is 3.4645 shares of our Class A common stock per $1,000 principal amount of 2026 Notes, which is equivalent to an initial conversion price of approximately $288.64 per share of the Class A common stock. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture.

The 2026 Notes are convertible at the option of the holders prior to the close of business on the business day immediately preceding March 15, 2026 only under the following circumstances:

• during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on June 30, 2021, if the last reported sale price per share of our common stock exceeds 130% of the conversion price for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;
• during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) if the trading price per $1,000 principal amount of notes for each trading day of the measurement period is less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;
• upon the occurrence of certain corporate events or distributions on our common stock, as described in the offering memorandum in connection with the 2026 Notes;
• or if we call such notes for redemption; and
• at any time from, and including, December 15, 2025 until the close of business on the second scheduled trading day immediately before the maturity date.

Upon conversion, we may satisfy our conversion obligation by paying or delivering, as applicable, cash, shares of our Class A common stock or a combination of cash and shares of our Class A common stock, at our election, based on the applicable conversion rate. Holders of the 2026 Notes who convert their 2026 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the Indenture) are, under certain circumstances, entitled to an increase in the conversion rate. Additionally in the event of a corporate event constituting a fundamental change (as defined in the Indenture), holders of the 2026 Notes may require us to repurchase all or a portion of their 2026 Notes at a repurchase price equal to 100% of the principal amount of the Notes being repurchased.

Capped Calls

On March 3, 2021, in connection with the pricing of the 2026 Notes, we entered into privately negotiated capped call transactions (the “Capped Calls”) with certain of the initial purchasers and other financial institutions (the "option counterparties") at a cost of approximately $100.2 million. The Capped Calls cover, subject to anti-dilution adjustments, the number of shares of Class A common stock initially underlying the 2026 Notes sold in the offering. By entering into the Capped Calls, we expect to reduce the potential dilution to our common stock (or, in the event a conversion of the 2026 Notes is settled in cash, to reduce our cash payment obligation) in the event that at the time of conversion of the 2026 Notes our common stock price exceeds the conversion price of the 2026 Notes. The cap price of the Capped Calls will initially be $360.80 per share of Class A common stock, which represents a premium of 100% over the last reported sale price of the Class A common stock of $180.40 per share on March 3, 2021, and is subject to certain customary adjustments under the terms of the Capped Call Transactions. The Capped Calls meet the criteria for classification in equity, are not remeasured each reporting period and are included as a reduction to additional paid-in-capital within stockholders’ equity.

See Note 6, Debt, to our condensed consolidated financial statements included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q, for additional information on our outstanding debt.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

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Net cash provided by operating activities

Net cash provided by operating activities for the six months ended June 30, 2022 was $2.0 billion. Our net income for the six months ended June 30, 2022 was $360.0 million, adjusted for non-cash charges, primarily consisting of $442.0 million of stock-based compensation expense and impairment of long-lived assets of $88.7 million. Additional cash was provided by changes in working capital, including a $1.1 billion increase in unearned fees resulting from significantly higher bookings.

Net cash provided by (used in) investing activities

Net cash provided by investing activities for the six months ended June 30, 2022 was $171.0 million, which was primarily from the proceeds from maturities and sales of marketable securities of $1.7 billion and $581.4 million, respectively, partially offset by the purchases of marketable securities of $2.1 billion.

Net cash provided by financing activities

Net cash provided by financing activities for the six months ended June 30, 2022 was $3.6 billion, primarily reflecting the increase in funds payable and amounts payable to customers of $4.0 billion resulting from significantly higher bookings, partially offset by an increase in the taxes paid related to net share settlement of equity awards of $344.6 million.

Effect of Exchange Rates

The effect of exchange rate changes on cash, cash equivalents, and restricted cash on our condensed consolidated statements of cash flows relates to certain of our assets, principally cash balances held on behalf of customers, that are denominated in currencies other than the functional currency of certain of our subsidiaries. For the six months ended June 30, 2021, and 2022, we recorded reductions of $55.8 million and $307.9 million, respectively in cash, cash equivalents, and restricted cash, primarily due to the strengthening of the U.S. dollar. The impact of exchange rate changes on cash balances can serve as a natural hedge for the effect of exchange rates on our liabilities to our guests and Hosts.

Contractual Obligations and Commitments

As of June 30, 2022, there were no material changes outside the ordinary course of business to the contractual obligations, as disclosed in our 2021 Annual Report.

We have various contractual obligations and commitments, such as long-term leases, purchase commitments, long-term debt, and other executory contracts, that are disclosed in the footnotes to the condensed consolidated financial statements. See Note 6, Debt, and Note 8, Commitments and Contingencies, to our condensed consolidated financial statements, included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q, for further information regarding these commitments.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that of our significant accounting policies, which are described in Note 2, Summary of Significant Accounting Policies, to our condensed consolidated financial statements included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our 2021 Annual Report, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our condensed consolidated financial condition, results of operations, and cash flows.

Revenue Recognition

We generate substantially all of our revenue from facilitating guest stays at accommodations offered by Hosts on the Airbnb platform. We consider both Hosts and guests to be our customers. Our revenue is composed of service fees from our customers. Our single performance obligation is identified as the facilitation of a stay, which occurs upon the completion of a check-in event. Revenue is recognized at a point in time when the performance obligation is satisfied upon check-in.

Revenue is presented net of certain payments we make to customers as part of our referral programs and marketing promotions, collectively referred to as our incentive programs, and refund activities. The payments are generally in the form of coupon credits to be applied toward future bookings or as cash refunds. We encourage the use of our platform and attract new customers through our incentive programs. Under the referral program, the referring party (“referrer”) earns a coupon when the new customer completes their first stay on our platform. We record the incentive as a liability at the time the incentive is earned by the referrer with the corresponding charge recorded to sales and marketing expense. Any amounts paid in excess of the fair value of the referral service received are recorded as a reduction of revenue. Through marketing promotions, we issue customer coupon credits to encourage the use of our platform. After a customer redeems such incentives, we record a reduction to revenue at the date we record the corresponding revenue transaction. From time to time, we issue refunds to customers in the form of cash or credits to be applied toward a future booking. We reduce the transaction price by the estimated amount of the payments by applying the most likely outcome method based on known facts and circumstances and historical experience. These refunds are recorded as a reduction to revenue.

We evaluate whether the cumulative amount of payments made to customers that are not in exchange for a distinct good or service received from a customer exceeds the cumulative revenue earned since inception of the customer relationship. Any cumulative payments in excess of cumulative revenue are presented as operating expenses in our consolidated statements of operations.

Stock-Based Compensation

We have granted stock-based awards consisting primarily of stock options, restricted stock awards, and restricted stock units (“RSUs”) to employees, members of our board of directors, and non-employees. We estimate the fair value of stock options granted using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires certain subjective inputs and assumptions, including the fair value of our common stock, exercise price, the expected term, risk-free interest rates, expected stock price volatility, and expected dividend yield of our common stock. The fair value of stock options is recognized as stock-based compensation expense on a straight-line basis over the requisite service period. We account for forfeitures as they occur.

The assumptions used in the Black-Scholes option-pricing model are as follows:

• Expected term. We estimate the expected term based on the simplified method.
• Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.
• Expected volatility. We estimate the volatility of our common stock on the date of grant based on the average historical stock price volatility of comparable publicly-traded companies.
• Expected dividend yield. Expected dividend yield is zero, as we have not paid and do not anticipate paying dividends on our common stock.

We continue to use judgment in evaluating the expected volatility and expected term utilized in our stock-based compensation expense calculation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may refine our estimates of expected volatility and expected term, which could materially impact our future stock-based compensation expense.

Lodging Tax Obligations

Some states, cities, and localities in the United States and elsewhere in the world impose transient occupancy or lodging accommodations taxes (“lodging taxes”) on the use or occupancy of lodging accommodations or other traveler services. As of June 30, 2022, we collect and remit lodging taxes in approximately 31,300 jurisdictions on behalf of our Hosts, and lodging taxes are primarily collected in the United States and France. Such lodging taxes are generally remitted to tax jurisdictions within a 30 to 90-day period following the end of each month.

In jurisdictions where we do not collect and remit lodging taxes, the responsibility for collecting and remitting these taxes, if applicable, generally rests with Hosts. We estimate liabilities for a certain number of jurisdictions with respect to state, city, and local taxes related to lodging where we believe it is probable that Airbnb could be held jointly liable with Hosts for collecting and remitting such taxes and the related amounts can be reasonably estimated. Our accrued obligations related to lodging taxes, including estimated penalties and taxes, totaled $57.3 million and $59.4 million as of December 31, 2021 and June 30, 2022, respectively, and changes to this reserve are recorded in general and administrative expense in our condensed consolidated statements of operations.

We are currently involved in lawsuits brought by certain states and localities involving the payment of lodging taxes. These jurisdictions are asserting that we are liable or jointly liable with Hosts to collect and remit lodging taxes. These lawsuits are in various stages and we continue to vigorously defend these claims. We believe that the statutes at issue impose a lodging tax obligation on the person exercising the taxable privilege of providing accommodations, our Hosts. The ultimate resolution of these lawsuits cannot be determined at this time.

Evaluating potential outcomes for lodging taxes is inherently uncertain and requires us to utilize various judgments, assumptions and estimates in determining our reserves. A variety of factors could affect our potential obligation for collecting and remitting such taxes which include, but are not limited to, whether we determine, or any tax authority asserts, that we have a responsibility to collect lodging and related taxes on either historic or future transactions; the introduction of new ordinances and taxes which subject our operations to such taxes; or the ultimate resolution of any historic claims that may be settled through negotiation. Accordingly, the ultimate resolution of lodging taxes may be greater or less than reserve amounts we have established.

Income Taxes

We are subject to income taxes in the United States and foreign jurisdictions. We account for income taxes using the asset and liability method. We account for uncertainty in tax positions by recognizing a tax benefit from uncertain tax positions when it is more likely than not that the position will be sustained upon examination. Evaluating our uncertain tax positions, determining our provision for income taxes, and evaluating the impact of the Tax Cuts and Jobs Act, are inherently uncertain and require making judgments, assumptions, and estimates.

While we believe that we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes and the effective tax rate in the period in which such determination is made.

The provision for income taxes includes the impact of reserve provisions and changes to reserves as well as the related net interest and penalties. In addition, we are subject to the continuous examination of our income tax returns by the United States Internal Revenue Service and other tax authorities that may assert assessments against us. We regularly assess the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of our provision for income taxes.

Goodwill and Impairment of Long-Lived Assets

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. We have one reporting unit. We test goodwill for impairment at least annually, in the fourth quarter, and whenever events or changes in circumstances indicate that goodwill might be impaired. As a result of the goodwill impairment assessment, management concluded goodwill was not impaired as of December 31, 2021 and does not believe that its reporting unit is at risk of failing the impairment test since the fair value of the reporting unit substantially exceeded the carrying value.

Long-lived assets that are held and used by us are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Determination of recoverability of long-lived assets is based on an estimate of the undiscounted cash flows resulting from the use of the asset group and its eventual disposition. If the carrying value of the long-lived asset group is not recoverable on an undiscounted cash flow basis, we recognize impairment to the extent that the carrying value exceeds its fair value. We determine fair value through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals.

Any impairments to right-of-use (“ROU”) assets, leasehold improvements, or other assets as a result of a sublease, abandonment, or other similar factor are initially recognized when a decision to do so is made and recorded as an operating expense. Similar to other long-lived assets, management tests ROU assets for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. For lease assets, such circumstances would include subleases that do not fully recover the costs of the associated leases or a decision to abandon the use of all or part of an asset.

For the six months ended June 30, 2021, we recorded a restructuring charge of $112.5 million, which included $75.3 million of ROU asset impairment charges and $37.2 million leasehold improvements impairment charges within restructuring charges in the condensed consolidated statement of operations. In the second quarter of 2022, we announced our shift to a remote work model, allowing our employees to work from anywhere in the country they currently work. The shift to a remote work model was in direct response to the change in how employees work due to the impact of COVID-19. As a result, we recorded a restructuring charge of $88.7 million during the three months ended June 30, 2022, which includes $80.3 million relating to an impairment of both domestic and international operating lease ROU assets, and $8.4 million of related leasehold improvements. Restructuring charges for the six months ended June 30, 2022 were $89.1 million.

Significant judgment and estimates are required in assessing impairment of goodwill and long-lived assets, including identifying whether events or changes in circumstances require an impairment assessment, estimating future cash flows, and determining appropriate discount rates. Our estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, to our condensed consolidated financial statements included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.

Our substantial operations around the world expose us to various market risks. These risks primarily include foreign currency risk and investment risk.

Foreign Currency Exchange Risk

We offer the ability to transact on our platform in over 40 currencies, of which the most significant foreign currencies to our operations in the second quarter of 2022 were the Euro, British Pound, Canadian Dollar, Australian Dollar, Mexican Peso, and Brazilian Real. Our international revenue, as well as costs and expenses denominated in foreign currencies, expose us to the risk of fluctuations in foreign currency exchange rates against the U.S. dollar. Accordingly, we are subject to foreign currency risk, which may adversely impact our financial results.

We have foreign currency exchange risks related primarily to:

• revenue and cost of revenue associated with bookings on our platform denominated in currencies other than the U.S. dollar;
• balances held as funds receivable and amounts held on behalf of customers and funds payable and amounts payable to customers;
• unbilled amounts for confirmed bookings under the terms of our Pay Less Upfront program; and
• intercompany balances primarily related to our payment entities that process customer payments.

For revenue and cost of revenue associated with bookings on our platform outside of the United States, we generally receive net foreign currency amounts and therefore benefit from a weakening of the U.S. dollar and are adversely affected by a strengthening of the U.S. dollar. Movements in foreign exchange rates are recorded in other income (expense), net in our condensed consolidated statements of operations. Furthermore, our platform generally enables guests to make payments in the currency of their choice to the extent that the currency is supported by Airbnb, which may not match the currency in which the Host elects to be paid. As a result, in those cases, we bear the currency risk of both the guest payment as well as the Host payment due to timing differences in such payments.

We enter into foreign currency derivative contracts to protect against foreign exchange risks. Presently, these hedges are primarily designed to manage foreign exchange risk associated with balances held as funds payable and amounts payable to customers and unbilled amounts for confirmed bookings under the terms of our Pay Less Upfront program. These contracts reduce, but do not entirely eliminate, the impact of currency exchange rate movements on our assets and liabilities.

We may choose not to hedge the risk associated with our foreign currency exposures, primarily if such exposure acts as a natural hedge for offsetting amounts denominated in the same currency or if the currency is too difficult or too expensive to hedge.

We have experienced and will continue to experience fluctuations in foreign exchange gains and losses related to changes in exchange rates. If our foreign-currency denominated assets, liabilities, revenues, or expenses increase, our results of operations may be more significantly impacted by fluctuations in the exchange rates of the currencies in which we do business.

If an adverse 10% foreign currency exchange rate change was applied to total net monetary assets and liabilities denominated in currencies other than the local currencies as of June 30, 2022, it would have resulted in a loss of approximately $9.9 million.

Investment and Interest Rate Risk

We are exposed to interest rate risk related primarily to our investment portfolio. Changes in interest rates affect the interest earned on our total cash, cash equivalents, and marketable securities and the fair value of those securities.

We had cash and cash equivalents of $7.8 billion and marketable securities of $2.1 billion as of June 30, 2022, which primarily consisted of commercial paper, highly-liquid investment grade corporate debt securities, and certificates of deposit. As of June 30, 2022, we had an additional $7.5 billion that we held for bookings in advance of guests completing check-ins, which we record separately on our condensed consolidated balance sheets as funds receivable and amounts held on behalf of customers. The primary objective of our investment activities is to preserve capital and meet liquidity requirements without significantly increasing risk. We invest primarily in highly-liquid, investment grade debt securities, and we limit the amount of credit exposure to any one issuer. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Because our cash equivalents and marketable securities generally have short maturities, the fair value of our portfolio is relatively insensitive to interest rate fluctuations. Due to the short-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 100 basis point increase in interest rates would have resulted in a decrease of $16.7 million to our investment portfolio as of June 30, 2022.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of June 30, 2022, the end of the period covered by this Quarterly Report on Form 10-Q, to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the quarter ended June 30, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Controls

Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their desired objectives. Management does not expect, however, that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected.

There have been no material changes from the risk factors set forth in Part I, Item IA of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and Part II, Item IA of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, except for the following risk factors which supplement the risk factors disclosed in the reports referenced above. Our business, operations and financial results are subject to various risks and uncertainties, including those described below, that could materially adversely affect our business, results of operations, financial condition, and the trading price of our Class A common stock. You should carefully read and consider the risks and uncertainties included in the reports referenced above in conjunction with the risks and uncertainties described below, together with all of the other information in such reports and this Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, and other documents that we file with the U.S. Securities and Exchange Commission. The risks and uncertainties described in these reports may not be the only ones we face. The factors discussed in these reports, among others, could cause our actual results to differ materially from historical results and those expressed in forward-looking statements made by us or on our behalf in filings with the SEC, press releases, communications with investors, and oral statements.

Changes in tax laws or tax rulings could materially affect our business, results of operations, and financial condition.

The tax regimes we are subject to or operate under, including income and non-income (including indirect) taxes, are unsettled and may be subject to significant change. Changes in tax laws or tax rulings, or changes in interpretations of existing laws, could materially adversely affect our results of operations and financial condition. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act contains certain tax provisions, including provisions that retroactively and/or temporarily suspend or relax in certain respects the application of certain provisions of the Tax Cuts and Jobs Act, such as limitations on the deduction of net operating losses and interest. The United States government may enact further significant changes to the taxation of business entities including, among others, an increase in the corporate income tax rate, the imposition of minimum taxes or surtaxes on certain types of income or significant changes to the taxation of income derived from international operations. The likelihood of these changes being enacted or implemented is unclear. In addition, many countries in Europe, as well as a number of other countries and states, have recently proposed or recommended changes to existing tax laws or have enacted new laws that could significantly increase our tax obligations in many countries and states where we do business or require us to change the manner in which we operate our business. For example, in Italy, a 2017 law requires short-term rental platforms that process payments to collect and remit Host income tax and tourist tax, amongst other obligations. Airbnb has challenged this law before the Italian courts and the Court of Justice of the EU (the “CJEU”), but if we are unsuccessful this will lead to further compliance and potentially significant prior and future tax obligations. In July 2022, the Advocate General for the CJEU issued an advisory opinion finding that European law does not prohibit member states from passing legislation requiring short term rental platforms to withhold income taxes from their hosts, however a requirement to appoint a tax representative (on which the 2017 law and the withholding obligations are based) is contrary to EU law. However, the Advocate General’s opinion is advisory and non-binding on the CJEU, which has not yet issued a decision on this matter. Airbnb is subject to tax audits in Italy including in relation to permanent establishment, transfer pricing and withholding obligations and such audits could result in the imposition of potentially significant prior and future tax obligations.

The Organization for Economic Cooperation and Development has been working on a Base Erosion and Profit Shifting Project, and issued a report in 2015 and an interim report in 2018, and in 2021, more than 140 countries tentatively signed on to a framework that imposes a minimum tax rate of 15%, among other provisions. As this framework is subject to further negotiation and implementation by each member country, the timing and ultimate impact of any such changes on our tax obligations are uncertain. Similarly, the European Commission and several countries have issued proposals that would change various aspects of the current tax framework under which we are taxed. These proposals include changes to the existing framework to calculate income tax, as well as proposals to change or impose new types of non-income (including indirect) taxes, including taxes based on a percentage of revenue. For example, France, Italy, Spain, and the United Kingdom, among others, have each proposed or enacted taxes applicable to digital services, which includes business activities on digital platforms and would likely apply to our business.

The European Commission has conducted investigations in multiple countries focusing on whether local country tax rulings or tax law provide preferential tax treatment that violates European Union state aid rules and concluded that certain countries, including Ireland, have provided illegal state aid in certain cases. These investigations may result in changes to the tax treatment of our foreign operations. Due to the large and increasing scale of our international business activities, many of these types of changes to the taxation of our activities described above and in our risk factor titled “- Uncertainty in the application of taxes to our Hosts, guests, or platform could increase our tax liabilities and may discourage Hosts and guests from conducting business on our platform” could increase our worldwide effective tax rate, increase the amount of non-income (including indirect) taxes imposed on our business, and materially adversely affect our business, results of operations, and financial condition. Such changes may also apply retroactively to our historical operations and result in taxes greater than the amounts estimated and recorded in our financial statements.

Any escalation or unexpected change in circumstances in the ongoing military action between Russia and Ukraine, or sanctions, export controls, and similar measures in response to the conflict, could materially adversely affect our business, results of operations, and financial condition.

We are actively monitoring the situation in Ukraine and assessing its impact on our business. We have suspended all operations in Russia and Belarus and certain regions of Ukraine, which is not expected to have a material impact on our operating results. However, any escalation in the conflict or unexpected change in circumstances could adversely impact the demand for travel in the region or beyond and could have a material adverse impact on our business, results of operations, and financial condition.

In addition, as a result of Russia’s military action in Ukraine, governmental authorities in the United States, the European Union, and the United Kingdom, among others, launched an expansion of coordinated sanctions and export control measures, including sanctions against certain individuals and entities and prohibiting or limiting certain financial and commercial transactions. We have identified certain transactions that may potentially implicate the U.S., UK and EU sanctions that were imposed following Russia's invasion of Ukraine in February 2022. We have notified the appropriate regulators about these developments, and the U.S. Treasury Department's Office of Foreign Assets Control has initiated a civil investigation of certain payment instructions involving attempted payouts to Hosts' bank accounts at sanctioned Russian banks. We do not anticipate that resolution of this matter will be material to our business, results of operations, financial position, and cash flows. Our business must be conducted in compliance with applicable economic and trade sanctions laws and regulations, including those administered and enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control, the U.S. Department of State, the U.S. Department of Commerce, the United Kingdom, the European Council and the EU Member States, the United Nations Security Council and other relevant governmental authorities. There is a risk that, despite the internal controls that we have in place, we may have inadvertently engaged in or could in the future engage in transactions inconsistent with applicable sanctions laws and that our internal controls could be less than fully effective at implementing the new and any possible future sanctions that relate to Russia’s military action in Ukraine. Any non-compliance with economic and trade sanctions laws and regulations or related investigations could result in claims or actions against us and materially adversely affect our business, results of operations, and financial condition.