Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K. 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” or in other parts of this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Except as otherwise noted, all references to 2023 refer to the year ended December 31, 2023, references to 2022 refer to the year ended December 31, 2022, and references to 2021 refer to the year ended December 31, 2021.
This section of this Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included in this Form 10-K, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2022, filed on February 17, 2023.
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 5 million Hosts who have welcomed over 1.5 billion guest arrivals in almost every country and region across the globe. Every day, Hosts offer unique stays and experiences that make it possible for guests to connect with communities in a more authentic way.
We have five stakeholders and we have designed our Company 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.
2023 Financial Highlights
In 2023, revenue increased by 18% to $9.9 billion compared to 2022, primarily due to a 14% increase in Nights and Experiences Booked of 54.5 million combined with higher average daily rates driving a 16% increase in Gross Booking Value of $10.0 billion. The growth in revenue demonstrated continued strong travel demand. On a constant-currency basis, revenue increased 17% in 2023 compared to 2022.
Net income in 2023 increased by 153% to $4.8 billion, compared to the prior year, driven by our revenue growth, increased interest income, discipline in managing our cost structure, and the release of a portion of our valuation allowance on deferred tax assets of $2.9 billion (see Note 14, Income Taxes, to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details). The increase in net income was partially offset by an increase in business and operational taxes of $991 million, the majority of which was non-recurring.
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Adjusted EBITDA 1 increased 26% to $3.7 billion in 2023 demonstrating the continued strength of our business, a modest increase in ADR, and discipline in managing our cost structure.
Our net cash provided by operating activities was $3.9 billion in 2023, compared to $3.4 billion, in the prior year. We generated Free Cash Flow 1 of $3.8 billion for the year ended December 31, 2023, compared to $3.4 billion, in the prior year. The increase was primarily driven by growth in revenue, unearned fees and net income.
During 2023, we repurchased an aggregate of 17.9 million shares of Class A common stock for $2.3 billion, through two share repurchase programs. As of December 31, 2023, we had $750 million available to repurchase shares of Class A common stock under our share repurchase program.
Trends
The COVID-19 pandemic, and measures to contain the virus, including government travel restrictions and quarantine orders, had an unprecedented impact on the global travel industry and materially and adversely affected our business, results of operations, and financial condition. In May 2023, the World Health Organization formally declared an end to the COVID-19 global health emergency. While countries around the world are generally open for international travel, it remains difficult to predict with any certainty the impact any future new strains or variants of the virus may have on the travel industry and, in particular, our business.
More recently, inflation and other macroeconomic pressures in the United States and the global economy, such as rising interest rates, and foreign currency fluctuations, as well as evolving geopolitical conflicts, have contributed to an increasingly complex business environment. As a result, our future operational results may be subject to volatility. Additionally, further health-related events, political instability, geopolitical conflicts, acts of terrorism, significant fluctuations in currency values, sustained levels of increased inflation, sovereign debt issues, and natural disasters, are examples of other events that could have a negative impact on the travel industry in the future.
Despite these factors, we have witnessed a healthy recovery of travel demand, following the COVID-19 pandemic.
Key Business Metrics and Non-GAAP Financial Measures
We track the following key business metrics and financial measures to evaluate our operating performance, identify trends, formulate financial projections, and make strategic decisions. The financial measures are not calculated and presented in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) (“non-GAAP financial measures”). 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 U.S. 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 U.S. 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 U.S. GAAP is provided under the subsection titled “— Adjusted EBITDA” and “— Free Cash Flow” below. Investors are encouraged to review the related U.S. GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures.
Key Business Metrics
We review the following key business metrics to measure our performance, identify trends, formulate financial projections, and make strategic decisions. We are not aware of any uniform standards for calculating these key metrics, which may hinder comparability with other companies that may calculate similarly titled metrics in a different way.
The following table summarizes our key business metrics, for each period presented below (in millions):
2022 2023 % Change
Nights and Experiences Booked 394 448 14 %
Gross Booking Value $ 63,212 $ 73,252 16 %
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 was 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. Nights and Experiences Booked grows as we attract new customers to our
1 A reconciliation of non-GAAP financial information to the most comparable U.S. GAAP financial measures is provided under the subsection titled “Key Business Metrics and Non-GAAP Financial Measures— Adjusted EBITDA” and “— Free Cash Flow” below.
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platform and as repeat guests increase their activity on our platform. 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 2023, we had 448.2 million Nights and Experiences Booked, a 14% increase from 393.7 million in 2022. The increase in our Nights and Experiences Booked was driven by strong growth across all regions.
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 2023, our GBV was $73.3 billion, a 16% increase from $63.2 billion in 2022. The increase in our GBV was primarily due to an increase in Nights and Experiences Booked, combined with a modest increase in ADR. Similar to Nights and Experiences Booked, our GBV improvement was driven by growth in bookings in all regions.
Non-GAAP Financial Measures
Our non-GAAP financial measures include Adjusted EBITDA, Free Cash Flow, and revenue growth rates in constant currency, which are described below. A reconciliation of each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S. GAAP is provided below. Investors are encouraged to review the related U.S. GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures.
The following table summarizes our non-GAAP financial measures, along with the most directly comparable U.S. GAAP measure, for each period presented below (in millions):
2022 2023
Net income
$ 1,893 $ 4,792
Adjusted EBITDA $ 2,903 $ 3,653
Net cash provided by operating activities $ 3,430 $ 3,884
Free Cash Flow $ 3,405 $ 3,837
Adjusted EBITDA
We define Adjusted EBITDA as net income or loss adjusted for (i) provision for (benefit from) income taxes; (ii) other income (expense), net, interest expense, and interest income; (iii) depreciation and amortization; (iv) stock-based compensation expense; (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 the applicability of withholding taxes on payments made to such Hosts; and (vii) restructuring charges. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by revenue.
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 payments 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 Annual Report on Form 10-K 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 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 U.S. GAAP. These limitations include the following:
• Adjusted EBITDA does not reflect interest income, interest expense, and other income (expense), net, which include unrealized and realized gains and losses on foreign currency exchange, investments, and financial instruments;
• 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;
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• 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 reserves, and the applicability of withholding taxes on payments made to such Hosts; and
• Adjusted EBITDA does not reflect restructuring charges, which include impairment of operating lease right-of-use assets and leasehold improvements.
Because of these limitations, you should consider Adjusted EBITDA and Adjusted EBITDA Margin alongside other financial performance measures, including net income (loss) and our other U.S. GAAP results.
Adjusted EBITDA Reconciliation
The following is a reconciliation of Adjusted EBITDA to the most comparable U.S. GAAP measure, net income (in millions, except percentages):
2022 2023
Revenue $ 8,399 $ 9,917
Net income
$ 1,893 $ 4,792
Adjusted to exclude the following:
Provision for (benefit from) income taxes 96 (2,690)
Other (income) expense, net
(25) 54
Interest expense 24 83
Interest income (186) (721)
Depreciation and amortization 81 44
Stock-based compensation expense
930 1,120
Acquisition-related impacts (12) (3)
Lodging tax reserves and reserves for Host withholding taxes
13 974
Restructuring charges 89 —
Adjusted EBITDA $ 2,903 $ 3,653
Adjusted EBITDA Margin
35 % 37 %
The increases in Adjusted EBITDA and Adjusted EBITDA Margin for the year ended December 31, 2023, compared to the prior year, were primarily driven by the continued strength of our business, a modest increase in ADR, and discipline in managing our cost structure.
During 2023, we released $2.9 billion of our valuation allowance related to our U.S. deferred tax assets and is included in provision for (benefit from) income taxes (see Note 14, Income Taxes, to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for further details).
Free Cash Flow
We define Free Cash Flow as net cash provided by 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 our other U.S. GAAP financial measures, such as net cash provided by 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. Free Cash Flow Margin is defined as Free Cash Flow divided by revenue.
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Free Cash Flow Reconciliation
The following is a reconciliation of Free Cash Flow to the most comparable U.S. GAAP cash flow measure, net cash provided by operating activities (in millions, except percentages):
2022 2023
Revenue $ 8,399 $ 9,917
Net cash provided by operating activities $ 3,430 $ 3,884
Purchases of property and equipment (25) (47)
Free Cash Flow $ 3,405 $ 3,837
Free Cash Flow Margin
41 % 39 %
Other cash flow components:
Net cash used in investing activities $ (28) $ (1,042)
Net cash used in financing activities $ (689) $ (2,430)
The increase in Free Cash Flow for the year ended December 31, 2023, compared to the prior year, was primarily driven by increased income from operations and interest income driven by increased interest rates on higher cash balances.
Constant Currency
In addition to revenue growth rates derived from revenue presented in accordance with U.S. GAAP, we disclose below the percentage change in our current period revenue from the corresponding prior period by comparing the change in revenue using constant currencies. We present constant currency revenue growth rate information to provide a framework for assessing how our underlying revenue performed excluding the effect of changes in exchange rates. We use the percentage change in constant currency revenues for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe the presentation of revenue on a constant currency basis in addition to the U.S. GAAP presentation helps improve the ability to understand our performance because it excludes the effects of foreign currency volatility that are not indicative of our core operating results. We calculate the percentage change in constant currency by determining the change in the current period revenue over the prior comparable period where current period foreign currency revenue is translated using the exchange rates of the comparative period.
Geographic Mix
Our operations are global, and certain trends in our business, such as Nights and Experiences Booked, GBV, revenue, GBV per Night and Experience Booked, and Nights per Booking vary by geography. We measure Nights and Experiences Booked by region based on the location of the listing.
2022 % of Total 2023 % of Total
(in millions, except percentages)
Nights and Experiences Booked
North America 133 34 % 146 33 %
EMEA 168 43 187 42
Latin America 53 13 64 14
Asia Pacific 40 10 51 11
Total 394 100 % 448 100 %
Gross Booking Value
North America $ 32,246 51 % $ 34,941 48 %
EMEA 21,486 34 26,241 36
Latin America 4,838 8 6,054 8
Asia Pacific 4,642 7 6,016 8
Total $ 63,212 100 % $ 73,252 100 %
Revenue
North America $ 4,210 50 % $ 4,638 47 %
EMEA 2,924 35 3,615 36
Latin America 643 8 824 8
Asia Pacific 622 7 840 9
Total $ 8,399 100 % $ 9,917 100 %
We saw a 2% increase in GBV per Night and Experience Booked in 2023 compared to the prior year, primarily due to higher GBV per Night and Experience Booked in EMEA, which increased from $127.99 to $140.40.
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Our total Company average nights per booking, excluding experiences, decreased 4% in 2023 compared to the prior year, primarily due to our geographic mix and changes in traveler behaviors. Specifically, average nights per booking in 2023 was 4.1 for North America, 3.9 for EMEA, 3.9 for Latin America, and 3.3 for Asia Pacific, with a total average of 3.9 nights. We expect that our blended global average nights per booking will continue to fluctuate based on our geographic mix and changes in traveler behaviors.
Results of Operations
The following table sets forth our results of operations for the periods presented (in millions, except percentages):
2022 2023
Amount % of Revenue Amount % of Revenue
Revenue $ 8,399 100 % $ 9,917 100 %
Costs and expenses:
Cost of revenue 1,499 18 1,703 17
Operations and support (1)
1,041 12 1,186 12
Product development (1)
1,502 18 1,722 17
Sales and marketing (1)
1,516 18 1,763 18
General and administrative (1)
950 11 2,025 20
Restructuring charges
89 1 — —
Total costs and expenses 6,597 78 8,399 84
Income from operations 1,802 22 1,518 16
Interest income 186 2 721 7
Interest expense (24) — (83) (1)
Other income (expense), net 25 — (54) (1)
Income before income taxes
1,989 24 2,102 21
Provision for (benefit from) income taxes
96 1 (2,690) (27)
Net income
$ 1,893 23 % $ 4,792 48 %
(1) Includes stock-based compensation expense as follows (in millions):
2022 2023
Operations and support $ 63 $ 68
Product development 548 694
Sales and marketing 114 130
General and administrative 205 228
Stock-based compensation expense $ 930 $ 1,120
Comparison of the Years Ended December 31, 2022 and 2023
Revenue
Our revenue consists of service fees, net of incentives and refunds, charged to our customers. For stays, service fees, which are charged to customers as a percentage of the value of the booking, excluding taxes, vary based on factors specific to the booking, such as booking value, the duration of the booking, geography, and Host type. For experiences, we only earn a Host fee. Substantially all of our revenue comes from stays booked on our platform. Incentives include our referral programs and marketing promotions to encourage the use of our platform and attract new customers, while our refunds to customers are part of our customer support activities. We experience a difference in timing between when a booking is made and when we recognize revenue, which occurs upon check-in. We record the service fees that we collect from customers prior to check-in on our balance sheet as unearned fees. Revenue is net of incentives and refunds provided to customers.
(in millions, except percentages)
2022 2023 % Change
Revenue $ 8,399 $ 9,917 18 %
Revenue increased $1.5 billion, or 18%, in 2023 compared to 2022, primarily due to a 14% increase in Nights and Experiences Booked combined with higher ADRs. On a constant-currency basis, revenue increased 17% compared to 2022, due to a weakened U.S. dollar against the Euro and British Pound.
Cost of Revenue
Cost of revenue includes payment processing costs, including merchant fees and chargebacks, costs associated with third-party data centers used to host our platform, and amortization of internally developed software and acquired technology. Because we act as the
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merchant of record, we incur all payment processing costs associated with our bookings, and we have chargebacks, which arise from account takeovers and other fraudulent activities. Cost of revenue may vary as a percentage of revenue from year to year based on activity on our platform and may also vary from quarter to quarter as a percentage of revenue based on the seasonality of our business and the difference in the timing of when bookings are made and when we recognize revenue.
(in millions, except percentages)
2022 2023 % Change
Cost of revenue $ 1,499 $ 1,703 14 %
Percentage of revenue 18 % 17 %
Cost of revenue increased $204 million, or 14%, in 2023 compared to 2022, primarily due to an increase in merchant fees and chargebacks of $163 million and $10 million, respectively, due to an increase in pay-in volumes, and an increase in cloud computing costs of $31 million due to increased server and data storage usage.
Operations and Support
Operations and support expense primarily consists of personnel-related expenses and third-party service provider fees associated with community support provided via phone, email, and chat to customers; customer relations costs, which include refunds and credits related to customer satisfaction and expenses associated with our Host protection programs; and allocated costs for facilities and information technology.
(in millions, except percentages)
2022 2023 % Change
Operations and support $ 1,041 $ 1,186 14 %
Percentage of revenue 12 % 12 %
Operations and support expense increased $145 million, or 14%, in 2023 compared to 2022, primarily due to a $105 million increase in third-party community support personnel and customer relations costs, a $25 million increase in payroll-related expenses primarily due to growth in headcount and increased compensation costs, and a $16 million increase in insurance costs due to higher Host Liability Insurance premiums resulting from higher overall nights.
Product Development
Product development expense primarily consists of personnel-related expenses and third-party service provider fees incurred in connection with the development of our platform, and allocated costs for facilities and information technology.
(in millions, except percentages)
2022 2023 % Change
Product development $ 1,502 $ 1,722 15 %
Percentage of revenue 18 % 17 %
Product development expense increased $220 million, or 15%, in 2023, compared to 2022, primarily due to a $217 million increase in payroll-related expenses due to growth in headcount and increased compensation costs.
Sales and Marketing
Sales and marketing expense primarily consists of brand and performance marketing, personnel-related expenses, including those related to our field operations, policy and communications, portions of referral incentives and coupons, and allocated costs for facilities and information technology.
(in millions, except percentages)
2022 2023 % Change
Brand and performance marketing $ 1,030 $ 1,208 17 %
Field operations and policy 486 555 14 %
Total sales and marketing $ 1,516 $ 1,763 16 %
Percentage of revenue 18 % 18 %
Sales and marketing expense increased $247 million, or 16%, in 2023, compared to 2022, primarily due to a $177 million increase in marketing activities associated with our marketing campaigns and launches and our search engine marketing and advertising spend, and a $54 million increase in payroll-related expenses due to growth in headcount and increased compensation costs.
General and Administrative
General and administrative expense primarily consists of personnel-related expenses for management and administrative functions, including finance and accounting, legal, and human resources. General and administrative expense also includes certain professional services fees, general corporate and director and officer insurance, allocated costs for facilities and information technology, indirect taxes,
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including lodging tax reserves for which we may be held jointly liable with Hosts for collecting and remitting such taxes, and bad debt expense.
(in millions, except percentages)
2022 2023 % Change
General and administrative $ 950 $ 2,025 113 %
Percentage of revenue 11 % 20 %
General and administrative expense increased $1.1 billion, or 113%, in 2023, compared to 2022, primarily due to an increase of $991 million related to business and operational taxes, the majority of which is non-recurring, and a $93 million increase in payroll related expenses partially offset by a reduction in insurance expense of $18 million driven by reduced directors and officers insurance premiums.
Restructuring Charges
(in millions, except percentages)
2022 2023 % Change
Restructuring charges $ 89 $ — (100) %
In the second quarter of 2022, we shifted to a remote work model, allowing our employees to work from anywhere in the country. 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 restructuring charges of $89 million during 2022, which included $81 million relating to an impairment of both domestic and international operating lease right-of-use assets, and $8 million of related leasehold improvements. There were no restructuring charges in 2023.
Interest Income and Expense
Interest income consists primarily of interest earned on our cash, cash equivalents, marketable securities, and amounts held on behalf of customers. Interest expense consists primarily of interest associated with various indirect tax reserves, amortization of debt issuance and debt discount costs.
(in millions, except percentages)
2022 2023 % Change
Interest income $ 186 $ 721 288 %
Interest expense $ (24) $ (83) 246 %
Interest income increased $535 million, or 288%, in 2023 compared to 2022, primarily due to higher cash and investment balances and higher interest rates. Our investment portfolio was largely invested in money market funds and short-term, high-quality bonds.
Interest expense increased $59 million or 246%, in 2023 compared to 2022, primarily due to non-recurring interest paid relating to withholding tax payments on behalf of Hosts.
Other Income (Expense), Net
Other income (expense), net consists primarily of realized and unrealized gains and losses on foreign currency transactions and balances, unrealized gains and losses on derivatives, the change in fair value of investments and financial instruments, including our share of income or loss from our equity method investments.
(in millions, except percentages)
2022 2023 % Change
Other income (expense), net $ 25 $ (54) (316) %
Other income (expense), net decreased $79 million in 2023 compared to 2022, primarily due to foreign exchange losses.
Provision for Income Taxes
We are subject to income taxes in the United States and foreign jurisdictions in which we do business. Foreign jurisdictions have different statutory tax rates than those in the United States. Additionally, certain of our foreign earnings may also be taxable in the United States. Accordingly, our effective tax rate is subject to significant variation due to several factors, including variability in our pre-tax and taxable income and loss and the mix of jurisdictions to which they relate, intercompany transactions, changes in how we do business, acquisitions, investments, tax audit developments, changes in our deferred tax assets and liabilities and their valuation, foreign currency gains and losses, changes in statutes, regulations, case law, and administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions, and relative changes of expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can vary based on the amount of pre-tax income or loss.
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For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.
(in millions, except percentages)
2022 2023 % Change
Provision for (benefit from) income taxes $ 96 $ (2,690) *
Effective tax rate 5 % (128) %
* Not meaningful
The income tax benefit in 2023, was primarily due to the release of $2.9 billion of our valuation allowance related to our U.S. deferred tax assets (see Note 14, Income Taxes, to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details).
Liquidity and Capital Resources
Sources and Conditions of Liquidity
As of December 31, 2023, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $10.1 billion. As of December 31, 2023, cash and cash equivalents totaled $6.9 billion, which included $1.9 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 December 31, 2023, short-term investments totaled $3.2 billion. Short-term investments primarily consist of highly-liquid investment grade corporate debt securities, time deposits, commercial paper, certificates of deposit, U.S. government and government agency debt securities (“government bonds”), and mortgage-backed and asset-backed securities. These amounts do not include funds of $5.9 billion as of December 31, 2023, that we held for bookings in advance of guests completing check-ins that we record separately on our consolidated balance sheet in funds receivable and amounts held on behalf of customers with a corresponding liability in funds payable and amounts payable to customers.
Our cash and cash equivalents are generally held at large global systemically important banks (or G-SIBs), which are subject to high capital requirements and are required to regularly perform stringent stress tests related to their ability to absorb capital losses. Our cash, cash equivalents, and short-term investments held outside of 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 short-term investments balances in the United States are sufficient to fund our working capital needs in the United States.
We have access to $1.0 billion of commitments and a $200 million sub-limit for the issuance of letters of credit under the 2022 Credit Facility. As of December 31, 2023, no amounts were drawn under the 2022 Credit Facility and outstanding letters of credit totaled $29 million. See Note 10, Debt , to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for a description of the 2022 Credit Facility entered into on October 31, 2022.
Material Cash Requirements
As of December 31, 2023, we had outstanding $2.0 billion in aggregate principal amount of indebtedness of our 0% convertible senior notes due in 2026. 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 million. The cap price of the Capped Calls was $360.80 per share of Class A common stock, which represented 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, subject to certain customary adjustments under the terms of the Capped Call Transactions.
As of December 31, 2023, our total minimum lease payments were $313 million, of which $81 million is due in the succeeding 12 months. We have a commercial agreement with a data hosting services provider to spend or incur an aggregate of at least $842 million for vendor services through 2027. See Note 9, Leases , Note 10, Debt , and Note 13, Commitments and Contingencies, to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for further information regarding these commitments.
During 2023, we repurchased an aggregate of 17.9 million shares of Class A common stock for $2.3 billion through two share repurchase programs. As of December 31, 2023, we had $750 million available to repurchase shares of Class A common stock under our share repurchase program. In February 2024, our board of directors approved an additional share repurchase program to purchase up to $6.0 billion of our Class A common stock.
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Cash Flows
The following table summarizes our cash flows for the periods indicated (in millions):
2022 2023
Net cash provided by operating activities $ 3,430 $ 3,884
Net cash used in investing activities (28) (1,042)
Net cash used in financing activities (689) (2,430)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (337) 152
Net increase in cash, cash equivalents, and restricted cash $ 2,376 $ 564
Net Cash Provided by Operating Activities
Net cash provided by operating activities in 2023 was $3.9 billion, which was primarily due to income from operations of $1.5 billion and interest income of $721 million from our investment portfolio, adjusted for non-cash items including stock-based compensation expense of $1.1 billion.
Net cash provided by operating activities in 2022 was $3.4 billion, which was primarily due to income from operations of $1.8 billion, adjusted for non-cash items, primarily consisting of $930 million of stock-based compensation expense, impairment of long-lived assets of $91 million, and $62 million of foreign exchange losses due to the strengthening of the U.S. dollar against the Euro and British Pound.
Net Cash Used in Investing Activities
Net cash used in investing activities in 2023 was $1.0 billion, which was primarily due to purchases of short-term investments, partially offset by proceeds resulting from sales and maturities of short-term investments.
Net cash used in investing activities in 2022 was $28 million, which was primarily due to purchases of short-term investments and property and equipment of $4.1 billion and $25 million, respectively, partially offset by proceeds from sales and maturities of short-term investments of $4.1 billion.
Net Cash Used in Financing Activities
Net cash used in financing activities in 2023 was $2.4 billion, primarily due to share repurchases of $2.3 billion, and an increase in taxes paid related to net share settlement of equity awards of $1.2 billion, primarily driven from the taxes paid related to the cashless exercise of stock options, partially offset by the decrease in funds payable and amounts payable to customers of $936 million.
Net cash used in financing activities in 2022 was $689 million, primarily due to share repurchases of $1.5 billion under our share repurchase programs, and an increase in the taxes paid related to net share settlement of equity awards of $607 million, partially offset by an increase in funds payable and amounts payable to customers of $1.3 billion resulting from significantly higher bookings.
Effect of Exchange Rates
The effect of exchange rate changes on cash, cash equivalents, and restricted cash on our 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. During 2022, we recorded a reduction of $337 million in cash, cash equivalents, and restricted cash, primarily due to the strengthening of the U.S. dollar. During 2023, we recorded an increase of $152 million in cash, cash equivalents, and restricted cash, primarily due to the weakening 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 Hosts and guests.
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 the short-term. In addition to normal working capital requirements, we anticipate that our short- and long-term cash requirements will include share repurchases, introduction of new products and offerings, timing and extent of spending to support our efforts to develop our platform, debt repayments, and expansion of sales and marketing activities. Our future capital requirements, however, will depend on many factors, including, but not limited to our growth, headcount, and ability to attract and retain customers on our platform. Additionally, we may in the future raise additional capital or incur additional indebtedness to continue to fund our strategic initiatives. 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 and cash on hand. In the event that additional financing is required from outside sources, we may seek to raise additional funds at any time through equity, equity-linked arrangements, and/or debt, which may not be available on favorable terms, or at all. If we are unable to raise additional capital when desired and at reasonable rates, our business, results of operations, and financial condition could be materially adversely affected. Our liquidity is subject to various risks including the risks identified in the section titled “Risk Factors” in Item IA of Part I of this Annual Report on Form 10-K and the market risks identified in the section titled "Quantitative and Qualitative Disclosures about Market Risk" in Item 7A of Part II of this Annual Report on Form 10-K.
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Indemnification Agreements
In the ordinary course of business, we include limited indemnification provisions under certain agreements with parties with whom we have commercial relations of varying scope and terms. See Note 13, Commitments and Contingencies , to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K further information regarding our indemnification agreements.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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 consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K, 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 consolidated financial condition, results of operations, and cash flows.
Lodging Tax Obligations
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. Changes to these liabilities are recorded in general and administrative expense in our consolidated statements of operations.
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. See Note 13, Commitments and Contingencies , to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional information.
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 (benefit from) income taxes, and evaluating the impact of tax law changes, are inherently uncertain and require making judgments, assumptions, and estimates.
In determining the need for a valuation allowance, we weigh both positive and negative evidence in the various jurisdictions in which we operate related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2023, based on all available positive and negative evidence, having demonstrated sustained profitability which is objective and verifiable, and taking into account anticipated future earnings, we have concluded that it is more likely than not that our U.S. federal and state deferred tax assets will be realizable, with the exception of California research and development credits, capital loss carryovers, and certain losses subject to the dual consolidated loss rules. We continue to maintain a valuation allowance against our California research and development credit deferred tax assets due to the uncertainty regarding realizability of these deferred tax assets as they have not met the “more likely than not” realization criteria, particularly as we expect research and development tax credit generation to exceed our ability to use the credits in future years. When a change in valuation allowance is recognized during an interim period, the change in valuation allowance resulting from current year income is included in the annual effective tax rate and the release of valuation allowance supported by projections of future taxable income is recorded as a discrete tax benefit in the interim period. We released $2.9 billion of our valuation allowance in 2023 and will continue to monitor the need for a valuation allowance against our deferred tax assets on a quarterly basis.
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 (benefit from) income taxes and the effective tax rate in the period in which such determination is made.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K.
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