filings.toolsItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Item 2. 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 unaudited 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, 2023 (the “2023 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 2023 Annual Report. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
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 2 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.
Third Quarter Financial Highlights
For the three months ended September 30, 2024, revenue grew by 10% to $3.7 billion, compared to the same period in the prior year. The increase was primarily due to an increase in the number of check-ins relating to Nights and Experiences Booked and a modest increase in Average Daily Rate (“ADR”).
Net income for the three months ended September 30, 2024 decreased by 69% to $1.4 billion, compared to the same period in the prior year, driven by an increase in income tax expense of $3.1 billion, primarily due to the prior year’s valuation allowance release of our U.S. deferred tax assets of $2.8 billion, and the recognition of deferred tax expense related to the utilization of some of those assets in the current year.
Adjusted EBITDA1 for the three months ended September 30, 2024 increased 7% to $2.0 billion, compared to the same period in the prior year, driven by growth in the number of check-ins relating to Nights and Experiences Booked and a modest increase in ADR.
Cash provided by operating activities was $1.1 billion for the three months ended September 30, 2024, compared to $1.3 billion, in the same period in the prior year. We generated Free Cash Flow1 of $1.1 billion for the three months ended September 30, 2024, compared to $1.3 billion, in the same period in the prior year.
During the three months ended September 30, 2024, we repurchased 8.7 million shares of Class A common stock for $1.1 billion, leaving $4.2 billion available to repurchase under our share repurchase program.
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 generally accepted accounting principles in the United States of America (“U.S. 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 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 Reconciliation” and “— Free Cash Flow Reconciliation” 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.
1 A reconciliation of non-GAAP financial measures 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 Reconciliation” and “— Free Cash Flow Reconciliation” below.
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. Nights and Experiences Booked grows as we attract new customers to our 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.
For the three months ended September 30, 2024, we had 122.8 million Nights and Experiences Booked, an 8% increase from 113.2 million for the same period in the prior year. For the nine months ended September 30, 2024, we had 380.5 million Nights and Experiences Booked, a 9% increase from 349.4 million for the same period in the prior year. The increase was driven by growth across all regions, with the strongest growth percentages in Asia Pacific and Latin America, as we continue to focus on international expansion.
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.
For the three months ended September 30, 2024, our GBV was $20.1 billion, a 10% increase from $18.3 billion for the same period in the prior year. For the nine months ended September 30, 2024, our GBV was $64.2 billion, an 11% increase from $57.8 billion for the same period in the prior year. The increase was primarily due to an increase in Nights and Experiences Booked, combined with a modest increase in ADR. We saw GBV growth across all regions, with the strongest growth percentages in Asia Pacific and EMEA.
Non-GAAP Financial Measures
Our non-GAAP financial measures include Adjusted EBITDA and Free Cash Flow, 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. 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. Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net income and our other U.S. GAAP results. Free Cash Flow has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of 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.
| Non-GAAP Measure | Definition | Purpose of Non-GAAP Measure | ||||||
| Adjusted EBITDA & Adjusted EBITDA Margin | Adjusted EBITDA: Net income adjusted for: •provision for (benefit from) income taxes, •other income (expense), net, •interest income, •depreciation and amortization, •stock-based compensation expense, •acquisition-related impacts consisting of gains (losses) recognized on changes in the fair value of contingent consideration arrangements, and •lodging taxes for which we may have joint and several liability with hosts for collecting and remitting such taxes, withholding taxes on payments made to such hosts, and any related settlements and transactional taxes where there is significant ambiguity as to how the taxes apply to our platform. Adjusted EBITDA Margin: Adjusted EBITDA divided by revenue. | •Enhances comparability on a consistent basis and provides investors with useful insight into the underlying trends of the business. •Used by management to make operating decisions such as evaluating performance, performing strategic planning, and budgeting. | ||||||
| Free Cash Flow | Net cash provided by operating activities less purchases of property and equipment. | •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. | ||||||
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, except percentages):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||
| Net income | $ | 4,374 | $ | 1,368 | $ | 5,141 | $ | 2,187 | |||||||||
| Net income as a percentage of revenue | 129 | % | 37 | % | 67 | % | 25 | % | |||||||||
| Adjusted EBITDA | $ | 1,834 | $ | 1,958 | $ | 2,915 | $ | 3,276 | |||||||||
| Adjusted EBITDA as a percentage of revenue | 54 | % | 52 | % | 38 | % | 38 | % | |||||||||
| Net cash provided by operating activities | $ | 1,325 | $ | 1,078 | $ | 3,821 | $ | 4,052 | |||||||||
| Net cash provided by operating activities as a percentage of revenue | 39 | % | 29 | % | 50 | % | 47 | % | |||||||||
| Free Cash Flow | $ | 1,310 | $ | 1,074 | $ | 3,791 | $ | 4,026 | |||||||||
| Free Cash Flow as a percentage of revenue | 39 | % | 29 | % | 49 | % | 47 | % |
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):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||
| Revenue | $ | 3,397 | $ | 3,732 | $ | 7,699 | $ | 8,622 | |||||||||
| Net income | $ | 4,374 | $ | 1,368 | $ | 5,141 | $ | 2,187 | |||||||||
| Adjusted to exclude the following: | |||||||||||||||||
| Provision for (benefit from) income taxes | (2,695) | 367 | (2,656) | 522 | |||||||||||||
| Other (income) expense, net | 9 | (3) | 58 | 49 | |||||||||||||
| Interest income | (192) | (207) | (529) | (635) | |||||||||||||
| Depreciation and amortization | 8 | 15 | 28 | 43 | |||||||||||||
| Stock-based compensation expense(1) | 286 | 362 | 830 | 1,039 | |||||||||||||
| Acquisition-related impacts | 3 | (2) | — | 5 | |||||||||||||
| Lodging taxes, host withholding taxes, and transactional taxes, net | 41 | 58 | 43 | 66 | |||||||||||||
| Adjusted EBITDA | $ | 1,834 | $ | 1,958 | $ | 2,915 | $ | 3,276 | |||||||||
| Adjusted EBITDA as a percentage of revenue | 54 | % | 52 | % | 38 | % | 38 | % |
(1)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.
The above items are excluded from our Adjusted EBITDA measure because they are non-cash in nature, or because the amount and timing of these items are unpredictable, not driven by core results of operations, and renders comparisons with prior periods and competitors less meaningful.
Adjusted EBITDA increased by $124 million to $2.0 billion while Adjusted EBITDA Margin decreased slightly to 52% from 54% for the three months ended September 30, 2024, compared to the same period in the prior year. The increase in Adjusted EBITDA was primarily driven by growth in the number of check-ins relating to Nights and Experiences Booked and a modest increase in ADR.
Adjusted EBITDA increased by $361 million to $3.3 billion while Adjusted EBITDA margin remained consistent at 38% for the nine months ended September 30, 2024, compared to the same period in the prior year. The improvements in Adjusted EBITDA were primarily driven by growth in the number of check-ins relating to Nights and Experiences Booked and a modest increase in ADR.
During the three months ended September 2023, we released $2.8 billion of our valuation allowance related to our U.S. deferred tax assets (see Note 10, Income Taxes to our unaudited condensed consolidated financial statements included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q for further details).
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):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||
| Revenue | $ | 3,397 | $ | 3,732 | $ | 7,699 | $ | 8,622 | |||||||||
| Net cash provided by operating activities | $ | 1,325 | $ | 1,078 | $ | 3,821 | $ | 4,052 | |||||||||
| Purchases of property and equipment | (15) | (4) | (30) | (26) | |||||||||||||
| Free Cash Flow | $ | 1,310 | $ | 1,074 | $ | 3,791 | $ | 4,026 | |||||||||
| Free Cash Flow as a percentage of revenue | 39 | % | 29 | % | 49 | % | 47 | % | |||||||||
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. The decrease in Free Cash Flow for the three and nine months ended September 30, 2024, compared to the same periods in the prior year, was primarily driven by the decrease in net cash provided by operating activities.
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 key 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. A significant portion of 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 typically 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, a lower sequential decrease in Free Cash Flow, and a greater decline in GBV in the fourth quarter, where Free Cash Flow is typically lower.
Results of Operations
The following table sets forth our results of operations for the periods presented (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||
| Revenue | $ | 3,397 | $ | 3,732 | $ | 7,699 | $ | 8,622 | |||||||||
| Costs and expenses: | |||||||||||||||||
| Cost of revenue | 459 | 465 | 1,319 | 1,451 | |||||||||||||
| Operations and support(1) | 316 | 369 | 915 | 992 | |||||||||||||
| Product development(1) | 419 | 524 | 1,290 | 1,518 | |||||||||||||
| Sales and marketing(1) | 403 | 514 | 1,339 | 1,601 | |||||||||||||
| General and administrative(1) | 304 | 335 | 822 | 937 | |||||||||||||
| Total costs and expenses | 1,901 | 2,207 | 5,685 | 6,499 | |||||||||||||
| Income from operations | 1,496 | 1,525 | 2,014 | 2,123 | |||||||||||||
| Interest income | 192 | 207 | 529 | 635 | |||||||||||||
| Other income (expense), net | (9) | 3 | (58) | (49) | |||||||||||||
| Income before income taxes | 1,679 | 1,735 | 2,485 | 2,709 | |||||||||||||
| Provision for (benefit from) income taxes | (2,695) | 367 | (2,656) | 522 | |||||||||||||
| Net income | $ | 4,374 | $ | 1,368 | $ | 5,141 | $ | 2,187 |
(1)Includes stock-based compensation expense as follows (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||
| Operations and support | $ | 17 | $ | 22 | $ | 51 | $ | 65 | |||||||||
| Product development | 175 | 230 | 515 | 654 | |||||||||||||
| Sales and marketing | 33 | 43 | 97 | 124 | |||||||||||||
| General and administrative | 61 | 67 | 167 | 196 | |||||||||||||
| Stock-based compensation expense | $ | 286 | $ | 362 | $ | 830 | $ | 1,039 |
The following table sets forth the components of our unaudited condensed consolidated statements of operations for each of the periods presented as a percentage of revenue:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||
| Revenue | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||
| Costs and expenses: | |||||||||||||||||
| Cost of revenue | 14 | 12 | 17 | 16 | |||||||||||||
| Operations and support | 9 | 10 | 12 | 12 | |||||||||||||
| Product development | 12 | 14 | 17 | 18 | |||||||||||||
| Sales and marketing | 12 | 14 | 17 | 19 | |||||||||||||
| General and administrative | 9 | 9 | 11 | 11 | |||||||||||||
| Total costs and expenses | 56 | 59 | 74 | 76 | |||||||||||||
| Income from operations | 44 | 41 | 26 | 24 | |||||||||||||
| Interest income | 6 | 6 | 7 | 7 | |||||||||||||
| Other income (expense), net | — | — | — | — | |||||||||||||
| Income before income taxes | 50 | 47 | 33 | 31 | |||||||||||||
| Provision for (benefit from) income taxes | (79) | 10 | (34) | 6 | |||||||||||||
| Net income | 129 | % | 37 | % | 67 | % | 25 | % |
Comparison of the Three and Nine Months Ended September 30, 2024 with the Same Periods in 2023
Revenue
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2024 | % Change | 2023 | 2024 | % Change | ||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Revenue | $ | 3,397 | $ | 3,732 | 10 | % | $ | 7,699 | $ | 8,622 | 12 | % |
Three months ended September 30, 2024 Compared with the Same Period in 2023
Revenue increased $335 million, or 10%, for the three months ended September 30, 2024, compared to the same period in the prior year, primarily due to an increase in the number of check-ins relating to Nights and Experiences Booked and a modest increase in ADR.
Nine months ended September 30, 2024 Compared with the Same Period in 2023
Revenue increased $923 million, or 12%, for the nine months ended September 30, 2024, compared to the same period in the prior year, primarily due to an increase in the number of check-ins relating to Nights and Experiences Booked and a modest increase in ADR.
Cost of Revenue
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2024 | % Change | 2023 | 2024 | % Change | ||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Cost of revenue | $ | 459 | $ | 465 | 1 | % | $ | 1,319 | $ | 1,451 | 10 | % | |||||||||||
| Percentage of revenue | 14 | % | 12 | % | 17 | % | 16 | % |
Three months ended September 30, 2024 Compared with the Same Period in 2023
Cost of revenue increased $6 million, or 1%, for the three months ended September 30, 2024, compared to the same period in the prior year, primarily due to an increase in merchant fees of $15 million, largely due to an increase in pay-in volumes, partially offset by a reduction in chargebacks of $11 million.
Nine Months Ended September 30, 2024 Compared with the Same Period in 2023
Cost of revenue increased $132 million, or 10%, for the nine months ended September 30, 2024, compared to the same period in the prior year, primarily due to an increase in merchant fees of $137 million, due to an increase in pay-in volumes and the impact of certain one-time incentives in 2023, and an increase in cloud computing costs of $21 million, due to increased server and data storage usage. These increases were partially offset by a reduction in chargebacks of $31 million.
Operations and Support
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2024 | % Change | 2023 | 2024 | % Change | ||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Operations and support | $ | 316 | $ | 369 | 17 | % | $ | 915 | $ | 992 | 8 | % | |||||||||||
| Percentage of revenue | 9 | % | 10 | % | 12 | % | 12 | % |
Three months ended September 30, 2024 Compared with the Same Period in 2023
Operations and support expense increased $53 million, or 17%, for the three months ended September 30, 2024, compared to the same period in the prior year, primarily due to an increase in customer relations costs of $17 million, which resulted from increased make good losses associated with higher nights booked, an increase in third-party customer service costs of $12 million, driven by the busy summer travel season, which included the Olympics and Paralympics, and an increase in insurance costs of $10 million, due to higher premiums as a result of higher nights booked.
Nine Months Ended September 30, 2024 Compared with the Same Period in 2023
Operations and support expense increased $77 million, or 8%, for the nine months ended September 30, 2024, compared to the same period in the prior year, primarily due to an increase in customer relations costs of $21 million, mainly due to higher nights booked, an increase in insurance costs of $15 million, due to higher premiums as a result of higher nights booked, and a $27 million increase in payroll-related expenses.
Product Development
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2024 | % Change | 2023 | 2024 | % Change | ||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Product development | $ | 419 | $ | 524 | 25 | % | $ | 1,290 | $ | 1,518 | 18 | % | |||||||||||
| Percentage of revenue | 12 | % | 14 | % | 17 | % | 18 | % |
Three months ended September 30, 2024 Compared with the Same Period in 2023
Product development expense increased $105 million, or 25%, for the three months ended September 30, 2024, compared to the same period in the prior year, primarily due to a $93 million increase in payroll-related expenses.
Nine Months Ended September 30, 2024 Compared with the Same Period in 2023
Product development expense increased $228 million, or 18%, for the nine months ended September 30, 2024, compared to the same period in the prior year, primarily due to a $202 million increase in payroll-related expenses.
Sales and Marketing
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2024 | % Change | 2023 | 2024 | % Change | ||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Brand and performance marketing | $ | 264 | $ | 332 | 26 | % | $ | 932 | $ | 1,086 | 17 | % | |||||||||||
| Field operations and policy | 139 | 182 | 31 | % | 407 | 515 | 27 | % | |||||||||||||||
| Total sales and marketing | $ | 403 | $ | 514 | 28 | % | $ | 1,339 | $ | 1,601 | 20 | % | |||||||||||
| Percentage of revenue | 12 | % | 14 | % | 17 | % | 19 | % |
Three months ended September 30, 2024 Compared with the Same Period in 2023
Sales and marketing expense increased $111 million, or 28%, for the three months ended September 30, 2024, compared to the same period in the prior year. The increase was primarily due to a $83 million increase in marketing activities associated with ongoing marketing campaigns and search engine marketing, and a $14 million increase in payroll-related expenses.
Nine Months Ended September 30, 2024 Compared with the Same Period in 2023
Sales and marketing expense increased $262 million, or 20%, for the nine months ended September 30, 2024, compared to the same period in the prior year. The increase was primarily due to a $200 million increase in marketing activities associated with ongoing marketing campaigns and search engine marketing, and a $40 million increase in payroll-related expenses.
General and Administrative
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2024 | % Change | 2023 | 2024 | % Change | ||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| General and administrative | $ | 304 | $ | 335 | 10 | % | $ | 822 | $ | 937 | 14 | % | |||||||||||
| Percentage of revenue | 9 | % | 9 | % | 11 | % | 11 | % |
Three months ended September 30, 2024 Compared with the Same Period in 2023
General and administrative expense increased $31 million, or 10%, for the three months ended September 30, 2024, compared to the same period in the prior year, primarily due to higher non-income taxes and payroll-related expenses. Non-income taxes increased $22 million along with an increase in payroll-related expenses of $13 million.
Nine Months Ended September 30, 2024 Compared with the Same Period in 2023
General and administrative expense increased $115 million, or 14%, for the nine months ended September 30, 2024, compared to the same period in the prior year, primarily due to higher non-income taxes and payroll-related expenses. Non-income taxes increased $98 million along with an increase in payroll-related expenses of $28 million.
Interest Income
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2024 | % Change | 2023 | 2024 | % Change | ||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Interest income | $ | 192 | $ | 207 | 8 | % | $ | 529 | $ | 635 | 20 | % | |||||||||||
Three and Nine Months Ended September 30, 2024 Compared with the Same Periods in 2023
Interest income increased $15 million, or 8%, for the three months ended September 30, 2024, and $106 million, or 20%, for the nine months ended September 30, 2024, compared to the same periods in the prior year, primarily due to higher cash and investment balances.
Other Income (Expense), Net
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2024 | % Change | 2023 | 2024 | % Change | ||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Other income (expense), net | $ | (9) | $ | 3 | 133 | % | $ | (58) | $ | (49) | 16 | % | |||||||||||
Three months ended September 30, 2024 Compared with the Same Period in 2023
Other income (expense), net increased $12 million, or 133% for the three months ended September 30, 2024, compared to the same period in the prior year, primarily due to foreign exchange gains.
Nine months ended September 30, 2024 Compared with the Same Period in 2023
Other income (expense), net increased $9 million, or 16% for the nine months ended September 30, 2024, compared to the same period in the prior year, primarily due to an impairment charge on an investment in a privately-held company of $45 million, partially offset by foreign exchange gains.
Provision for (Benefit from) Income Taxes
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2024 | % Change | 2023 | 2024 | % Change | ||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Provision for (benefit from) income taxes | $ | (2,695) | $ | 367 | 114 | % | $ | (2,656) | $ | 522 | 120 | % |
Three and Nine Months Ended September 30, 2024 Compared with the Same Periods in 2023
The provision for income taxes during the three and nine months ended September 30, 2024 was driven by current tax on U.S. and foreign earnings and deferred tax expense resulting from last year’s valuation allowance release on our U.S. deferred tax assets and the utilization of some of those assets in the current year. The income tax benefit for the three and nine months ended September 30, 2023, was primarily due to the release of $2.8 billion of our valuation allowance related to certain of our U.S. deferred tax assets, as a discrete tax benefit during the three months ended September 30, 2023.
In 2021, the Organization for Economic Co-operation and Development (“OECD”) established an inclusive framework on base erosion and profit shifting and agreed on a two-pillar solution to global taxation, focusing on global profit allocation, known to as Pillar One and a 15% global minimum effective tax rate, known as Pillar Two. On December 15, 2022, the EU member states agreed to implement the OECD’s global minimum tax rate of 15%. The OECD issued Pillar Two model rules and continues to release guidance on these rules. The inclusive framework calls for tax law changes by participating countries to take effect in 2024 and 2025. Various countries have enacted or have
announced plans to enact new tax laws to implement the global minimum tax. We considered the applicable tax law changes on Pillar Two implementation in the relevant countries, and concluded there was no material impact to our tax provision for the three and nine months ended September 30, 2024. We will continue to evaluate the impact of these tax law changes on future reporting periods.
Liquidity and Capital Resources
Sources and Conditions of Liquidity
As of September 30, 2024, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $11.3 billion. As of September 30, 2024, cash and cash equivalents totaled $7.7 billion, which included $2.2 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 September 30, 2024, short-term investments totaled $3.6 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 $6.6 billion as of September 30, 2024, that we held for bookings in advance of guests completing check-ins that we record separately on our unaudited condensed 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 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 September 30, 2024, no amounts were drawn under the 2022 Credit Facility and outstanding letters of credit totaled $25 million. See Note 7, Debt, to our unaudited condensed consolidated financial statements included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q additional information.
Material Cash Requirements
As of September 30, 2024, 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.
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. During the three and nine months ended September 30, 2024, we repurchased an aggregate of 8.7 million and 18.3 million shares of Class A common stock for $1.1 billion and $2.6 billion, respectively through our share repurchase programs. As of September 30, 2024, we had $4.2 billion available to repurchase shares of Class A common stock under our share repurchase program.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in millions):
| Nine Months Ended September 30, | ||||||||
| 2023 | 2024 | |||||||
| Net cash provided by operating activities | $ | 3,821 | $ | 4,052 | ||||
| Net cash used in investing activities | (567) | (396) | ||||||
| Net cash used in financing activities | (1,259) | (2,242) | ||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (10) | 117 | ||||||
| Net increase in cash, cash equivalents, and restricted cash | $ | 1,985 | $ | 1,531 |
Net cash provided by operating activities for the nine months ended September 30, 2024 was $4.1 billion, which was primarily due to net income of $2.2 billion, additional cash provided by unearned fees of $233 million, resulting from growth in bookings, and an increase in accrued expenses and other liabilities of $218 million, which is net of a $163 million tax payment to the IRS related to a 2013 matter under examination. Additionally, we had adjustments for non-cash charges, primarily consisting of $1.0 billion of stock-based compensation expense.
Net cash used in investing activities for the nine months ended September 30, 2024 was $396 million, 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 financing activities for the nine months ended September 30, 2024 was $2.2 billion, primarily due to share repurchases of $2.6 billion and an increase in taxes paid related to net share settlement of equity awards of $422 million, partially offset by an increase in funds payable and amounts payable to customers of $665 million.
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. For the nine months ended September 30, 2024, we recorded a decrease of $117 million 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 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 "Quantitative and Qualitative Disclosures about Market Risk" in Item 3.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2023 Annual Report for a discussion of the assumptions and judgments involved in our critical accounting estimates. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, to our unaudited 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.
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