Airbnb's (ABNB 2.54%) third-quarter earnings report was released after the market closed on Nov. 4. The announcement showed a strong rebound in nearly every business metric at the unique travel company.
Airbnb's business was devastated at the pandemic onset as people understandably were less willing to get on a plane or train to travel. The company took the opportunity to lower costs and make the business more efficient. The hard work is paying off as lower expenses allowed Airbnb to generate record profits.
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Airbnb posts record revenue and profits in Q3
Airbnb reported revenue of $2.2 billion in the third quarter, a period consisting of the most popular travel season when the weather is warmer and kids are out of school. No doubt, that helped the company achieve its record results. Still, this quarter's results were much better than the same time in 2019 -- before the pandemic's onset.
Impressively, business improvements made during the pandemic allowed Airbnb to funnel more of that revenue to the bottom line. Airbnb reported net income of $834 million in Q3, more than four times higher than last year -- and yet another record. The improvement in profitability would not have been possible had it not significantly improved its cost structure. Airbnb reduced variable costs, lowered marketing expenses, and kept a tight lid on fixed costs.
To get a clearer picture of Airbnb's cost discipline, consider that its revenue increased by $895 million from the same quarter last year. Meanwhile, total expenses only increased by $462 million.
Those changes should help Airbnb over the long term. Part of that improvement stems from Airbnb's greater focus on its core business while pushing some growth investments further down the line. Those plans will not stay on the shelf forever, and it remains to be seen if Airbnb can keep costs under control while going for new business opportunities.
CEO Brian Chesky hinted at some significant new offerings for the summer of next year, but investors and consumers will have to wait to hear just what those are. Chesky said he would update everyone next spring.
Airbnb has an asset-light business model
Notably, one of the main reasons Airbnb can expand profit margins while revenue surges is its business model. The company does not own or operate physical hotels or resorts. Instead, it is similar to eBay in that it is a platform that brings together two parties to make transactions and charges fees for its service. In eBay's case, the two parties are buyers and sellers of physical items. In Airbnb's case, the two parties are hosts looking to rent out space and guests looking for a place to stay.
The asset-lite business model gives Airbnb the potential to grow revenue rapidly while keeping costs under control -- leaving healthy profit margins. That potential is one of the most exciting things about owning Airbnb stock. Of course, there are risks with that model as well. For instance, Airbnb will have a more challenging time ensuring a high-quality customer experience. That said, the benefits appear to outweigh the risks, and Airbnb is one stock investors can put on their lists to consider for their portfolios.
