Peter Kern will be succeeded by Ariane Gorin as CEO, marking this earnings call as Kern’s last.
Q1 2024 Performance Overview
The travel market has normalized globally, with North America showing slower growth compared to international markets.
Revenue and EBITDA exceeded guidance, but gross bookings were weaker than anticipated.
Vrbo’s performance was below expectations due to a slower recovery post-technical migration.
Financial Metrics
Gross bookings increased by 3% year-over-year to $30.2 billion, driven by a 4% growth in lodging bookings.
Revenue grew 8% year-over-year to $2.9 billion, with contributions from B2B, Brand Expedia, and advertising businesses.
EBITDA for Q1 was $255 million, up 38% year-over-year, benefiting from revenue growth and lower cost of sales.
Free cash flow for the quarter was $2.7 billion, with a decline from the previous year due to working capital changes.
Financial Position and Outlook
Ended the quarter with $8.2 billion in liquidity, including $5.7 billion in unrestricted cash.
Debt levels maintained at approximately $6.3 billion, with a gross leverage ratio reduced to 2.3x.
Over $780 million or approximately 5.7 million shares were repurchased year-to-date.
Full-year guidance adjusted to mid- to high single-digit top line growth, with EBITDA and EBIT margins in line with the previous year.
Strategic Focus and Future Direction
Ariane Gorin emphasizes accelerating growth and refining the strategy for Expedia’s consumer business.
The company aims to focus on driving traffic, increasing conversion, and expanding margins.
There is an ongoing effort to innovate and leverage AI across brands.
Despite challenges, there is confidence in the strength of Expedia’s B2B segment, advertising business, and consumer brands.
Question and Answer
Vrbo’s Competitive Positioning and Growth Strategies
Question
How does Vrbo’s competitive landscape compare to other travel and shared accommodation platforms, and what signals will indicate the right time to increase investments in Vrbo’s growth?
Answer
Expedia Group sees Vrbo as a strong player in the whole home accommodation market, focusing on areas where it has a competitive advantage in brand strength, supply, and market share.
The current focus is on product improvement and rebuilding awareness and traffic after a spend-down period during a migration, with investments aimed at accelerating growth.
The company also acknowledges opportunities to leverage its other brands, such as Expedia and Hotels.com, to target the alternative accommodations market.
Growth Outlook and Share Gains
Question
Does the company still expect share gains in its largest business lines, and what factors are contributing to the acceleration in non-Vrbo B2C business?
Answer
The company is seeing share gains in its core hotel business across North America and major focus markets, with strong product improvements contributing to this growth.
The acceleration in the non-Vrbo B2C business is driven by consistent product enhancements, wins in machine learning implementation, and improvements in conversion, leading to more efficient marketing and better overall performance.
Shift Towards Price Investments and Loyalty Program
Question
What is the rationale behind the decision to increase price investments and how does this relate to the One Key loyalty program?
Answer
The company views all marketing, pricing, and loyalty investments as part of a single capital allocation bucket aimed at driving consumer behavior.
The shift towards price investments is based on the opportunity to drive customer acquisition and retention more efficiently through modified pricing strategies, leveraging the value of supplier-funded discounts and the One Key program.
Vrbo’s Performance and International Expansion
Question
What are the specific issues being addressed in Vrbo’s growth strategy, and when can we expect to see the P&L contribution from the new international markets where ad spending is taking place?
Answer
The primary issue for Vrbo is a traffic challenge stemming from the spend-down period during product migration, which is being addressed through increased marketing investments and rebuilding general awareness and traffic.
The company is already seeing positive results in small international markets like Brazil and Scandinavia, with double-digit growth in brand performance after launching new campaigns.
Hotels.com Performance and Long-Term Opportunities
Question
Can you elaborate on the challenges faced by Hotels.com and the opportunities you see for the brand? Additionally, what areas of opportunity beyond the next few years are you most excited about?
Answer
Hotels.com was the most impacted by product migrations, changes in the loyalty program, and a shift away from international markets. However, the brand is now benefiting from improved product conversion and the reinstatement of international growth initiatives.
The ambition for Hotels.com is to leverage the platform, international growth, and improved conversion to drive future success.
The company sees significant opportunities in AI-driven personalized traveler experiences, enabled by the unified platform and data capabilities across its brands.
One Key Loyalty Program Performance and International Expansion
Question
How is the One Key loyalty program performing, and are there implications for the potential slower ramp-up in international markets due to the underperformance in Vrbo and Hotels.com?
Answer
The One Key program is exceeding expectations in terms of new member growth, repeat rates, and cross-shopping behavior, with 25% of Vrbo redemptions coming from customers who are new to the platform.
The program is expected to support international growth as it is rolled out to new markets later this year.
B2B Business Concentration and Regulatory Impacts
Question
Can you provide insights into the customer concentration within the B2B business and whether there are any benefits from the recent regulatory changes related to Google in Europe?
Answer
The company does not disclose specific details about customer concentration but mentions that the B2B business has a well-balanced mix of large partners (e.g., banks, airlines) and a long tail of travel agencies, contributing to a diversified customer base.
There are no noticeable benefits from the regulatory changes related to Google in Europe, as the company observes Google continuing to explore new ways to monetize and potentially push down SEO traffic.
Direct Traffic Trends and Gen AI Learnings
Question
Can you provide any commentary on the trends in direct traffic and the potential impact of AI and mobile apps on cross-selling and bundled travel products? Additionally, what are the learnings from the launch of Gen AI and the products you are most excited about?
Answer
The company does not provide specific commentary on direct traffic trends but mentions that approximately two-thirds of its business comes from direct traffic, with a significant improvement in app performance and increased focus on app-driven traffic.
The company is excited about the potential of AI, including Gen AI and machine learning, to enhance cross-selling and bundled travel products by enabling more personalized and relevant recommendations to travelers.
While it is still early days for the impact of Gen AI on search and conversion, the company has conducted extensive experimentation and learning, with upcoming announcements of new features and capabilities at the EXPLORE Conference.
Cost Management and Product Bundling
Question
Are there any new thoughts on further cost management initiatives, and can you provide an update on the percentage of products sold or bundled?
Answer
The company is still in the early stages of its cost management journey, with ongoing efforts to drive efficiencies across all areas of the business, including cost of sales, overhead, and capitalized labor.
While the company does not disclose the specific percentage of bundled products, it highlights the success of its package path and the potential of machine learning to enhance cross-selling and attachment strategies.
B2B Business Long-Term Growth Outlook
Question
How should investors think about the long-term growth rate of the B2B business, considering potential transient benefits from factors like the recovery of corporate travel or exposure to Asia Pacific?
Answer
The company does not provide specific long-term growth projections but emphasizes the vast market opportunities within the travel industry and the B2B business’s strong position to continue capitalizing on these opportunities through investments in technology, supply, and partner relationships.
Headcount Reduction Mechanics and Hotel Segment Performance
Question
Can you provide details on the mechanics of the recent headcount reduction, including the allocation of savings towards reinvestments in marketing, and how is the double-digit growth in the hotel segment trending in North America versus international markets?
Answer
The company has not disclosed the specific impact of headcount reductions on individual cost lines but mentions that a significant portion of the savings is associated with capitalized labor, with a portion of these savings being reinvested into marketing.
The hotel segment is experiencing stronger growth in international markets due to favorable tailwinds, but the company is also growing and gaining share in the U.S. market.
Vrbo’s Performance and Growth Strategies
Question
What are the specific challenges in Vrbo’s performance, and what is the plan to address them? Additionally, can you provide any details on the mix of Vrbo versus core business and how it is trending?
Answer
The primary challenges in Vrbo’s performance are related to the spend-down period during product migration, resulting in a traffic issue that is being addressed through increased marketing investments and the rebuilding of awareness and traffic.
The company acknowledges the significant customer surge during the pandemic and the sustained boost in the category, with Vrbo still operating well above 2019 levels.
The focus now is on regaining lost ground, attracting new customers, and reactivating existing ones through targeted marketing and the benefits of the One Key loyalty program.
The company does not provide specific details on the mix of Vrbo versus the core business.
