Expedia Group, Inc. (EXPE) Earnings Call Transcript & Summary

All right. Welcome back to the UBS TMT Conference, Lloyd Walmsley from the Internet team. I'm excited to introduce Peter Kern, CEO of Expedia for our next session. Peter, thanks a lot for being here.

Thanks for having me, Lloyd. Glad I could be available.

Yeah, fantastic. Well, look, I wanted to just kicked it off, you came into the row here with a lot to do prepandemic and then we had a pandemic hit. So it has been busy. If you reflect back on the last 2 years, what are some of the biggest accomplishments and where do you -- what do you have left to do?

Yes. I appreciate you not starting with Omicron. So thank you for that. Yes. The last 2 years have been really interesting and exciting for us hard, but exciting. I think the biggest things we've accomplished are largely around organizing the company the right way, getting the teams organized appropriately, focusing on creating 1 platform, 1 technical platform instead of the way we have been structured historically and frankly bringing in a great bunch of people and creating new leaders out of the people we had to around a new organizational structure to drive greater velocity and change and real expertise and domain expertise. So I think that's where we've done a lot of great work. What's still to be done is to do the work. Some of it has gotten done. We've certainly gained some efficiencies and some other things, but that's like the easy stuff. The real work is about the long-term delivery to the traveler, creating stickier experiences, retaining our travelers longer as customers, having direct relations and all of that comes through the product. So I think that's the work we are driving right now. And that's for our customers and, of course, our B2B partners as well. So that lives through the entire ecosystem. And I'm really excited about the delivery of that. That's the way it left to show everybody.

So sticking with 1 more kind of big picture question before we do bug you about Omicron. As you think about travel changing coming out of the pandemic, how do you fall in the camp of work from home really changing the addressable market, growing the market, and maybe changing the mix towards vacation, rental, properties. What were your statement on that?

Yes. I've said consistently that I think travel will largely revert to the means as it were, revert to what it was. Now that doesn't mean, of course, that -- for us, we've had a huge new adoption for Vrbo, people experiencing the product. I think that will change how people think about what they do on a given trip and when a home rental might be the right answer instead of a hotel. And that exposure has been great for Vrbo, but I think people will go back to hotels, go back to big cities, go back to resorts. I think business -- we believe business travel will largely go back. Of course, there are the thesis that people may not make the 1-day trip anymore or take the red eye just for a meeting. But if you follow where hybrid work seems to be going, et cetera, we may have equally new occasions to bring employees together, which will drive business travel in a new way. So I think how those offsets, we don't really know yet, but I think there's ample reason to think there's as many good guys as maybe bad guys that come from that. And then the life, we're all going to take 4-day weekends or months off and work from anywhere. I think that sort of presupposes none of us have kids or other obligations or other reasons to be somewhere. And as far as we're concerned, we believe in-person work is really critical. And most CEOs I talked to, the vast, vast, vast majority believe that, whether that means they'll be hybrid or some days flex, doesn't mean you can go disappear for months on end. So I don't think that's going to drastically change it. Does it create some -- long weekends become a bigger thing or other things maybe. But I don't think we're going to see drastic shifts in the marketplace.

Okay. Well, let's shift to some near-term stuff, and I'll give you 1 more respite from Omicron. So talk us through the implications. Amex has agreed to a transaction with Apollo. Can you just talk about -- you all own a nice chunk of that? Can you talk through the implications of that for your ownership stake and the business relationship, anything expected to change?

Yes. No. I mean we struck a long-term arrangement with Amex GBT. We believe that the underpinning of our supply and ultimately, a bunch of our technology can help Amex GBT succeed. We own a nice piece of it, which we're pleased about. We believe in the business, but the valuation was largely in line what they're talking about with what we thought the business was worth. So there's no grand downside or upside there, at least so far. But we believe in that business, and we believe that team has a great opportunity to be the go-to solution for large corporate players. And we felt that we had a great opportunity to power them. And that's a big part of our business, our B2B business is a big opportunity, something we lead in, something we've been trying to drive. We think this is the right model for us to excel, which is drive the underlying tech and supply, but we don't have to be every endpoint to every use case, and this was a perfect example of where corporate had unique needs. It made our company more complicated. We felt there was a better opportunity to go there. So we think it's a great business. We think they'll do great. I'm sure our equity will be -- continue to grow there. And we hope that we'll find new and better ways to help drive their business with supply and technology.

So yes, on the new strain, new travel restrictions, anything you would flag and what you guys are seeing? Or is it just too early?

Well, I think it's too early in the sense that no one knows where the science is going to be, although I happen to believe that the benefit of -- variants aren't going away. They're going to keep coming. The more the traveler, customer and the market at large gets used to the bumps in the road, and like, "Oh, they don't overreact." They don't say, "Oh, my god, the sky is falling. We have to cancel everything." The more of these we get, we will desensitize ourselves to unnecessary volatility. But the more you see, you talked about on morning television or in the news or on the Internet, Pete, there is a segment of the traveling community will react to it. So I've said all along with COVID, it's pretty much what you think. If a country shuts down, those people aren't traveling. If you put up more obstacles and testing and other things, some people will decide not to travel. So it always has an impact but it's more perception than anything else. And if the traveling world gets used to this and we probably will have more variants then we'll all get desensitized and continue on with our lives, which I think will be appropriate for Omicron even though the scientists expect there will be widespread. And so far, knock wood, the severity has been pretty mild. And if that holds up, I think people will go back to what they were doing.

Yes. Okay. Okay. So Expedia is, you've done a phenomenal job taking cost out of the business. It's been [indiscernible] take advantage of the pandemic to just do things that would have been tough to do in normal times. How does the story change in 2022 from kind of the cost story to a recovery story? How do you see that migration?

Yes. Well, I would say, for us, it was never a cost story. It was a structure and technology story that happened to have the benefit of cost and it's certainly true from an organizational standpoint. It's easier to push kind of dramatic change when dramatic things are happening as opposed to when people think things are going pretty good. But really the underpinnings of the benefits we got on the cost side is that we believed we were structured incorrectly that the technology was not as widely adopted, and the platform didn't serve the whole -- we have multiple stacks I've talked about this many times that all that inefficiency born into that system had to be wrung out. So we snatched a bunch of things together. We've brought in new technologists. We've rearchitected what we're trying to do. And that, as I mentioned, is where the real opportunity is. It's nice that we also took some costs out, but we don't think of ourselves as a cost story. We think of ourselves as -- these are the building blocks, costs are obviously easy to denominate and easy for the investment world to look at and say, well, that's better. But the real payoff is in the technology that will drive further efficiencies, we hope in how we do things, we'll drive better traveler outcomes. As I mentioned, better experiences mean customers stick and you have them as direct customers. All those benefits on through the value chain are what are left to come, and that's what we're working on. And as I said, that also goes for our B2B partners. The beauty of 1 platform is when you innovate and create new better products, the whole platform gets the benefit and it drives the whole ecosystem, and that's the place we want to be.

Okay. So looking at that kind of the go forward, I think the original restructuring have taken close to $750 million out of the business. You've said that will kind of grow with inflation, the base left over with growth inflation. What is -- what do we think about inflation? Is that 4%. We know developer costs are going up. But like how do we think about that investment? And what are some of the things you'll need to just be investing in on that fixed cost base?

Yes. You guys definitely have better economists than we do, so you can tell us what inflation is going to be. But clearly, there's big inflation on the developer side, engineers, data scientists, product people. Those are jobs in high demand, and we want the best and brightest to help us drive the outcomes we're looking for. So there's certainly some pressure there. But I would say there's also a lot of opportunity as we continue to refine how we do things, and that creates the ability to be more efficient and gain more efficiencies over time. And in fact, much of what we've talked about when we have mentioned things like our technology for service and things like that, we've done it. It's been very effective, but we haven't really seen the benefits of it in the numbers yet because call propensity during COVID and the length of calls like COVID has created a massive service. So while we've taken out -- it would have been worse had we not done all the technical advances we've done. We haven't seen the -- against par or against '19, we haven't really seen the benefit. So there's some -- there's definitely will be pressure on some of our costs. There's still opportunity to be more efficient in many of the things we do. And we believe that technology will help us get more and more efficient as we go. So there's some puts and takes. I think we believe broadly. We've made a step change kind of change in the cost structure. And hopefully, we'll find more opportunities to do that. But now we're much more focused on the growth opportunities because there are lots of big opportunities where we have been deficient in very obvious opportunities and growth around how we take care of the customer. So I think that's -- we're not terribly focused on the cost side other than we believe those costs were real. And as inflation comes, we hope and believe there are a number of things that will continue to offset that over time. Now just to be clear, we're investing -- if someone came to me tomorrow and said $50 million, we could go faster and get this thing over the line sooner and go, we are open to investing to move faster, especially during COVID to get it over with and get to the new state. So I'm not saying we're doing 50, don't take any meaning in the $50 million, but we are willing to invest to bubble up, go faster right now. And that's not normalized anything, but we are willing to do that.

Yes. And I guess, as we think about the kind of the shift to a more offensive mode with the travel recovery, investors who have been used to maybe the old Expedia, where sometimes there is volatility -- unexpected volatility. Like should we be worried that maybe you stumble on, "Oh Lord, now the volumes are backed off, we cut too hard here." Are there areas that -- where we should be just wary of costs coming back that weren't supposed to?

No, I don't think so. I mean we don't expect those structural benefits to start pouring back like we cut muscle, or we cut bone or whatever those things are. I think we've done all the appropriate things, and nothing is perfect, but we don't feel like there's any big oh oh's floating around in there. I think what you might see depending on our degree of aggression, and our degree of belief in the benefits we are going to reap in the future in terms of efficiencies, in terms of stickiness of our new loyalty program and all those other things is -- I've been asked about Google lots of times, and it's like are you going to pull money out of Google? Well, Google can provide us with customers that are good customers. And if we can make them stick at a much higher percentage than we used to, then it's going to make all the sense in the world for us to keep spending money with Google. It might make sense for us to spend more money and where we come out in terms of what we're willing to push for growth versus what we're trying to gain in margin, I think that balance will -- is still to be worked out. But the better we get in that traveler experience, the better we get in retaining customers this idea that we're just going to spend less, we may spend more for more growth and stickier long-term growth than we've ever had. So I think I wouldn't call that a surprise. I would call that a calculated decision we will make because we like to drive consistent long-term growth in the top and bottom line, and we think that might be the answer. So I don't want people to be fixated on everything will be achieved by spending less, cutting more, et cetera, et cetera. Everything will be achieved by delivering on the platform. And when the platform delivers, I have every expectation that we will be able to lean in not just generally, but in more of the international markets where we've gotten weaker over the last decade, et cetera, where we think we have opportunities to win, and we can push in there.

Got it. So shifting gears to product a little bit, what are some of the product initiatives that you are most excited about? And one thing we want to dig in on a bit is just a multiproduct. You guys have been multiproduct for, since inception, really. So understanding like what do you need to do to emphasize this more? How meaningful is this in your mix? How is it -- how meaningful is it in customers' minds. And then -- but then, yes, broadly, like what are you most excited about on the product side?

That's -- I mean, that's literally a laundry list, but there's just so much. But I'll start from your core question, which is if you believe that certainly, a large portion of our customers have known us as an all-things provider. Clearly, not everybody is buying as many things as we would like in your giving trip. And that starts with a very basic idea, which is, we don't have a card. You can't actually check out an airplane and a hotel together, that may come as a surprise to some of you but -- came to a surprise to me. But we don't have a card. And we will have a card pretty soon, and it will roll out across our product set. But imagine the unlock in terms of a customer's experience. And then, of course, you have to make it work up funnel and make them understand that they can plan a whole trip. There's a bunch of things. We've historically done that by saying, like, "Oh, you just bought this, you can buy this now where you could buy a package, that's prepackaged." We've done a lot to try to offset that. But basic fundamental things can make a huge difference for us. And then you think about like our CRM stack hasn't been great. There's a huge opportunity there. Our affiliate stack, which is how we have B2B affiliates, and we want to have a much broader B2B relationship, not just these big enterprise customers, which we've done very well with but also down to much smaller entrepreneurial users. We haven't had easy ways for those people to become engaged with us. We still built a surprisingly large business out of it. But when we make it really good, there's a big opportunity. And then on the traveler side, we haven't really been an app-first company. We will now be an app-first company, including all the goodness that comes with a tool that is with you for your whole trip, it keeps you informed, that keeps you informed in the shopping path. We'll have much more discovery about how people can stay alerted to what's happening, whether things are changing in their trip or changing their shopping experience. And so we have a bunch of things. I'm not going to reveal them all here, but we have a bunch of things coming that we're very excited about. And we remain the leader in the air. We remain dominant in many markets, in hotel, a strong position in home rental, especially in the U.S. So we have great opportunities to drive lots of new traveler experience through that and just simplify the process of discovery buying and then the loyalty and how we stay with you and everything else. So there's really a bunch of things, but those are just a few simple ideas.

No, yes. Let's dig into the marketing. I mean you touched on it, but you've been centralizing marketing I think at the function level, all the data from different brands. You're talking about unifying the loyalty program. What talk about, I guess, how -- where are you in this journey? And what are some of the like that signposts we should be looking for to measure it?

Yes. Well, I think in marketing, we're actually further along than in many areas because frankly, it doesn't always ride on technology. We've brought in a great leader in the brand team. He's put together -- we're basically building an internal agency of tremendous talent. So we will have -- I have 0 doubt we will have the best by a wide margin in terms of classic brand marketing, video types of marketing, et cetera that will start -- you'll start to see that. I mean I think you've started to see it through Black Friday and some of the work we've done recently in the Vrbo holiday campaign, but it will really start to roll next year. And then it flows down through performance marketing, where we brought all the technology together. We've consolidated almost all of the algorithms, not quite all yet. Almost all of the data, not quite all, but mostly there. And as we get the brands aligned in 1, we're optimizing for the brands as 1 house of brands, not a brand versus another brand, that simplifies a lot of things. It simplifies the stack. It simplifies what we're doing on loyalty, it simplifies how we go into performance marketing because there's no agenda other than optimizing for the group. And over time, the group might shrink a bit, and we might find consolidation and power around fewer brands. And all of that is in the works. I think the last piece is loyalty that unfortunately rides on technology. We're rebuilding our loyalty stack to accommodate that. And I think over the course later this year -- later -- excuse me, later next year, you will see it all start to come together with a plot where we are starting to inform customers of where this is going, bring them all into 1 loyalty stack, converting it all into 1 currency and so forth. And that will be a great opportunity to further simplify our brand messages because now you can earn over here. You can earn on an Expedia flight and go spend it on a Vrbo stay or vice versa and all of that optionality, which we know cost research proves clearly, the customers want that optionality, and we think we're going to be the only ones really able to provide it.

So if we look at marketing, there's been periods in the space where we shifted between growth and profitability. Where do you think the space is and where is Expedia? It sounds like you guys started to lean in before delta, but kind of pulled back. But how should we think of your posture assuming this latest variant doesn't blow things up.

Yes. I mean, I think, as I said, we want to be on our front foot. We want to be focused on growth, not if we don't have the right product behind it. So I think part of the problem is the only lever historically started to be how hard do you push on performance marketing or not. That is clearly not the only lever in our business. And as we drive, I hate -- sorry, it would be repeating myself, but as we drive stickiness, as we drive higher customer retention, higher customer engagement, higher transaction value, more things in 1 transaction, et cetera, the game changes dramatically for us. So I think we want to be out of the game of the only tool we have is how efficient are we being in performance marketing. Frankly, I'm not -- most of our people would tell you, we're not sure we were measuring performance exactly right, because we didn't have enough wait for lifetime value and other things. So there's been a lot of calculus, a lot of -- a lot going on and figuring out the best way forward. But again, the only lever used to be, are you pushing? Or are you pulling back? Do you get more margin? Or do you get more growth. We think we're going to rebalance what those numbers are in terms of how long do we retain the customer for, what is that lifetime value picture, what kinds of customers, what are we leaned into, what is the halo of our brand marketing doing? And then we have -- I'll give you a very basic example, Lloyd, which is we have this very -- several very rich loyalty programs. One, Hotels.com is extremely rich compared to the marketplace. The market doesn't perceive it that way. If you do research, customers don't really think of it that way. And our biggest competitor basically gives their customers nothing except the so-called genius rates, which are just rates provided by suppliers. We have many of those same rates, sometimes different ones, but many member discounts, but we've never marketed it as a core function of our loyalty plan. So shame on us, we didn't take credit for it. We didn't put it front and center for the customer. We didn't make sure they were getting the benefit early in their shopping experience. But they've done it all without taking a penny out of their own pocket. We've had these loyalty programs, which would cost us hundreds of millions of dollars. So we have to make those pay off for us, and we have to make them create the stickiness that they're intended to create and take credit for all the other good things we're bringing to customers that we haven't even taken credit for. So there's a lot of opportunity in all of that from our perspective in terms of how we go to the market and how we explain the proposition to the customer.

Yes. So it sounds like thinking about that, if you're not getting credit for the richness of that program in the marketplace, you can -- as you consolidate it all, maybe you restructure it. So it's perhaps a little less costly, but then you kind of enhance what people could use it for, so they feel like they're getting more value without dipping too much into unit economics to do that? Does that sound fair?

Yes. I think it's some combination of all of that. Remember, of course, we'll also make royalty available to a much wider swath of our customer base because it hasn't been available to every brand. It's not on Vrbo, et cetera. So my hope is that, a, we make the money really have an ROI. It creates the actions we want. We get credit for the discounts we're getting people and way, way more people into the program than we were getting. And by the way, we probably have the biggest program in the world as we sit today, even with doing 3 different ways across the company and not the whole company. But when we bring it all together, it will be a hugely powerful machine. And we think, yes, it will be more efficient on a per transaction kind of basis. Yes, we will take more credit and get more credit for the other benefits we're providing and then we'll be in a unique place where we are seen as a unique provider of incremental value as opposed to just people not understanding the difference between their choices. So we can do much, much better at that, and we will.

And if we isolate on the aggregation of marketing across brands into 1 department, is the primary benefit of that not competing against -- having brands compete against each other in some of these performance channels? Or are there other benefits aside from that as well?

It's definitely more than that. I mean think about it from the end to end, right? Every brand has its own brand marketing teams, its own PR teams, its own social team and so on, performance marketing. So there is definitely an efficiency of not only bringing people together so that they're not all working -- doing the same thing 50 different times but also, they're doing it in a consolidated way, which says, okay, if the next best move is to promote Expedia for x as opposed to -- if my job is to sell Hotels.com, I'm going to spend all day thinking about how to sell Hotels.com. So there's functional benefit in what the people are doing. As I said, there's also -- we've brought in tremendous talent. There's also a functional benefit in the performance marketing because those people are building algorithms and getting to a unified data set so that they're not all outthinking they're optimizing for different things and competing with each other. So it flows all the way through everything we do at the front end. It's a considerable benefit.

And then looking at Vrbo, it's interesting. It sounds like you're less focused now on integrating that inventory into the core OTA assets. Question was going to be, are there other ways to work together outside of integrating supply? It sounds like you talked about its vis-a-vis the loyalty program, but like how do you see the interplay between Vrbo supply and the rest of the assets and...

Yes. I would say, first of all, we're not unfocused on bringing Vrbo supply. We want to bring all supply into, if you will, an integration layer that can distribute to all demand because we know there's plenty of demand on our OTA sites. If we do it right, we've done it, but it hasn't been great as an experience. There's tons of demand in our B2B sites, our enterprise customers, that hasn't been available. And I would say the only difference is instead of now randomly picking out things we wish we could do, it's now all on 1 technical road map and all the dependencies are mapped, so that it may be that we need to do something first in checkout or card or whatever before we get to that thing, but it has not diminished in terms of our goals or our ambition for it. It's just we're being way more prescriptive and technical about how we build instead of just randomly having squirrels to chase. So it is important to us. It is a big part of our future. It's not our only trick anymore. We've got a dozen or 20 that are all big hitters that could make a huge impact on our business. So we're in a methodical way going after all of that, and we will get that into the pipeline. Yes, loyalty and other things will happen. But I'm not sure those will happen materially earlier than getting unified supplies. So it's just 1 of a number of things instead of the only thing we have to talk about.

Yes. And look, I mean, Vrbo has clearly been really strong throughout the pandemic. You guys have talked a little bit about it, but why not disclose more given how well they've been doing to give us a sense for that business?

Yes. I think you just answered the question in the prior question, which is, to us, it's all an integrated pool of travel options. And if we proceed down the path we are on, which is that we want to make all those options available to all of our travelers all over the world. When you get into parsing yet and say, "Oh, we're going to drive this thing separate from that thing", let alone the people who say, "Why don't you break it apart and why don't you whatever", you really start to miss the plot, which is -- It may be that people are -- have pivoted more to vacation rental, and that's been great for us. That's been great for Vrbo. And we -- as we've said, we think Vrbo's gained share dollar share in many of its biggest markets against its main competitor. But if that shifts around or we trade it for a hotel or a certain market goes 1 way or the other, you should now be going, "Oh, it's bad here, good there." It's like, what's the whole picture? Is it good for us as an enterprise? And we're not trying to drive the customer to a particular -- we're trying to drive the customer to the product and solution that is best for the customer. And if that happens to be a hotel, terrific. And if it happens to be a home rental also terrific. So we know nobody wants it. Everybody wants to put a revenue multiple on it and say, look, it's like Airbnb, they'll do what they're going to do, would certainly welcome a revenue multiple, if any of you want to give us one. But it's too integrated into everything we're doing to spend a lot of time trying to parse it between 1 and the other.

Okay. Okay. And as you think about the supply in that market, you all have done some great -- I think in certain pockets of demand, it's been supply constrained, just given the mix shift. You all have done some creative things. How do you feel about the ability to like grow supply over the next 3 to 5 years in that space? Is there a supply out there to get in vacation rental? Or is it more you've done a great job in the U.S. and pushing internationally?

I think we can continue to grow in the U.S. for sure. But yes, there's more opportunity internationally probably for us. It's not where we've been the biggest demand generator in general and there's plenty of demand out there and matching that demand and supply is what we have to do. Not unlike Expedia, Vrbo has a long history of buying things internationally. I mean back when it was HomeAway, et cetera, and not really being able to run the same playbook and make it work. And the push we have is, let's find the right playbooks that work end to end in discrete markets instead of like, say, declare Europe or APAC as the thing we have to win. Those are very diverse places. France is a lot different, and Germany is a lot different than the U.K. And likewise, Japan is a lot different than Korea, different than China, et cetera. So we're trying to come up with discrete playbooks and really go after it end to end. Instead of in this sort of generic peanut buttered way we have historically done, frankly, but we think there's lots of opportunity to grow there. We will stick to what we believe we're good at and what we're known for, which is generally the whole home, whole condo, whole apartment. We're not interested in being in cities where there's lots of issues about whether they're going to allow vacation rental or if and in terms of shared homes, like there's a lot of stuff that comes with that, that we don't think is what we're known for. So you're not going to see us chase everything, but there's plenty of opportunity for us to continue to grow the segments we think are important to our travelers.

Yes. Okay. Well, I want to make the PSA, if anyone in the audience has questions, you can enter them from the webcast screen. But I will keep going until we get some.

Anyone who wants to book a Vrbo, just put it up there.

And then I guess sticking with vacation rental, I think you touched on not doing shared accommodations. What -- and you touched on urban, do you think that in markets where the regulation is kind of more ironed out that there's an opportunity to go into those markets? Is there any reason not to?

No, no, we're in plenty of urban markets. We're just in it in a way that is consistent with what our brand is about, and that's what we want to continue to do. So in markets where the -- and I'm not saying we won't play anywhere where the regulatory environment may be shifting or whatever. But we don't play in markets that, by and large, are leisure markets where they get people that want to rent a whole apartment, a whole condo, a whole something, and we can provide a really good end-to-end service. We don't want to play in places where we've got buildings that don't want them there and other things like that. And regulators who don't want them there and tax issues that arise, like that, that is a messy. Forget about whether it's messy for us, it's potentially messy for the traveler. And we're going to be really, really mantically focused on the traveler. And that includes not selling them something they actually don't want to buy. So we want to be consistent about that experience. But whether it's Miami or Paris, there's plenty of cities, which we would call cities that are also big leisure destinations with big leisure demand for whole home, and we want to satisfy that. So we will keep trying to do that.

I wanted to get your take on kind of where ADRs are going. We've heard from people in the vacation rental industry that the summer 2022 pricing is looking up. We've heard some crazy numbers. It's so early that it's hard to -- the booking window is just probably about to open up early next year really, but it could have a pretty meaningful impact on your business if ADRs end up, up a lot next summer. What do early indications suggest for both alternative and for core hotel for kind of the next summer peak season? And is it just too early to make much sense out of those pricing now?

Well, I wouldn't overdramatize it from the standpoint of there's a lot still left to play out. But obviously, early demand has allowed homeowners and home management companies to push price. That's happened throughout COVID, frankly. I mean we've seen ADRs grow significantly. Just like we've seen ADRs grow for big leisure destinations, Hawaii, Mexico, Florida, et cetera, just to pick the U.S. as an example. So on the flip side, cities, by and large, have gone the other way and been very challenged. I think if you believe the world continues to open up, that we will see some normalization there because, again, people will go back to Paris, New York, San Francisco, et cetera, as opposed to just going to a beach or a mountain, which have been sort of the preferred COVID destinations because you get isolation and outdoors, et cetera. So because I think you'll see early booking because people have now gotten accustomed to want to get out in front and not miss that beach house they want or that ski house they want. I think you will see prices holding up considerably. Same for leisure, holiday -- Hawaii, Florida, et cetera. The question is, as more supply becomes more realistic in terms of city travel and other things for next summer, does it balance out? And I think probably what I believe scientifically will happen is we will all get more accustomed to this. We'll continue to have good break, good vaccines and other treatments and people will be way more open to go back to the big cities they've been missing and so forth. So I think we'll see that come back. When that balance comes and whether we don't have a whole lot of consumers trying to get out ahead of next summer, we do. We're more booked up in Vrbo even out to next Christmas. So now small numbers, but it's happening because people are trying to get in front of it. So we'll see that for a while. And then at some point, maybe it normalizes out.

So Partner Solutions, a little over 20% of kind of retail operations in 2019. It was also the fastest growing. We don't hear that much about that segment. So can you maybe just talk a little bit about some of the big initiatives there? And what -- can that business grow faster than retail over the next couple of years in a normalized world?

Yes. Well, I would say that if you don't think you're hearing about it, you may not be hearing about it by name. But if you're reading between the lines and everything I'm saying, we have in principle, which is we want to build everything in our platform, so it's externalizable to our partners because we believe the partner universe is vast and can grow tremendously. My lecture to them -- my statement of mission to the company is that we represent, I don't know, 5, 6 single-digit percent of the total travel economy. We can grow our consumer brands much more quickly. But if we really want to make an impact on many more travelers across the globe, it's going to be through our B2B business and making all of our products sort of from the atomic level up to the fully integrated enterprise user available to the outside world is going to be valuable. So we believe we will increasingly be able to externalize pieces of our platform to the point where developers can build on top of it, small entrepreneurs can use pieces of it, big enterprise customers can configure it easily. And that is at the heart of how we are designing our technical platform. And when we go to market with each thing, how we roll it out, I'm a little more like show than tell like I don't want to oversell and then be a quarter behind. But we are building to that vision, and we believe these things are ahead and that business continues to grow. The Amex GDT deal is a version of continuing to focus on that business, and we are keenly focused on that business.

So we have 1 from the audience asking for your view on Google's updated hotel product, I'm referencing the 4-paid links plus the 2 new free-booking links that Google calls organic, maybe a little on the weeds?

A PR for Google. It doesn't change the outcome much in what we've observed.

Yes. I wanted to ask 1 on just capital allocation. I mean you've repaid the preferreds. What -- I assume you're still being fairly cautious with your balance sheet given we're not totally out of the woods yet, but how do you think about use of capital as the business comes back, you just generate tons of free cash?

Yes. I mean, look, we feel -- I mean I feel pretty confident about the future, but there will still be bumps in the road, Omicron this time, next Greek letter next time. Like there will be issues. We're not going to run our company as if the next 100-year plague is coming within 2 years of the last 100-year plague. But we're obviously a little more conservative given the environment we're in. We certainly want to get our balance sheet in the shape to continue to be investment grade. And -- but we believe in what we're doing, and we believe in the growth. And as a CEO, I'd like to believe we continue to see opportunities to continue to invest and accelerate the business. But we've always been very good stewards of shareholder capital and found ways to return in efficient ways. And I assume when we're in a position to do that, we will certainly revisit those things and look to do that if we can't find a better thing to spend the capital on to grow the business. So we're very return driven. And obviously, I hope more returns lie ahead in growth, but we are mindful of, believe me, when the stock had hit by Omicron last week, I was thinking, boy, it would be nice to buy back some stock here. But anyway, we will continue to roll our playbook. And I think I expect next year to be a pretty good year, and we'll be in good shape in that regard, and we'll be able to revisit some of these things.

Okay. We have another 1 from the audience going back to the cost stuff. And the question is, how should we think about sales and marketing expense as a percent of gross bookings 2022 and 2023 versus, say, 2 years ago, given you've taken out 750 fixed plus 250 of variable, should we expect to see leverage in that number, right? Or correct?

Yes. Look, we definitely hope that all the things we are doing in performance marketing and in marketing in general will create leverage. Again, the numbers can be bumpy. Sometimes you got to be out in front to drive the growth you want in a given quarter or a couple of quarters you might be willing to go harder at it, even though the payoff is not immediate. You can talk about brand marketing. Brand marketing is a longer build. And if we believe in our brand marketing, we may be willing to be out in front of that. But over time, yes, we believe we will be driving more leverage into that in no small part because we will retain customers more, and therefore, more of the traffic becomes essentially free and that changes the dynamics of your P&L. And though it will take another year probably to start to be evident in the numbers, the loyalty program, if we use that royalty money more efficiently that shows up in marketing as well, and that will change. And frankly, there's also costs associated from the B2B business that show up through our marketing line and the more business and volume we can build more simply on top of the business there, that too will become -- should become more efficient. So there's lots of opportunities to great efficiency there. I think they will take time to show up. And don't be surprised if we're leaned in a little bit to get ahead of the demand because Lloyd, I don't want to create surprises if that's our history. That's not what we want to be about. But I'm willing to -- next summer is going to be big. You're going to see us get in front of next summer. And if the whatever variant hits, there's opportunity to be wrong. But you will see us be aggressive there. And in a moment in time, that might look like something is a little funny between the leverage and marketing, but you're paying for the futures on that. And if we believe in that, we're willing to do that.

Well, I'm definitely seeing a lot of Vrbo ads all over online video. I don't know, maybe it's just personalized.

[ It's you, because you're clicking online ].

Yes, yes, yes.

But appreciate it, Lloyd.

It's all personalized. But yes, look, we're out of time. Peter, it's great to have you. Thanks for spending time with us. Really appreciate it. excited for the 2022 recovery that unfold, knock on wood.

Yes. Thanks, Lloyd, us too, and thanks for having us. I appreciate being invited.

All right. See you soon.

Bye-bye.