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

All right. So maybe we'll get this thing started. Good afternoon, everyone. My name is Lee Horowitz, one of the co-heads of Internet Equity Research here at Deutsche Bank. We are delighted to close out the first day of MIT with Peter Kern, CEO and Vice Chairman of Expedia Group. Peter, thanks so much for joining us.

Pleasure to be here. Thanks for having me.

So maybe just to kick things off, we'll start on the macro. The global consumer is currently dealing with the most pronounced inflation anyone has experienced in decades. Yet travel demand remains stubbornly strong as the man with the best data to answer this question, so what do you own this strength?

Yes. I mean we don't know what to chalk it up to other than I think we're past revenge travel or COVID revenge travel. And I think this is a more stubborn or more positively or more lasting human reaction to having been deprived of travel for so long and having reprioritized the years of buying lots of stuff during COVID online and sitting in your house board and whatever to moving to getting more experiences into your life. We led with that out of the Super Bowl last year when things were just opening up. That was our whole construct. You bought enough stuff, go with your life, get experiences, enrich your life. And people seem to be really dedicated to it and prices have remained really high. High is still constrained in some places, and that's adding to it. But there seems to be so far an unquenchable thirst that we are very happy to participate in.

That makes a lot of sense. And then maybe taking a step back, Expedia is clearly a very different company than it was pre-COVID. In your view, how is the company better suited to capitalize on the solid underlying industry demand trends particularly as it relates to Expedia using post COVID travel demand as a means of building sticky long-term customer relationships?

Yes. So I think demand is really separated from what we're trying to build. So what we had for a long time, what the industry had for a long time was essentially a transactionally oriented industry that was really focused on just getting the next transaction, focusing only on price, and just driving as many people through the funnel as possible. [ Phil ], who runs the marketing now, our brands who we gratefully got from -- who used to run marketing for Apple services and I used to joke that we didn't have a funnel. We had a pipe. We shave people on the top, they come out the bottom and we do it again and again and again. And naturally, some people stuck and people got used to the product. But what we've really been focused on for the last 2 years in addition to rebuilding our stacks and getting into one platform. You've heard me talk a lot about, is creating a much better product that actually gives the consumer value. Now that you can get the value in terms of how the features help you find the right thing. We have price tracking, we've talked about, we've created collaborative shopping where you can save things and share them with the friends you're traveling with. We've created ways to rank the marketplace for consumer experience. All these things are designed to make the product actually more valuable for the customer along with all the benefits we negotiate with the industry, whether it's member discounts, the rewards we give out, the IP benefits and so forth. So what we want to do is what used to be just an accidental funnel we have turned into a really intentional funnel to improve the product, improve the offerings, improve service. We've invested hugely in AI-driven solutions to service and other things so that customers have a great experience with us and that we actually get the [ misstick ] long term. And that led by demand will just create more and more direct customers who come back who are enrolled in our loyalty program who repeat and repeat and repeat and that's the model we're driving.

Got it. So then maybe tying that back to some things coming out of the recent earnings call. So you guys reported 4Q earnings with some really impressive lodging growth in January, right? Especially compared to what you saw in the fourth quarter. What -- again, what in your business is really working so well to drive that sort of impressive acceleration that we're seeing into the start of this year?

Yes. So I think there's a couple of things. One, obviously, the market demand was strong. You've heard it from everybody. We're not the only ones. Well, what we've been driving to for a while now is as we are focused on this idea of not just getting volume but getting the right customers and keeping them, we've been doing a lot of things differently, including simple things like buying app downloads and other things that are really lifetime value-based as opposed to in the moment transaction based. If you think about performance marketing, right? You're buying intent right now, you search Paris hotels. We're buying that intent. If you're just looking at travel generally and we get you to download the app, that's based on a notion of your lifetime value over roughly the next 18 months. So you might not transact this month. You might not transact for 12 months. So we've been stacking those people up for a long time now, and we mentioned that our member base is now higher than it ever was finally post COVID, about 10% higher. Our app member base, which is our most productive cohort is higher than it's ever been and growing faster than any other cohort. And that's starting to stack up too and you're starting to get some of that value out of that group as they come back and they're really hitting the P&L basically.

Got it. So then it strikes us then you're seeing sort of the ROI and some longer dated investments like you said in...

Starting to, early days still.

Right. I guess in Brand, app, direct traffic, those things. So beyond, obviously, January, how do you think that positions Expedia in terms of share into 2023? Do you expect to sort of view this as a year in which Expedia takes share from the overall industry? And so where would you expect that share to come from?

I think the way to think about this is when I started -- when we started making some of these changes, we gave up, we talked about it, some bad business, prices where we were investing, consistently losing money, that's geographies, some brands, some other things where we're just perpetuating the same model, but not actually getting anywhere. So we pulled back and in doing so, we gave up share essentially relented share. But as we built this new model, we've stabilized share and as the model continues to grow, we expect to grow share. Now is that net for this year? Hard to say because keep in mind, we are -- we now have, we talked about it on the earnings call, Expedia U.S., for example, where we have all the tools and capabilities is outgrowing the rest of our businesses materially. But we have other businesses that we've stopped investing in brands you would all know that are just not critical to our future. Now they're long term, gradually declining annuities, but there's no step change coming like that's what they are. But the good things are starting to outperform it, and that's what is driving our overall growth. And as those get bigger as we'll put more and more people into the membership base, get their repeat business, that starts to accelerate and in fact, past the ones that are slow and that's where we're headed. And that will happen this year. That's why we said we'll still do double-digit growth, top and bottom line. But the more stuff we put behind us, the faster it's going to go. Next year, we'll get better. And yes, we expect to gain share back for sure.

Got it. And so that sort of seems to us like you doubled down on a lot of your core services, your core regions through Brand Expedia, Hotels, Vrbo. From here, I guess, how do you think about investing either in noncore brands and/or looking for regional pockets where you can leverage some of the learnings that you've made over the last couple of years in order to take share?

Yes. So first of all, our first spot of investment and technological advances has been Expedia, the Brand Expedia. Hotels.com, as we talked about, spent most of last year migrating to the Expedia stack, which finally allows it to get the benefits of all the experimentation, all this stuff we can do for Hotels.com and Expedia together on one stack. By the way, our other deep prioritized brands run on those stacks, too. So they get the goodness of that. We're just not investing and trying to grow those brands in the same way. Likewise, geographies were different. We could do a lot of the -- U.S. is our biggest market. It's the place that gets all the goodies first, new features, new capabilities. But now we are rolling faster and faster to other geographies. So Hotels.com is going to get the benefit of what we've been doing on Expedia and inflect past where it was. Keep in mind, you spend when you're migrating something, right, you spent 6 months, let's say, not improving Hotels.com because all your engineers are working on moving it. And then you move it, that gets even worse. And then you start to accelerate and inflect out of it. So we're in that period now of a nice ramp of finally getting the experimentation. And so we're getting those benefits through that. And now we're going to start to move those benefits to other geographies. And I'll say one last thing. When we get our new one loyalty launch, which will be later this year, that then simplifies things further because you have the same tools to use on all the big brands to drive customer retention, how you go to market, all of those things and that gets simpler and more straightforward too.

Got it. Well, I think you read in my mind or at least the questions have sent over. So maybe shifting over to loyalty. It's been somewhat of a white well for the OTA industry. In our view, whereby there's been a bit of a struggle to scale, say, cross-brand loyalty programs meaningfully. As you get ready to roll out 1Q this year, what do you see as the critical points of differentiation or killer functionalities that can support meaningful one key user scale going forward?

Yes. So I mean, first and foremost, it's a rewards program like none other in the industry, right? It's going to span all our products, all our biggest brands. You'll be able to rent a Vrbo, use the points to rent the hotel or get a light or rent a car or you name it or vice versa. So for the first time, you'll have loyalty in VR, which hasn't existed, we think that's quite attractive, given how much people spend on the average VR, et cetera. You'll also be able, as I mentioned, to use the same tools to reduce churn, to keep people, right? We're very focused on the funnel. We're not saying it's a subscriber business, but we're trying to treat it a lot more like a subscriber business. You acquire the customer, you want to keep them. They got to fall in love with your features. They got to see the benefits of booking with you. And then you can use a lot of things, including royalty to retain them and keep them coming back way more efficiently than going back out into Google or something else and trying to rebuy the same customers over and over. So we think it's really going to be different. We think the breadth of what you can get rewarded for and how you can use it is unlike anybody else. And we think we're ultimately going to denominate it in a simple currency so people can use it very actively. You don't have to earn 10 trillion points before you can get anything. Our studies show about 86% of loyalty members in travel programs never earn anything of any value. So you get 8,000 airline points, but you can't use it for anything or you get 6,000 hotel points, you can't use it for anything. All of our points will be usable and we think that's going to be very attractive to people, and they can still get their airline points, and they can still do lots of other things. So we think that's unique, and we think it's really going to be valuable once we get it synced up through all the brands.

Got it. So related to that, with travel obviously being somewhat of an infrequent purchase, direct traffic growth is obviously coming into a premium for the industry. Beyond loyalty, what is it about the revamped Expedia that has come to market and to your watch and you think the light customers so much such that they return back to the platform directly and drive those accretive LTV characteristics that we know you love?

Yes. So I mean, I'll go back to what I said, which is if you come into our brands, most of you probably have it sometime another used our brand. And you just go through as an anonymous guess and book a Bolton Hotel at rack rate, you might have liked the experience, it might have been simple and relatively quick but you didn't get anything of material value. If you come through and you sign in, which we are really encouraging you to do, you're going to find member discounts, you're going to find other savings. You're going to find different things. And now you're also going to get tools which will encourage you to sign in like flight tracking, where you need to sign in, but now you can pick a flight, you can watch the price. It will give you a price prediction of what might happen. And it alerts you if the price goes up or down, so you can make an informed choice. We have comparison shopping tools that are new that allow you to more readily compare hotel rooms to one another. And soon, you'll be able to do them literally side by side as you scroll left to right to say like, okay, this hotel has 230 square feet. That one have 210. This one faces the ocean, that one faces the city, et cetera. So all of those capabilities are things that enrich your experience. And if you don't enrich the experience and you're just a processing tool, you shouldn't expect people to fall in love, right? Like what's the big deal? But if you do those things, which we've invested a huge amount of time and money and including all the way through the service and everything else, then we think people who value their time and their money and what they do with their lives are going to value us. Now, there's still going to be my 23-year-old son, who just wants to save $5 and he'll go anywhere to do it. But we think the bulk of travelers really want that experience and nobody wants to squander the limited travel time they have. And if you don't choose right, if you don't -- if you're not well informed on the way in, you're liable to get an experience you didn't expect.

Got it. That makes a lot of sense. So then maybe since you took over, you sort of been really focused on profitable growth versus growth at all costs. And when I think about 2023, with one key serving as a source of incremental investments, where do you see the most significant sources of leverage in the model that can help Expedia achieve margin expansion this year while also investing aggressively into 1Q?

Yes. So I mean, first of all, we expect to -- essentially we look at our cost of acquisition and cost of retention of customers as one pool of capital. So that's everything from loyalty, discounting, direct sales and marketing, whether it's app downloads or Google or whatever. It's a big bucket of money, and it's essentially fungible in terms of how we can best and most efficiently buy and retain customers. So we are planning to broadly self liquidate the cost, the incremental cost of loyalty between the loyalty programs and between the rest of our sales and marketing accounts, if you will. But having said that, where the leverage comes from because, again, anytime you want something like this, it's a little bumpy, you got to roll it out. And remember, loyalty doesn't return right away. If you now by a Vrbo and you get a bunch of points. That doesn't mean you're going to take your next trip a week later. It means 6 months from now, you might use those points come back direct and book with us to do something else. So loyalty takes a little while to pay off. And again, it's another longer-dated ROI kind of product. In the meantime, though, we expect all the things we've been investing in like app download, like getting people into the membership to continue to pay off through this year. And that's why we said, in spite of those things, we expect to grow double digits top and bottom line. And as those things -- as we get past this year, the last of our Vrbo migration onto the main stack the last of our 1Q launch. Those are the last big, big hurdles to get passed and then things get a lot simpler. And you start to get acceleration, less drag and you don't need to invest more in product because we have tons of engineers, tons of product people, and now they're all working on one stack and they're working faster and they're going to get more efficient. So more efficiency, I'd say, in the cost line relatively speaking and greater acceleration on the top line for that.

Got it. So laying the tracks for growth moving forward.

Yes, it will accelerate from here, yes.

Got it. And then maybe the street's favorite topic, sort of direct marketing spend, right? So I know we all need a more holistic view of marketing. And what we have still in the end, we're beholden to the data that we have. So when I think about marketing leverage in '23 as a direct advertising as a percentage of bookings, is that an area like you said where the mix of direct traffic app bookings, et cetera, can actually drive leverage as we look out to 2023?

Yes. So I think you have to break it into parts. And we know this is a complicated space. And as you and I have talked before, in a time pre-COVID, where everything kind of slow grew on a pretty normalized basis, even though the data was imperfect, people got accustomed to the stats and could compare sales and marketing to revenue, even though sales and marketing is for bookings and revenue as per stays that got booked 6 months ago or various other things that are uncorrelated really between the P&L. When you go through a COVID period and things are not as stable, you get dislocation, and it gets harder to understand. But just to give you a walk, for example, as some of you will know, we sold our corporate business to Amex GBT. We own a piece of Amex GBT, which we're very happy with, and we signed a deal to power them like a lot of our other B2B partners. When we made that deal, we basically took a business that used to have a bunch of gross bookings and not much direct sales and marketing because all their sales and marketing were salespeople who went out to companies, corporations and sold you on doing a deal with them, I'll turn that into direct sales and marketing, and we took GBT way down. So you got this weird deleveraging effect of just that transaction. Then you look at our B2B business, which is growing tremendously doing great. Our B2B business, which is almost like a SaaS business has lower -- has higher sales and marketing as a percentage of revenue but is really stable and growing fast and doing great. So when you mix more the B2B from B2C, you again -- it's literally thousands of basis points higher in S&M costs relative to revenue, you're mixing to this higher group. And then you get back to just B2C where essentially, we used to be 90-plus percent performance marketing, again, just trying to grab those transactions as fast as we could. And now we're much more heavily in these longer-dated investments, whether it's app downloads, et cetera. Now the longer-dated investments are starting to pay off. So that will sort of take care of itself. But every time you make a shift like that, you're going to sort of dislocate the quarterization of spend because you're not just spending when demand is high, you're always on in certain vectors and you're doing different things. So that's something I think all of that is something people have struggled to understand. We're trying to get better about disclosure without giving up too much competitive information to our competitors. But that's really the story underlying our S&M line. And you may see some slight differences, particularly in the low state quarters like Q4 and Q1 that tend to be more volatile because they just don't have as much stay volume. But we're investing in the year and investing and driving the whole picture, and that's why I wouldn't get too excited about little movements between quarters because it's just a different mix of things, and it's a different mix even within B2C where we're putting the money.

Got it. So that's helpful. Maybe 2019 is a bit of a false comparison when we look at that?

It's just different now. Yes.

Got it. Okay. So maybe shifting a bit and spending some time on Vrbo. Vacation rental industry has benefited from favorable mix effects over the last year, whereby non-urban vacation homes grew in popularity due to COVID to be expensive, say, urban hotel stays. When you look forward from here, do you expect these industry share gains by the vacation rental industry to remain sticky? Or would you expect the industry to maybe mix back towards sort of that pre-COVID stay mix that we once know?

Yes. I think a lot of the vacation rental stuff is sticky, not because people have changed what they want, but because way more people have experienced the vacation rental product because of COVID. And once they've experienced it, I don't know about all of you, but most people tend to have good experiences. They want to come back. They want to do it again, not for every vacation, not for every occasion, people come here with their families, people come on business trips like all of you, like there's a million different variations of travel. So I think what we expect to see is there was a step function increase in people exposed to the product. We're obviously less exposed to cities like our competitor in the VR spaces. And they're going to get that benefit far more than we will. But we expect broadly, the increase in demand in VR to stay high. Now it's not going to grow probably like it was growing through COVID. That was a nice gift to the VR market. But I believe we'll continue to see it consistently higher. I think we'll see ADRs hold up pretty well. But it is a more individual owner market as opposed to hotels. Hotels can decide to keep occupancy at 65% and price is really high. Most homeowners are trying to fill their house and get rental income, and that makes it a slightly more volatile ADR environment, I would say.

Understood. And then similar to the question we discussed earlier, what's different about Vrbo today versus where the company was pre-COVID that you think positions Expedia well to compete and take share in the broader VR space?

Yes. I think what's different about Vrbo is not so much the product suite or whatever, of course, it will benefit from being on the Expedia stack. It will benefit from being part of one key. Those are really big benefits. It will also benefit from being able to be wired into our B2B business, right? We have this very big B2B business where we power banks and OTAs, offline travel agents, all kinds of things, which Vrbo has only been barely wired into because of a lot of technical constraints as again, we get everything on one stack and all of this product gets easier to use, we can pipe that through to a bunch of these third-party demand sites essentially. And that's a real advantage for us relative to our competitors. So Vrbo is, for us, Vrbo isn't like a competitive business. It is a product offering as part of our broad product offerings. Vrbo is going to -- you're going to start to see Vrbo and Hotels.com and Expedia show up together in the end slate of all our ads. We're going to keep reinforcing this idea that it's a family of products. And whatever you need for this particular date occasion, whatever, we're going to be there for you as your travel solution, and we're going to keep rewarding you, and we're going to make it valuable. So that's really what we're trying to drive with Vrbo. It's not so much, oh, we have this one wrinkle of an insurance product, and we have this thing. Like the product is great. The supply is great. We continue to grow the supply. But really, the secret for us and Vrbo, our advantages are really built around including it in the family, including it in the loyalty program and including it through our B2B business that separates us from other players.

Got it. And that makes sense sort of that house of brands, maybe tying things back to 1Q. With this rewards program being the first of its kind in the VR industry, should do you think about 1Q as sort of a key component in Vrbo's ability to continue to win share and when customers mindshare and the industry moving forward?

Yes. I mean I think -- look, I think people who travel a lot particularly and value rewards and value saving money and value the content we have. I mean look, if we don't have the product you want because you're looking for an apartment share in Shanghai, well, okay, you're not coming through us. Now if you need a hotel room, we can take care of that. But if that's what you're looking for, then we're not going to satisfy you. But if you're renting a vacation home at a beach, on a mountain wherever in Europe, if you want the things we have, we think it's really powerful to have a loyalty program that gives you value in other products, you will almost certainly need if you're renting a house, whether it's rental cars or planes or other things. And we think, likewise, we're exposing tens of millions of customers that exist in our Expedia, Hotels.com, et cetera, rewards programs to benefits and now they'll be able to use on VR. So why would they go to somebody else if they could apply that loyalty to Vrbo. So we think it's a powerful tool. It's not the only tool. You got to make the product great. You got to make the service great, but we think it's a powerful differentiator compared to not having it for sure.

Understood. And then maybe on Vrbo, ADRs, as you mentioned a bit there. I think there's some concern within the investment community about where ADRs for the industry can go from here, given how fast they've run and you look out to '23, '24, do you think some sort of normalization to happen on VR, ADRs? Or how do you expect that to play out for the next year?

Well, listen, we certainly don't think we're going to see the kind of inflation we've seen in any of our products in the last couple, several years during COVID. And as I say, because VR is more of a democratized marketplace, you're more likely to see somebody in a given market be like, "I just need to rent my place this week, I'm going to cut price". And as that starts to happen more, that makes that market more prone to move whereas a hotel, so a bunch of hotel chains can sort of say, we're going to keep price up because it's good for all of us. So I think it is more prone to it. And if you look squinted really hard, you could find some pockets of it now, but it is still broadly holding up very strongly on the ADR side. And certainly compared to what we might all have thought was possible. We're not seeing any of that. Not sure what -- you all are smarter than me about what's going to happen to the economy. But it's right to assume, I think that the broad VR market is more prone to ADR pressure than other products. But so far, not much evidence that there's anything happening.

Got it. And then maybe on Vrbo from a supply perspective, we run into conflicting opinions on how supply growth could unfold this year and next, given rising interest rates likely limits second home formation, but a softer economy could compel more people to rent their homes. From your seat, how would you characterize supply growth of Vrbo? And how do you think you're positioned from a supply perspective in '23, '24 and beyond relative to your competition?

Yes. I mean we've normally been not like supply at all cost, just growth for growth's sake. So we have generally grown consistent with where we see demand, where there's pressure, not enough home stock, et cetera. And that's how we focused on where we wanted to grow and what we pushed into. There's been ample stuff we've grown faster and faster through the latter parts of COVID and into this period, not growing on as big a base as some of our competitors, but growing in the places we want to grow. I think your points are right. I mean, I think more people do need to probably monetize the asset than before. We're not big on first home rentals, like meaning you're primary residence, you clear out of for a week, like that's not our core. Our core is more second home oriented. But there's still a lot of stock that got bought over the last 5 years when rates were cheap and everything else to feed the marketplace. So I don't think we're going to -- we're not going to be -- if you're talking about you want the universe and the universe has to grow massively. That's one thing. In our world, we can grow consistently in the places where we know we have demand and I don't see any real governor on that for what we need.

Got it. Then maybe shifting gears a bit. So AI is all the tech investors want to talk about these days. And you're in a unique position of having Sam Altman of open AI frame on your Board. So can you help us better understand how complex AI processes are currently benefiting the user experience on Expedia properties? And how you envision AI may become a point of competitive differentiation for you guys moving forward?

Yes. So look, I would say AI is not new, right? Like we and many others have been applying the trade of AI to improve customer experience in lots of different ways. In fact, our service technology that I mentioned where we invested a ton of money and taken out a huge amount of cost and made the service better is a place we have used natural language and AI models to improve and train that platform and our secret sauce is we have all the travel data, right? Like having AI itself doesn't solve the world's travel problems. You might be able to tell me the right places, the right thing to see in Paris or whatever. But you won't know what the hotel costs from a Tuesday to a Tuesday in the middle of February next year. We have that data. We also know that you went to Paris last time you traveled and that might be relevant to what your choices are today. So AI has been working. Now the large language models that we're seeing today have definitely taken a big leap forward. But probably this isn't the only one we're going to see. We're going to see lots of them, and they're going to have applications to lots of things, including how people shop, how people shop with us, how they get to what the answer is. But right now, you could start a natural language search and say, I want to go to Paris on our site, and it would take you to a search in Paris. Now you couldn't ask it 1,000 questions and in the future, you will be able to ask it 1,000 questions, whether you want to shop that way, different question. We'll have to see what customers really engage with, what they do. But ultimately, we want to use AI in all its many and myriad forms to make it better for the shopping experience, make discovery better, make it easier for you to know you're getting the right thing for you and for you to transact, but you need us ultimately to transact and you need our 70 petabytes of data to understand what travel is. Now we might take AI models and train them with our data. We might do things with players in the search and AI space and help them with our data to make their models better. All of those things are possible. And to the extent that AI helps equalize the field for search that's probably a good thing for us. We don't really want to -- we'd rather be in a market that didn't have one dominant player. So if the other guys can participate, all the better.

Got it. And then -- so with the investments you've made in AI and in the infrastructure over the last several years. You're now in a place where product innovation velocity has improved meaningfully. And you now expect test velocity to grow by I think 4x is the number you gave for 2023. With this in mind, what are some of the most exciting potential product innovations that you see on the horizon that can help Expedia to transform the online travel industry and continue to take share?

Yes. I think we've done a lot, I mentioned some of the features, but they can get richer. Our collaborative shopping product, which right now allows me to save my -- the hotels I like and send them to my brother, if we're traveling together or something, we're going to add features, boating and other kinds of collaborative tools that make those richer. So there's enriching the tools we've already created. But the biggest thing, I think, that is like a macro idea is really personalization. We have a lot of data on you. We have done rudimentary personalization in terms of the experience, some of the homepages are catered to you because we know you and we know whatever. But as we get to know you better as we have more people assigned in members instead of anonymous people where it's hard to personalize and we get more of that working, we're going to be able to say, hey, do you want to take that Paris? I want to go to Paris. You want to go to the same places? You want to have the same itinerary? You want to have the same flight. We're going to be able to do things like that. And it plays into all kinds of different things. If we see right now, we have AI that basically changes the photos you see of the properties, depending on if you're searching for a single person or 2 adults and 2 kids or whatever. It's 2 adults and 2 kids and you're searching Florida, you're going to get a bunch of pool pictures. And if it's one adult and you're searching Cleveland, you're going to maybe see rooms or bars or something like it's a different. So all of those things are steps forward, but the holy grail is real personalization to you based on your history, you like boutique hotels. We're going to sort boutique hotels first. You like 5-star, we're going to sort 5-star first. We're not going to take you through just the regular funnel of everything. We're going to get you to where you need to be faster, smarter, better, so you make the right choice.

Got it. All right. That makes a lot of sense. And then maybe moving over a bit. We believe investors likely don't spend enough time trying to understand the B2B business because we're all maybe conditioned on the B2C side. So maybe you can help us add a bit here. So is there any way for you to help us better understand which is the more pertinent driver of underlying demand in your B2B business? Is it business travel? Is it leisure travel? Like what are the key inputs to overall?

Well, we power both, and we have great business travel partners, corporate, and we have great leisure. I would say just based on numbers, it's probably leisure. But again, the way we look at it is our B2B business fills in pockets of travelers that we would otherwise not reach. So that could be offline travel agents in China that could be bank rewards programs, where people are going to burn their rewards somehow, and we want to reach them with our travel products and help the banks monetize that and give value back to the customer. It could be corporate, of course. And so we're using our supply, our technology, our capabilities to help them be in the business. And that is a much broader future because it's going to keep expanding as more people can become entrepreneurs in the space we powered built, which is the rental player. FinTech's going to be a thing that's going to have rewards, continue to have rewards and sort of closed universes. And those are all opportunities to power people. And of course, social commerce will come along, people will self travel through social commerce. We intend to power that. So all of those things become an expanding universe of demand that we might not otherwise get to and it'd be, we think, foolish to assume you can get them all into your funnel when there are lots of good and rational reasons that they would go to these other spots. So we'd rather be in the business of powering that and touch as much travel as we can then just be like if you don't come through the consumer facing store, then we're not interested.

Got it. And then you touched on some of this earlier when we're talking about some of the cost stuff. Are there margin implications that we should be aware of as you potentially mix to B2B? Just as we think about that?

Yes. I mean I think, as I mentioned, there's a bunch of B2B in our core set of what has been our traditional B2B business is, as I mentioned, powering what we call our template partners, which are big banks or big, even the airlines we power up certain parts of. If you rent the car with an airline, you buy a package with an airline with a lot of the majors, we power that stuff that's a template. There's other places where we provide supply, but the partner has created their own front end and variations on a theme, travel agents, et cetera. What we normally do is participate in the gross profit that is derived from that transaction. So they rent the hotel room through a bank to a customer, we get a piece of that, the bank gets a piece of that. And those margins particularly when you look at sales and marketing, right there, the commissions, they essentially go in as commissions into our sales and marketing line, and those are generally considerably higher than what would be our average direct sales and marketing for our B2C business or our consumer business. So that's different. But these deals have long lives, they consistently go on, they've consistently grown and that's why we say like they're like SaaS businesses. Those businesses it has smaller margins, slightly more modest margins, but you don't have a lot of the other costs related to running your B2C business. And then I would just add that as we've talked about our future here, we're piloting a bunch of capabilities with technology and other things. Those will be the opposite. They may have very marginal costs. So if we provide, for example, we've got 2 pilots now for service as a service. We've developed all this technology to power our service capabilities. We've taught it what to do about travel. It's a unique capability, and there's lots of travel partners out there who suffer with huge service costs and problems and whatever. So we have 2 pilots now to externalize that technology. That may be, I don't know, a few cents per transaction, but could have 80% margins because there's no real cost to provide it incrementally other than what Amazon gets or whoever gets for cloud. So those are going to change our models over time. But right now, if you look at our B2B business, it's largely this model where it's a big commission that we're paying in part GP and that's the model, but it's growing. It's been great and growing really well.

Got it. So maybe I'll pause here for a second and open the floor to questions if anybody has any. No. Well, then I will keep....

Wait, there's one. Talk somebody into it.

[indiscernible]

Yes. I mean, Asia has been -- APAC is a good story right now. Obviously, things are opening up. China is opening up. There's a lot of intra Asia opening up. The China story is going to play out, I think, over a few chapters. It's not going to happen right now all at once. There's still a lot of air issues getting flights in and out of China. There's a lot of issues with Russian airspace, getting flights from Western Europe to China. So there's a lot of interesting dynamics that are playing out complicated geopolitical things. But I think there's tons of demand. We play in outbound China through our partnership with Ctrip which we power a lot of their outbound through our B2B business, which hasn't been in our numbers because China has been quiet. And we're starting to see pickup there. We're also starting to see pickup and people going back to China or going to China. That's helping. But again, it's probably going to play out over the course of, let's say, a year as it continues to ramp up and it gets easier and easier and China makes deals with other countries to make it easier to get their people in and out. That's going to probably be more of a back half of the year sort of story in terms of certainly the actual trips happening. But people are booking, things are happening. There's tons of search going on and APAC is growing nicely across all our vectors right now. Again, not the hugest business for us, but lots of good trajectory there right now.

Anyone else?

[indiscernible]

So I think actually, what we've seen is because COVID made travel uncertain, there was a greater degree of like maybe I should book direct because maybe it'll be easier to fix a problem, if something goes wrong, by the way, generally not true, but it's a perception, and that's fine. I think as people become more comfortable that travel is travel, worlds normal, that probably favors us. But our relationships with the airlines are very strong. As I mentioned, we're more than just a we sell seats for you, we are their technical partners in selling a bunch of other things, and they are deeply interested in monetizing their base of customers in more than just air. We help many of them sell hotels, packages, car rentals, you name it. We have opportunities to help them in other technological areas like service and other things, which we're talking to many of them about. And ultimately, we take a very sort of, I think, a new and very positive view towards this, which is, look, we want to help you grow your business. We're bringing you new customers. Our cost to you is not super high. And we can help you turn those into new members, turn them -- and if some of them are going to become direct customers, we're cool with that. That's okay. But again, as I go back to 86% of people never earn enough rewards to really pay out. So most people are still a wash, and I don't have one airline, I don't have one hotel chain, I don't have one whatever. Now some do, and they're going to go optimize around that, and that's okay. Others we think will optimize with us, and they'll pick different things in different times. So I think we have a very constructive relationship with the airline industry and the hotel industry. I mean in the hotel industry, just as a differentiator here. We helped create a bunch of technology to help them with the wholesale business, that side of their business that was broadly on governed, have gotten out of control with the advent of the internet, they had prices out in a while. They didn't intend to have with that. We create a built a bunch of technology with Marriott as our pilot. And now we've got IHG and a bunch of other partners coming online, but basically, we can help them distribute to a wholesale world but monitor and help them make sure that prices don't get out in a while. That's been a big win for them, a big one for us, good for the marketplace generally, help clean up a lot of problems. And so we are building a lot of things that are mutually beneficial. It's not this world of like I win, you lose, there's a nickel on the table and we're all going to fight about it. There's lots of opportunities for us to do more good for each other and not really be at odds. I don't think we are at odds, and we think there are different occasions. We're using those things. There are some customers who will be Bonvoy enthusiasm and be all in. Most customers won't and they need somebody to help them navigate the world.

Yes. Got it. Well, I think we'll leave it there and let everyone get on with the event. Peter, thank you so much for joining us.

Pleasure. Thank you.