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

Okay. I think in the interest of time, we're going to get going here. Hopefully, we'll get that door closed. Thanks, everyone, for being here for our next fireside chat. It's my pleasure to welcome Expedia to the conference this year. Ariane has never been to the conference before. We love first-time guests to Communacopia + Technology. Thank you for making the time to be here. I've been looking forward to this conversation because the company has been on such an interesting journey since you took over a couple of years ago. But first, let's get the legalities out of the way. Before we begin, I'd like to remind everyone that today's discussion may include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the company's SEC filings for additional information on relevant risk factors.

Okay. So the level -- now that I've got -- I do have a law degree. So I always joke that I've dusted off the law degree whenever I have to read these things. To level set for everyone, you've been CEO, you've been in this role now for a little over 2 years. What have been your biggest priorities for Expedia when you reflect back on the journey you've been on in the last couple of years? And how do you think that sets up for your priorities going forward, just to level set.

Yes. So first of all, thank you for inviting me. It's great to be here as a first-timer. So when I took on this role just over 2 years ago, the priorities were clear. It was bring the consumer business back to faster growth, continue the strong performance of our B2B business, a large, fast-growing business, and run the company more efficiently. If you look at our company compared to some peers, you can see that there's a gap in the margin. So it was really about how do we accelerate the growth while running the company more effectively. We set out 3 strategic priorities to allow us to achieve that. The first was about creating more traveler value because ultimately, travelers are our end consumers. And so we need to be obsessed with how are we making sure that we are spending our time and efforts on things that matter to them. And we've made great progress there. If you look at our supply on Vrbo, we've got now 40% of our transactions that are happening on promotional rates. We now have -- we're the only OTA with a complete air marketplace in the U.S. We were the first with Southwest, then with Allegiant. We're doing a ton of work on personalization in the product so that travelers can move faster from search to find to book. And that's reflected in the fact that, for example, on brand Expedia, we have the highest attach we've ever had. So the first thing is really deliver more traveler value through the products, through supply, through servicing. The second is to continue to accelerate and to invest in where we see the fastest growth opportunities. And that translates into our investments in B2B. This is a business that's grown double digits for 20 quarters in a row. It means investing in these new AI experiences. AEO is small, but it's still our fastest-growing channel. And then our third priority was run the business more efficiently, make every dollar matter, whether that's in our marketing spend, whether it's in our cost base, it's really just having a mentality of making every dollar matter. And if you look at where we are now 2 years later, we have accelerated the consumer business. We've expanded margins meaningfully. And we've actually doubled our free cash flow over the last sort of -- compared to 2 years ago and now, on a trailing 12-month basis. So all of that brings us to where we are today. The strategic priorities remain the same. And you can just feel in the company, it's a simpler, faster, more agile company. There's still always much more to do, but those were really the foundational things we've done over the last couple of years.

Okay. That's a really great way to think about it. Against that backdrop, what do you think is the greatest opportunity to unlock growth when you think about going forward?

Okay. I'm going to surprise everyone, AI. One, I would say, you have to remember, travel is a massive industry. It's over $3 trillion. It's still fragmented. It's growing faster than GDP. And Expedia Group is a company that's got incredible assets in our B2B business. Brand Expedia is the biggest consumer OTA brand in the U.S. We've got these brands in Vrbo and Hotels.com that are wonderful brands as well. So we've got a market and assets that are really attractive and that are ripe for growth. When I think about what's going to accelerate it, I do think about AI. And it's how are we using AI in our products? How are we using it to be more personalized? As we've introduced things like natural language search in the product, while it's not yet delivering better conversion, it's giving us so much more information about travelers that over time will allow us to have deeper relationships with them. AI is allowing us to get more throughput. So the way our teams are using it internally, our tech and product teams are able to get 40% faster cycle times. Our marketing teams are using agentic solutions, both our own, and those of our big ad partners in order to have better creative, more campaigns, get better understanding of our returns so we can lean into where we see the best returns. And then AI can deliver growth through these new interfaces, whether it's ChatGPT, whether it's Claude, whether it's new personal agents, we see those as opportunities for our brands to show up and go meet customers where they are and then bring them back into our brands directly.

Okay. And there's a lot in there that I want to probably unpack because I think there's a lot to discuss. One of the conversation points over the last 2 days of the conference has been the current state of the consumer. Travel, obviously, right at the forefront of that debate. Travel also has been an area where there's been gains in terms of wallet share by consumers as experiences in travel has started getting uploaded in the economy. What is the consumer telling you today about the demand you're seeing in the travel industry more broadly? And are you seeing any differences by geography or anything else to call out?

So when we had our second quarter earnings about a month ago, we said that the consumer is resilient and that the trends we've seen in July were consistent with what we've seen in the second quarter. Despite oil prices, despite the fact that air ticket prices are up, people are still prioritizing travel. And it's probably one of the few good things that has stuck around after our experience in COVID, which was sort of this human need to want to travel. Certainly, we're seeing more strength at the high end than on the low end. There was more strength in domestic travel. Still U.S. outbound is strong, but my interpretation is that with gas prices up, maybe people are choosing to stay a bit more local. This summer was great. I mean you saw live events are big drivers of travel. People are spending on that. And even now, our searches for travel on Labor Day were up 35% for vacation destinations like Las Vegas, places in Mexico. And when we look out to where the most searches are in the fall, it's more cities. It's New York, Boston, Chicago. So people are still traveling. One thing I would add, though, is that people are also looking for good deals. We see more and more use of our budget filter, of our all-inclusive filter. And to me, that's an indication of people still looking for deals and looking for their dollars to go further.

Okay. Very clear. B2B, which is something I feel like I talk to investors about all the time as part of broader education about the company.

You and me both.

Exactly. You came out of that business. You grew that business. Talk to us a little bit about the differentiation of the asset that you're building around B2B and how it can continue to scale in the years ahead.

Yes. So I started running our B2B business back in 2014. As you said, it's amazing if I think back then, I don't know that in my wildest dream, I would think we are where we are today, but it's really been fun to watch that business evolve and to watch us be able to help partners all over the world build their businesses and travel. For those of you who don't know as much about our B2B business, what we basically do is we take our assets, whether it's our technology, our supply, our content. And we bring those to bear to partners who want to build their own travel programs, whether it's an airline that's looking to add hotels as part of their loyalty program because, actually, people use their airline loyalty points to burn on hotels, whether it's a bank that's using travel as part of their credit card program, whether it's an online travel agent in Indonesia who says, I'm going to source my hotels locally in Indonesia, but I'm going to use Expedia in order to access the hotels elsewhere around the world. So as we think about sort of the asset that we were building or the business that we've built, it starts with, one, understanding who our partners are. And we're clear on the segments. There's the, as I said, the airline segment, the bank segment, the OTA segment, the corporate travel segment, understanding their needs. There are some things that are constant. Everybody wants great technology with uptime. Everyone wants really good supply. Servicing, I think, is a real differentiator for us because if you're building a travel program, but you're a non-travel company, you want to make sure that the customer experience you're able to give is commensurate with your overall offering to that person. So we've done a lot of work taking the servicing technology that we use for our own brands and putting a partner wrapper around it. So I think our -- I wouldn't say secret sauce, but what's made us successful is listening to the partners, the technology, supply, servicing, all the account management and financials, and the wrapper that goes around it, and just innovating based on what we hear from partners. And that is why over the last year, we've built out new lines of business. We acquired a company in activities called Tiqets. We just closed a company in car called CarTrawler. And there, the idea is that as a partner is building their travel business, we want to be able to serve all of the needs that they may have, and these 2 lines of business were good opportunities.

Okay. Against that, when you think about how investors should think about the margin profile of the business. We talked a little bit about the compounding nature of the growth of the business and some of the new opportunities. How do you think about the output of the business in terms of profitability in B2B?

It is evolving. It is true. There are some investments that we are making that could put short-term pressure on margins, but we're thinking about it for the long term. Again, it will depend on what is the partner mix. But overall, I think you can have dollar additive where margin rate may not be as strong. But this is a business that, in the years to come, will continue to grow, we'll continue to add dollars. And I would add that at our company level, we continue to see opportunity for margin expansion.

Okay. That's helpful. Maybe turning to alternative accommodations. If we went back 18 months ago, you were sorting through different elements of tech replatforming and brand dynamics inside the company. And now there's some operating momentum at Vrbo. Talk a little bit about what are the opportunities ahead for Vrbo and how you think about continuing to grow supply measured with continuing to grow demand on the platform?

So we -- as you said, right before I stepped in, we had gone through a number of years of replatforming. So we're replatforming the consumer brands, both on the back end and on the front end. Because of that, it -- I would say it sort of kept us from getting to some of the things that we needed to do for individual brands. So when I talked about my first pillar of the strategy, which is traveler value, it was all focused on, for Vrbo, what are the things we can do to deliver more traveler value. And one was clearly supply. We had not yet gotten to having promotions. So we had partners who would have been willing to give us promotional rates for our travelers, but we haven't done the build-out because we were working on replatforming. We fixed that a little bit over a year ago, we got Vrbo promotions. And as I said last quarter, 40% of our bookings came from promotional rates. We have been able to do a lot of work around payments and various payment types, making the checkout flow easier. We've been able to do a lot of work in the funnel just through personalization, helping people better get to the property they want. And then a lot of work on trust. Vacation rentals is actually a category where people have lower trust than other places in travel that what they have booked is what they're going to get. And we believe that Vrbo has a real opportunity to stand out there. That's why we have our Premier Host program. It's why we came out with VrboCare, which is really telling a traveler, if there's something that goes wrong in-trip, we will be there to take care of you. Those were all things that we hadn't been able to get to as we were doing the replatforming. And my last example, I'd say, is even on Vrbo partner support, last quarter, we rolled out agentic voice, and now 10% of our partner queries are resolved with agentic voice, which then gives us capacity to help them with other things. All of that to say, we're still in early innings. We're very focused on the North America market. We have some Vrbo brands outside of the U.S. and outside of Canada that are smaller brands, that they're nice brands, but I'm focused with the team on how do we continue building the value proposition, creating traveler value, bringing value to our hosts because hosts love the Vrbo guest. And again, I would say we're early innings in the overall Vrbo story.