Operator:

Good day, everyone, and welcome to the Expedia Group Q1 2024 Financial Results Teleconference. My name is Lauren, and I will be the operator for today's call. [Operator Instructions] For opening remarks, I will turn the call over to SVP, Corporate Development, Strategy and Investor Relations, Harshit Vaish. Please go ahead.

Peter Kern:

Good afternoon, and thank you all for joining us today. As you all know by now, this will be my last earnings call. I'm excited to be handing the reins over to Ariane, and we have reserved time for her to share some thoughts after Julie, so you can get a sense of her ambition for the company going forward.

Ariane Gorin:

Thanks, Julie, and thank you, Peter, for your leadership over the last 4 years and for all I've learned working closely with you. I joined our company 11 years ago and most recently led Expedia for Business. This includes our B2B and advertising businesses, both of which have consistently delivered double-digit growth. I also led our global supply teams that source inventory for our whole company, so I know our industry very well. And having lived in Europe for the last 23 years, I've seen firsthand opportunity for us in international markets.

Operator:

[Operator Instructions] Our first question comes from Eric Sheridan with Goldman Sachs.

Ariane Gorin:

And I would just add, again, yes, we have deep belief and conviction in Vrbo and also our other brands of Expedia and Hotels.com. We do sell some alternative accommodations on those brands, so we also have an opportunity to go after that market with those brands as well.

Lee Horowitz:

Great. I guess previously, your guidance for the full year seemingly expected share gains across your largest business lines. Is there any change to that view, given sort of the more cautious outlook for the full year? Or is this really all Vrbo-centric?

Peter Kern:

Yes. So let me take a crack. Thank you, Lee, and then Ariane and Julie can jump in. But I would say that what we see in Vrbo and -- sorry -- so there were 2 questions, the non-Vrbo piece and the Vrbo piece. On the non-Vrbo piece, we've been making improvements in the product consistently. HCOM went through a migration a while ago, but still, we are making improvements and getting it back to -- on the best footing we can.

Operator:

Our next question comes from Richard Clarke from Bernstein Societe Generale Group.

Peter Kern:

I'll take a piece and Ariane can jump in. I would just say, we've said it before, but we look at all our marketing, all our things to drive consumer behavior as one big bucket of capital. So that's direct sales and marketing, it's the pricing work we do, merchandising work, and it's our loyalty spend.

Ariane Gorin:

And I would just add, as Peter said, we think about those buckets of pricing, of loyalty and of marketing sort of as all buckets that we can use to invest where we see opportunities. And going forward, we'll continue to do that. So which of those 3 will drive the most growth, whether it's in international, regardless of what brand it is, I think the teams have a very dialed-in view of where they can invest in order to get the best return.

Ariane Gorin:

Well, what I would say is part of our One Key program does include tiered member discounts. So if you're a silver member or a gold member, you'll get better discounts. And those are actually supplier-funded discounts. Those are when our hotels, for example, want to get access to the more valuable members who travel more, who spend more. So I don't know if that's what you're referring to, but that program is a supplier-funded program, and it's one of the benefits of One Key.

Trevor Young:

Great. Ariane, I think you commented that Hotels.com isn't where you'd like it to be. Can you expand on that a little bit and what you hope to achieve with that brand? And then bigger picture, what are the areas or opportunities you get most excited about beyond the next few years? Is it something like experiences in a more holistic interconnected trip? Is it AI driving a better consumer experience? Or something else altogether?

Conor Cunningham:

Just back to One Key for a second. Can you just level-set with how that's performing today? I realize it's still really early, but the -- with the slower than expected results in Vrbo and in Hotels.com, is there any implications on the potential slower ramp on international as you look to do that this year, maybe into next year as well?

Naved Khan:

So 2 questions. Maybe just on Vrbo. Can you maybe talk a little bit about if the issues you are kind of trying to solve for more of a top line -- sorry, top of the funnel traffic? Or is it conversion? What exactly are you kind of trying to refine? And what gives you the confidence that the rebound can ultimately come through on Vrbo?

Peter Kern:

Sure. Let me take that. So first of all, it's -- for Vrbo, it's largely a traffic issue. So as I mentioned, we spent down last year while the product was going through migration. That has 2 effects, which is, while it's migrating, it's not converting as well, and we're not spending as much to build awareness through that time.

Julie Whalen:

We have seen some short-term wins. And Peter is right, it's going to take a while to really see it in the P&L from your perspective because there's an investment time period, you have to build it up to get the return. But in international markets, in small ones like Brazil and Scandinavia, where we launched new campaigns, we did see double-digit growth on our brands there. So that's already reflected in our numbers, but they're not all in the total, we are seeing the benefits flow through.

Jacob Seed:

This is Jacob on for Kevin. For Ariane, on the B2B side, can you comment on concentration within B2B, how large your top few customers and how many customers do you have? And also I wanted to know if there's [indiscernible] impact for regulatory changes from Google, any positive benefits there?

Jacob Seed:

Yes. Any benefits you're seeing from the regulatory changes from Google in Europe?

Jacob Seed:

One more on traffic on how big the [indiscernible]?

Jacob Seed:

On direct traffic, is there any -- can you provide any commentary on that?

Unknown Analyst:

This is Robert on for Ron. One question for you on GenAI. Can you guys share some of the learnings maybe following the launch of EG Labs last year? What are some of the products you guys are most excited about? I guess at what point do you expect these products to come to market and start to change the way users search for travel?

Operator:

Our next question comes from Mark Mahaney from Evercore ISI.

Ariane Gorin:

And I'm happy to take the second part about products that we bundle. Look, we don't disclose what percentage of our business comes from packages or from cross-sell. But what I would tell you is, one, a unique value proposition of the Brand Expedia is our package path and this ability to dynamically bundle an air ticket with a hotel and the like. And we're seeing really good results as we continue to lean into the package path, and we think it's a great value proposition.

Operator:

Our next question comes from Ken Gawrelski from Wells Fargo.

Jed Kelly:

Great. Can you just sort of dive into some of the mechanics around the recent head count reduction? How much of that is coming out of capitalized software versus how much can be reinvested into marketing?

Julie Whalen:

Sure. I'll take the cost actions question. We have not broken out in detail how much is impacting each line. As I mentioned, you can see it within cost of sales improvements, you could see it in the overhead improvements, you can kind of deduce how much of that is due to that. But you can also see it in our cap labor, in our capital expenditures, at least this quarter, how they've come down. A significant portion of that is associated with capital labor.

Peter Kern:

Yes. And I'll just jump in on the hotel segment. I mean, obviously, a couple of things to keep in mind. It's all our businesses. As Ariane mentioned, our B2B business has more exposure to international, so that has some of the better tailwinds, has been in international. Our international investments have been doing well, but that's a fairly small part of our B2C business and all.

Operator:

Our next question comes from Anthony Post from Bank of America.

Thomas Champion:

Ariane, the business remains in transition, and it seems to be maybe a difficult period. I'm just curious how you think about your priorities over the next quarter or 2. Tactically, where are you going to allocate your time and really focus first?

Ariane Gorin:

Thanks, Tom. Look, on the next quarter or 2 -- like let me say, even if I've been in this business for 11 years, stepping into the CEO role is a new perspective. And so I will listen and learn with our teams over the months to come. I think we have set really solid foundations. And as I said in my prepared remarks, one thing is helping the teams get back to the basics of traffic and conversion and delivering the acceleration that's implied in our guidance.

Operator:

This concludes today's call. You may now disconnect your lines. Have a nice day.

Operator:

Good day, everyone, and welcome to the Expedia Group Q4 2023 Financial Results Teleconference. My name is Lauren, and I'll be your operator for today's call. [Operator Instructions]. For opening remarks, I will turn the call over to SVP, Corporate Development Strategy and Investor Relations, Harshit Vaish. Please go ahead.

Peter Kern:

Thank you, Harshit, and good afternoon, and thank you all for joining us today. First of all, I just want to acknowledge the news that I will be stepping down in May as CEO after my contract ends, and will be passing the baton to Ariane Gorin, who currently heads our Expedia for Business. As many of you know, when I started this unexpected journey during COVID, travel was at a standstill. Money was flowing out of the company faster than we could replace it. And our people, our shareholders, and most of the world were unsure how and when we would ever come back. Strangely, those days never really worried me. Maybe I'm an optimist, but I always believed we'd get back to life and travel would follow. While you might assume that COVID was the defining part of my tenure, in reality, we quickly saw an opportunity to use our COVID time to embark on one of the most audacious and ambitious transformations I think a company of our size has ever attempted. It was always my hope that we would finish this massive task by now, but I'd be lying if I didn't say that was sometimes in doubt. We had many fits and starts as we took on this massive overhaul. But when you do something as bold as we were attempting, you have to be prepared to deal with some mess. And as much as anything, I'm proud that we were not afraid of the mess, and we pushed through. And as the work began to accelerate in the back half of last year, I could finally see that we would, in fact, meet my timetable. Over the last four years, we built a tremendous team who in turn accomplished amazing things. I have to say that what started in an unlikely and difficult way turned out to be one of the most compelling and challenging opportunities of my career. Now I'm not going anywhere yet, and I intend to sprint through the finish line on the way out. Among my important tasks between now and then is ensuring an absolutely seamless transition to Arianne and making sure none of our team misses a beat. I just want to say that I've had the pleasure of working with Arianne closely for the last four years, and I believe she is a terrific choice to take the company forward and build on what we have created. She is a seasoned leader with a very successful track record at Expedia Group, including most recently as head of our market-leading B2B business. I look forward to working with Arianne over the next few months, and I will not be going far as I return to my perch as Vice Chairman. Now that I've addressed that, let's move on to our results. I was generally very pleased with our performance in 2023. We met our guidance despite what was a year of tremendous change. It is really difficult to fully appreciate the breadth of change and the volatility that such change can create. We've discussed this many times, but when you have to willingly take steps backward to go forward, you create a lot of inherent unpredictability. And yet despite that, we delivered and landed the year. In the fourth quarter, we saw strong revenue and EBITDA performance, but we did see some softness in gross bookings, driven primarily by AIR, which in turn was largely driven by a reduction in average ticket prices. As you all know, AIR does not impact revenue or profitability very much, but it does have an outsized impact on our overall gross bookings. While AIR has been showing some signs of macro softening, we continue to improve our AIR product with new AI-driven features and pricing capabilities. And like many areas of our business, we see significant opportunity to grow, regardless of any macro headwinds. Our lodging business held up very well and had yet another record quarter, with our hotel gross bookings growing 13% year-over-year. Vrbo finished its planned front-end migration in Q4 and suffered expected conversion, degradation. But it now has more tests running than ever in its history, and we are clawing back conversion at a breakneck pace. We also cut back last year on Vrbo marketing in concert with the expected conversion degradation, but are now really excited about our new brand work that is designed to punch our main competitors squarely in the nose, and we are leaning back into spend. There's a bit of lag effect as we ramp back up, but we are excited to get Vrbo back on offense with the product improving every day, the impact from improved and increased marketing, and of course, our secret weapon in One Key, whose effect we'll only continue to build. We did an awful lot in 2023, from the launch of One Key to the completion of the Vrbo migration, from the plumbing of machine learning and AI into more and more of our customer experience, to the launch of chat GPT-assisted trip planning. But more important than any win in2023 is the sheer magnitude of change we have driven since we embarked on our transformation journey at the beginning of 2020. Over this period, we rationalized investments in over 20 brands to three or fewer in every region. We eliminated dependency on 76 different agencies around the globe and instead built an entire full-service marketing, creative, and media buying team internally. We consolidated all performance marketing into one group, with unified data and tools, allowing us to optimize across brands and bring programmatic approaches to everything we do in meta-search, social, SEO, and everywhere else. And we fundamentally shifted the business from transactional web arbitrage to app-first, focused on acquiring and retaining the customers with the highest LTV and return on investment. On the tech side, we decommissioned 17 CRM systems and built one universal messaging platform linking all brands. We went from seven different loyalty stacks to one key. We consolidated from 13 machine learning platforms and four experimentation platforms to one. We converged 300 million customer data profiles into one common identity platform. We have meaningfully reduced the number of developer tools and optimized our IT footprint. And most importantly, all our brands are now on a single front-end stack with a unified test-to-learn platform that gives us the ability to rapidly launch tests and features across brands, platforms, and geos. It is hard to fully conceptualize how much we have changed, but perhaps one simple way is to double-click on how all these elements allow us to massively accelerate our test-and-learn capability and drive faster feature deployment and better performance in the product. Our unified front-end now allows us to deploy features around the globe and on any brand at a pace we could not contemplate just a couple years ago. What used to take months, even years, now takes weeks and sometimes just days? Our recent launch of cars on Hotels.com in the U.S. is a perfect example of something that never made the cut list because of the massive engineering lift. But post-unifying the front-end stacks, it took literally weeks to deploy. That same unified front-end allows us to massively increase the breadth and impact of our test-and-learns, while our single test environment, along with ML and AI woven throughout the customer experience, now allow us to run many multiples of the tests we used to and call them much faster, the combination of which will allow us to effectively 8X our test-and-learn impact in 2024. It cannot be stated strongly enough. We are just at a completely different place technologically, and the effects we have seen so far are only just scratching the surface of what is possible. And while there are endless achievements to be proud of in our transformation, it is equally remarkable that even while swapping out our engine mid-flight, we were able to deliver consistently solid financial performance. We grew our business throughout our transformation, notably reaching record levels of lodging gross bookings and revenue, despite having sold off and shuttered a number of businesses along the way. Our continued operating discipline has driven EBITDA margins to the highest levels in over a decade. We have used our strong free cash flow to aggressively buy back our stock at attractive prices, and as a result, our share count today is down to 2015 levels. We have closed over 100 office locations, and we have 30% fewer heads than our 2019 peak. And meaningfully, we have gone from approximately 30% of people working in product and tech in 2019 to 50% today. Again, we are at a truly different place as a company as we launch into 2024, which does not mean that it's all just linear improvement from here, that learn and test-and-learn is a big part of our journey, and we will still get things wrong in our tireless effort to improve the customer experience. But we can afford to get a lot more wrong as we, in fact, get a lot more right. Ultimately, more at-bats, the sheer power of going fast and simplifying our ability to innovate is what puts us in a position to once again lead our industry technologically for the next decade. So what does all that mean for 2024? On a macro level, we expect travel demand to remain relatively healthy, but we expect growth rates across the world to decelerate, especially early in the year as we lap the post-Omicron tailwinds we saw last year. We are still expecting much faster growth internationally outside North America and Western Europe, though we expect the gap to continue closing. We may also see some softness in prices across categories. This past quarter, both hotel and vacation rental ADRs grew very slightly, but the mixed effects led to overall lodging ADRs declining year-over-year. And as I mentioned earlier, air ticket prices have declined, particularly in the U.S., and we are seeing some continued pressure on car rental rates. Against this backdrop, though, we are well-positioned to go back on offense, gain share against competition, and ultimately grow our top and bottom line meaningfully this year. Our strategy will remain largely unchanged, but we can finally stop doing surgery on ourselves and instead execute without the numerous distractions we have faced in recent years. We will be laser-focused on five strategic priorities, which broadly translate to all parts of our business. First, we will continue our focus on acquiring and retaining high ROI travelers. We've become much sharper about measuring customer lifetime value and targeting who to go after and which channels. With a greatly improved product driven by the latest ML and AI capabilities, and One Key, which now has over 100 million members, we will continue to drive greater retention, repeat, and direct business, all of which underpins our shift towards more loyalty in app members. In fact, we ended the year with our highest-ever percentage of business coming from the app, up nearly 600 basis points year-over-year. We will be scaling One Key internationally this year and expect to see our mix of app members continue to increase in those markets, With better customer targeting, constantly improving a stickier AI-driven products, and One Key, we feel really good about continuing to build momentum and value in our member roles. Our second priority will be to increase our share of wallet with our travelers and partners. Again, with a product that uses AI and ML to predict a consumer's best next action in order to sell complimentary items, be it in the booking flow, post-booking, and in CRM communications, our core experience will continue to drive more items and more dollars into the consumer's basket. We will also drive more cross-brand and cross-product engagement through One Key, which enables cross-earn and redemption across all our key brands and encourages consumers to stay in our ecosystem for all their travel needs. We are already seeing early signs of this with an increasing number of customers who cross-shop our brands in the U.S. since the launch of One Key. And as we continue to roll out One Key outside the U.S. and now have the ability to roll out new lines of business on different brands, we expect all of these moves to allow us to capture more wallet share from our consumers. Our third priority will be to accelerate our global market expansion. We've talked before about how we retrenched back to the U.S. during the pandemic while we were overhauling our tech platform and marketing model. We pulled back in certain countries where we did not have the right product market fit and had been spending more but losing share. Now, after changing virtually everything from how we market to how we retain customers to our entire product experience, we have what it takes to go back on offense. In the back half of 2023, we were able to hold or build share in most of our core markets, and now we have the opportunity to be more aggressive. In 2024, you will see us spend up in a number of markets to reclaim real share where we believe we have the right to win. Our fourth priority will be to continue cementing our leadership in the B2B segment. Revenue in this segment grew a stellar 33% in 2023 versus 2022. While it benefited from the APAC reopening, and we expect those geo tailwinds to moderate somewhat this year, we are still expecting very strong growth given our differentiated capabilities and a huge TAM to still penetrate. As I have explained before, our B2B business benefits from all the work we have done in product and technology to win in B2C, along with all the B2B specific innovations we have rolled out over the last few years. We are seeing a strong pipeline of new customers globally, and we continue to find ways to gain wallet share in our accounts. And beyond just offering supply, we have achieved good early results in externalizing components of our technology to our partners as well. Overall, I'm very enthusiastic about reinforcing our leadership in powering the travel industry. Our fifth strategic priority will be to drive efficiency and effectiveness across our business. As I mentioned, we have grown our EBITDA margins to their highest levels in a decade, growing over 300 basis points since 2019. But we are capable of much more. All of our transformation work was not only to enhance our consumer experience, but also to allow us to do more with less. We have significant opportunity to run more efficiently across the company, to eliminate redundant systems, to keep optimizing in the cloud, and utilize the latest productivity capabilities from AI. In addition, we will keep leveraging our technology leadership to find opportunities for decreasing costs while increasing customer experience. The work we have done in improving our customer service operations is a great case study. By building better technology and self-service tools, we have both improved our NPS and created massive efficiencies, all while maintaining our best-in-class service. And generative AI will only accelerate this trend. So in closing, I'm incredibly pleased and proud of everything we have accomplished over the last few years, and I'm really excited about our path forward. Thanks to our massive transformation, we are now a very different company than we were four years ago. We are set up to out-innovate our competition for the next decade and efficiently deliver the best experiences for our customers and partners. And if we do that, the business and shareholder returns will take care of themselves. While you have to kick me around for one more earning cycle, let me just say that in addition to the gratitude I feel for the team and all that we have done to foster our collective interests, I'm also grateful to our chairman, our board, and our shareholders for supporting the ambition we had and helping us get to this point. And with that, I will hand it over to Julie.

Operator:

Thank you. [Operator Instructions] Our first question comes from Naved Khan from B. Riley. Naved, please go ahead.

Peter Kern:

Yes. So three good questions. Lots of material there. Thanks, Naved. And you can call me anytime if you miss my voice. The first on Vrbo, I would say, if you think about what we were doing at the tail end of last year, we were pushing to 100% migration, the app, everything moved over. And I think as we told you, everybody, these steps come with expected conversion degradation because you can't get everything to par. It takes forever. You have to move everything and start working on the new product. So we did that. I'd say that degradation was broadly in line or slightly better than what we hoped, but it was still there. And when you're doing that, you obviously are not investing as heavily in terms of marketing because you're marketing people into a less converting product. So you kind of tend to back off on that spend because the spend becomes less efficient. As you now get to a place where the product is ramping back up very quickly and we've clawed back much of the conversion, which is I think the green shoots you're referring to. So we're actually gaining much faster than at least in my tenure I've ever seen us gain back in terms of one of these transitions. And the product is basically virtually back to the same levels of conversion. Now we can push back in and spend again. There is a little bit of a lag there because you've been underspending, if you will, for a bit waiting for the product to get to where it's converting as strongly. Now we are spending back up. So it will take a little time to get the engines fully operational, if you will, but it's more or less a sequence we expected to happen. It's just you're seeing it on our numbers now. As far as One Key goes, I think you said, am I satisfied with what we're seeing? I'd say I'm satisfied. It's still early days. I mean, we're seeing a lot of the indicators we want to see, as I alluded to, cross shopping is good. We're seeing one of the things we hope to achieve was getting Hotels.com customers who had fewer than 10 stamps, people who hadn't gotten to earn anything yet, to be more engaged with the product. And we're seeing their repeat rates improve and their business improve. We're starting to see Vrbo customers earn and now burn their one key rewards not only on Vrbo, but other places. But again, those cycles are a bit long. So it will take longer for the millions of people who have now earned One Key cash on Vrbo who didn't used to, to come back and spend it because they may not rent a house for six months or a year. But that is where we're laying in that opportunity with our customer base, and then we're crossing that opportunity across the brands, and we're seeing good signs across shopping and people starting to use more brands. So that's all consistent with what we hoped, but this isn't, it's not a switch you flip. When you talk about travel timing, many people only travel once or twice a year, so it takes a little time, and we're building that in. So all good so far, but looking forward to it being even much more impactful over time. And then international expansion. We're not detailing which countries we're doing exactly when for competitive reasons, but One Key will roll out, we will push back into a number of markets that were historically pretty strong for us, and have stayed reasonably strong, but we just think we have a lot of opportunity. And then we will have some tests into some markets that we haven't been as invested in historically, where we think there's opportunity with the new product, new marketing approaches, etcetera. So a lot of exciting opportunity on the international front. It's not all dependent on One Key. We think there's opportunity regardless, but in the markets where it's relevant, where we have multiple brands that have high brand awareness, we will be launching One Key there, and we think it will only enhance that.

Peter Kern:

Thank you.

Kevin Kopelman:

Thank you very much. Yes, first of all, Peter, congrats on your tenure. We'll definitely miss you on working with you on the calls. I did want to ask a question on that. Could you let us into your thought process a little bit, or any color on your decision to step away in the timing?

Kevin Kopelman:

Understood, and thanks for that, and if I could just ask a quick follow-up on Naved's question on Vrbo. Could you walk us through what that looks like as you pass through Q2? Is it fair to think about that as an easier comp once you anniversary the initial platform upgrade, and what the timeframe could be to get that back to flat and then growth?

Kevin Kopelman:

Great, thanks Peter.

Eric Sheridan:

Thanks so much for taking the question I'd love to ask more of a big picture one now with One Key in the market and elements of the Replatforming behind you, how should we think about some of the things you talked about in the prepared remarks about unified product offerings and being more innovative in the way you go to market and retain customers and drive direct traffic And how we should be thinking about some of the product roadmap that you're most excited about and the mixture of both growth that could come from those initiatives versus investments that still need to be made. Thanks.

Eric Sheridan:

Thank you, Peter.

Lee Horowitz:

Great. Thanks for the question. First Peter, congrats on your tenure. Thanks again It's been a crazy couple years and congratulations on all that you've accomplished over that time period. Maybe just sticking with Vrbo as we think about it in 2024. I guess one, how do you feel about the overall health of the alternative accommodations industry? Do you think there may be some continued pricing headwinds in say core vacation rental destinations as travel patterns continue to normalize and perhaps some macro weakness plays through? And then secondly, can you provide any thoughts on how the competitive set for Vrbo has evolved over the past couple of years, maybe as you've taken your foot off the gas and how maybe this shifting competitive landscape, if it is happening, is informing your strategies to get this business back to humming again? Thanks.

Lee Horowitz:

Helpful, thank you.

Anthony Post:

Great, thank you. I guess a couple for Julie. You gave us the 11% growth for lodging and 18% for hotels. So we can kind of solve for Vrbo, but can you give us any range of what percent your alternative accommodation nights are or bookings just so we can not have too big of a range there? And then second, last year you were very clear, double digit top and bottom line. I think you said similar growth on the top line and then margin improvement. I mean, is that kind of saying double digit for both, or do you want to clarify kind of the growth rates at all? Thank you.

Anthony Post:

Great. Thank you.

Jed Kelly:

Yes. Hey, thanks. Thanks for taking my question. Just going on to your overall marketing strategy, just by watching TV, I still see you're still marketing to a lot of the brands, Hotels.com, Expedia. And do you start to pivot those brands more into One Key? Can you talk about that? And then can you just talk about your comments on streamlining expenses sort of what's the strategy behind that move? Thank you.

Julie Whalen:

Yes. So on the streamlining of expenses, I think we've been saying all last year that, obviously during the transformation phase, we've ramped up in expenses. We've had duplicate systems, legacy systems while we're still building out the new system and all the costs that are associated with that across the board from cloud and licensing and maintenance and things like that. And so we have said as we come out of this transformation phase that we think there's opportunity to deprecate systems and redeploy resources and find cost savings throughout the P&L. So this is our first sort of stab, if you will, at that. And so you'll see things across the board coming out as we move throughout the year in cost of sales, in overhead. And to the extent that obviously crosses over into capital expenditures, you'll see some of the pressure coming off at least the growth rates there. And if not, it also in absolute dollars. But that's simply what that represents. We're obviously not going to go into a lot of details today, but we did purposely say that we will give you more information later this quarter. And as we move throughout the year on that, as we give you more of the details associated with it.

Jed Kelly:

Thank you.

Mark Mahaney:

Okay, thanks. I'm sure these questions have been covered, but if I could ask again, please. Of these two initiatives, the replatforming of the brands, particularly the Vrbo brand, and then the One Key strategy, I assume these are more like snowball events. Have you already seen an impact on the business or on demand cross-selling retention acquisition from these so far? Or would you, if not, could you let us have expectations of when we would? Thank you very much.

Mark Mahaney:

Thank you, Peter.

Operator:

That's correct.

Operator:

That concludes today's call. You may now disconnect your lines and have a nice day.

Operator:

Good day, everyone, and welcome to the Expedia Group Q3 2023 Financial Results Teleconference. My name is Lauren, and I'll be your operator for today's call. [Operator Instructions]. For opening remarks, I will turn the call over to SVP, Corporate Development Strategy and Investor Relations, Harshit Vaish. Please go ahead.

Peter Kern:

Thank you, Harshit, and good afternoon, and thank you all for joining us today. Our third quarter results came in ahead of our expectations with record revenue and EBITDA. This was particularly gratifying considering the fires in Maui, which had a disproportionate impact on our Vrbo business and put pressure on the top line overall. Travel demand otherwise remained solid with broad trends consistent over the last few months. North America and Europe demand remained stable with more pronounced growth in APAC and Latin America. Prices also remained stable by and large. Hotel and Vrbo ADRs are holding up in each region, but mix effects are leading to a slight year-over-year decline in overall lodging ADRs. Conversely, we have seen some modest price pressure in air and car. We are also keeping a close eye on the escalating violence in the Middle East, which appeared to have some impact on global travel in early October. More relevant to our specific performance, I'm happy to share that we've just completed the final leg of our verbal migration onto our single front-end stack with the conclusion of our global launch of the new Vrbo app this past Monday in the U.S. This marks the last of our major migrations associated with our multiyear transformation. It has been a long, complex journey, but well worth the effort as we are now in a position to accelerate into the future without the drag of transformation work that forced us to go backwards in order to go forward. We are now in a position to dramatically increase our test and learn capacity and feature release velocity while also providing a scalable and efficient base to operate upon. We continue to utilize our industry-leading AI and ML capabilities to radically improve all aspects of our traveler experience. And with the launch of One Key and our increasing ability to understand the long-term value of our travelers, we can now begin to drive faster, more profitable growth. Moving on to the key pillars of our performance, starting with our category-leading B2B business, which remains on track for a strong year with Q3 revenue growing 26% versus last year. We're winning new deals, increasing wallet share with existing partners and launching new products and features to support our growth. Demand from China, in particular, continues to pick up with Q3 bookings from China Partners up over 150% year-on-year. We anticipate continued strength from B2B going forward, driven by our continuing push into the addressable market along with the advantages that our platform improvements will bring to the B2B business, whether in core technology, the application of AI and machine learning or in service and payments. As we unify stacks, this will also further enhance the capabilities on offer for our B2B partners. But as pleased as I am with the continued growth of our B2B business, I'm even happier to see our B2C business picking up momentum with year-over-year revenue growth in Q3, accelerating over 400 basis points sequentially. This is what we've all been working so hard for us. So it's very gratifying to see these results beginning to improve. Another major milestone for us was the U.S. launch in July of One Key, our new loyalty program. One Key unifies our major brands, expediahotels.com and Vrbo, allowing our members to earn and burn one simple currency, One Key cash across our vast marketplace. As I've mentioned before, getting dividends from a program like this will take some time given the frequency with which most consumers travel. That said, we are very happy with the early results and traction One Key had with our members. We have already migrated over 82 million members to the program. And with the addition of Vrbo to the mix, we have seen 34% growth in new members over last year. We have already seen many members using One Key cash across brands, including on Vrbo and have been pleased that Hotels.com members have not been unduly impacted and have already been using One Key cash to shop for other products on Expedia. Overall, these promising results have given us solid learnings that will be useful as we launch One Key in other countries next year. And with the Vrbo migration complete, we can now more fully lean into the core differentiation that One Key gives Vrbo in the vacation rental space. One Key, along with our ongoing efforts to more generally attract higher lifetime value customers, is accelerating our mix of loyalty members, app users and app members. And the percentage of bookings coming through our apps continues to grow and was up approximately 300 basis points sequentially in the third quarter, which ultimately contributed to our year-over-year marketing leverage in our B2C business for the third quarter. We have also been releasing exciting products and features that remove more and more friction from the planning and booking process. In September, we announced our fall release showcasing a series of new features and products squarely aimed at solving complex traveler problems and enhancing engagement. In case you missed it, I'll give you a few of the highlights. We have simplified group travel planning, providing for the first time one place for friends and family to collaborate on a group trip to see one another selections and add saved options across air lodging, car rentals and activities, significantly using the group planning process and creating a better, more successful trip for everyone. Products like these not only enhance the consumer experience but allow us to utilize a consumer's own network of friends and family to expand our reach. We've also launched tools to aid research into a given destination. Hotel prices, weather, best times to visit, crowd levels and even generative AI-powered tools to determine the best neighborhoods to stay, given the traveler one place to research where and when to stay in their dream location. We now also leverage generative AI to scrape reviews to answer traveler questions about amenities and property details. So no more sorting through hundreds of reviews to find out how strong the WiFi is, quality of the pool or whether you're going to like the breakfast. We also launched the first project of its kind, EG Labs, which allows interested customers to test our AI-powered beta products, allowing them to play a hand in how we shape the future of travel. I could literally go on and on, but the takeaway is no one in travel is innovating faster than us. And with so much important platform work behind us and with our leading capabilities and machine learning and AI, we will out innovate in the space for many years to come. We have literally worked for years and given up many short-term opportunities to get to this place, and I don't believe anyone is in a better spot technologically, which is not only exciting for our existing business but sets us up to go back on offense in many more markets next year. In closing, I'm pleased to see our solid execution in Q3 and through 2023 so far. While the geographic mix of business distorts global growth rates, we believe that we have held or grown hotel gross booking share in virtually all of our key markets and with Vrbo finally completing its migration and the key differentiator of One Key, we expect our vacation rental share to improve going forward. In addition, we are finalizing our plans for '24, where we expect to drive faster and more profitable growth. Our high-level strategy is not going to change, best product, best loyalty program, best marketplace and best service. But instead of spending most of the year doing surgery on our own business, we will be focused on growth, innovation and efficiency. I'm excited for 2024 and beyond and for what we will bring to our travelers, partners and shareholders. And with that, let me hand it over to Julie.

Operator:

[Operator Instructions] Our first question comes from Eric Sheridan from Goldman Sachs. Eric, please go ahead.

Peter Kern:

Thanks, Eric. I'll take the first one and maybe let Julie answer the question on buybacks. As far as Vrbo goes, obviously, as I said, we just literally finished the app migration, and people haven't even updated all their apps yet. So it will take a little time for us to be fully across, but we're talking about weeks. And then I think it's a build from there. You have to remember that going through the migration was actually a negative process. It was conversion negative for us to come across, switch the stacks then optimize the stacks and improve them. So we're in the process now of having everything across and working on the improvement part and inflecting past where we were previously. So one, the product will improve from here. We won't have the drag of the conversion drags we've had during this past year, while we were migrating. And then, there are many things to drive growth in the future, we believe, obviously, we believe greatly in One Key. It's a key differentiator in the VR space. It allows all our members across Expedia and HCOM, which are many more in number of humans to have the option of using their One Key cash on Vrbo instead of on a different VR platform or for other products. It's a way to pull out more customers into Vrbo. It's a way to make Vrbo decidedly better as a value proposition than its competition. And I think there's a number of other things we are doing. I mentioned on our last call, we will work to incorporate much more of the multiunit vacation rental properties, we actually have on our OTA brands that don't live on Vrbo yet that we will be moving. So there's many parts to our growth plan in Vrbo, but I think we're excited now. We had to get across this work so that we could again start optimizing, really push One Key fully and take advantage of some of these other pieces we've been waiting on to finish the migration so that we could then move this inventory and do other the things that open up growth opportunities. So we feel good about how Vrbo's positioned. Obviously, this was a tough year of migration, but a lot of optimism for what we can do in the coming years with it.

Operator:

Our next question comes from Lee Horowitz from Deutsche Bank. Lee, please go ahead.

Peter Kern:

Yes. Thanks, Lee. Look, I'm not opining as a world leader on the likelihood of geopolitical acceleration potentially in '24. I certainly hope not for all our sakes. What we're seeing now, as we referred to, there was some short-term movement in early October that appeared to be from what was going on in the Middle East. That doesn't appear to be an ongoing thing, but there was some noise. So we are mindful of the potential volatility from that. But I would say we're more ambitious and more excited because, frankly, even the fourth quarter is just barely beginning to get the benefit like when I talk about Vrbo being past the migration like it was like 2 days ago. So fourth quarter, we're in the middle of the fourth quarter. So getting a lot out of that now in the next 8 weeks is a lot harder than what we have ambition for next year. And if you take that across everything and you take that across One Key still being in relatively early days, and so forth. We're still like this is a big snowball we're pushing and it's starting to turn, but it's going to turn faster and faster. So we have more ambition about our own ability to drive it next year and our own opportunity there. Obviously, there could be macro things that make it harder or easier on all of us. But we think relative to our competition, relative to where we've been, we're just going to be in a much better place. So that is what gives us ambition, it's not that we think the world will all come down and all wars will go away and everyone will have piece. It's that we think we're just going to be in a materially better spot as we're further along this journey.

Peter Kern:

Yes. I think technologically, there aren't a lot of gating items. I mentioned that we've only rolled One Key to the U.S. So rolling One Key along with leaning in more energy into certain places will be part of the strategy. But again, not a gating issue, but that has to happen and there is some technical work to getting that launched in other countries. It's not a big lift, it's just something that will come as we roll out. But more importantly, I'd say it's a balance. We believe we're equipped now. We believe we have the tools to compete better than we ever have. We believe we have a winning product. And as we all know, you've got to market back into these countries. I mentioned the better understanding of customers, which customers we want, how we get the right customers, how we find the highest lifetime value customers, things like that. It's really just about doing it in an orderly process. We're not going to just carpet bond in the world. We're going to go selectively after the most valuable markets to us where we have the most right to win, and we're going to keep chipping away at it. But we're excited to go back on offense in the rest of the world.

Jacob Hendricks:

Hi. This is Jacob in for Kevin. So wondering if you can provide color on regional performance quarter-to-date? And also, what are the cost levers that you expect to see from the tech market ratio as we look at points before.

Operator:

Our next question comes from Naved Khan from B. Riley Securities. Naved, please go ahead.

Peter Kern:

Sure. So the first part of your question, we haven't seen really anything on the consumer side. We keep looking. But there's definitely nothing obvious and you'd have to squint it really hard and look by sub, sub, subregion to try to foray and cut it by price point and a lot of things to really see anything noticeable. Interestingly and anecdotally, we've seen that customers who have gotten One Key cash where they didn't have it before, et cetera, or in some cases, as part of One Key, we introduced higher discounts for our silver and gold members at certain properties that customers are typically using it to get a better room type as opposed to take the money to the bottom line. So they're actually using the available capital they had in mind just for more rather than saving the money. So again, that's just an anecdote, but there does not appear to be any major shift going on. Of course, we have historically and still are strongest in the mid and upper parts of the market as opposed to the lowest end of the market. And that, again, may be moving slightly, but we have not seen any broad consumer change in habit. As far as your second question goes, as I mentioned, the first part of moving the website was going backwards to go forwards, was consolidating it. Vrbo is now getting the benefit of a lot of successful winners that we had rolled out on our OTA brands across Expedia and Hotels.com, and now it will benefit from many of the things that have won there. So we're in the middle of testing in all the things that have won historically on the OTA brands, getting the best-in-class of maps and other things search and store and so forth. I'd say we're still in that journey. I'd say we're still behind in terms of conversion, in terms of pre versus post migration on the website, but we are on the rise and catching up, and we expect to inflect past where we were [indiscernible]. And the app so far has appeared to have done better, and our hopes are that we'll see less of -- less going backwards and more going forward faster. So we're directionally going up from here, but we did have to take a little bit of a step back as we migrate.

Jed Kelly:

Two, if I may, can you just talk about some of the marketing efficiencies you plan, you think you'll get around brand now being able to use One Key and highlight your three brands. And then just going in now that the tech migration is complete, how do you view growing EBITDA dollars versus EBITDA margin? Thank you.

Julie Whalen:

And I think the short answer on the EBITDA question post tech migration is, we expect to drive obviously both. We want to have strong EBITDA dollar growth and we want to have margin expansion. We're not going to need to invest as much as we have in the past. As Peter said earlier, now the protect migration is complete. We should be starting to get more efficiencies out of machine here by deprecating systems, redeploying resources, cutting all the incremental costs associated with that and just getting more output, getting more leverage from all of the goodness that we've been investing in the past. Now we are also wanting to be on the offensive as we said. So there may be times in areas that we think we need to invest, still driving EBITDA growth and maybe not as much EBITDA margin in certain situations. But for the most part, we're committed to both, but this is a year of offense and so we want to have that flexibility.

Chris Roop:

This is Chris on for John. Thanks for taking the question. So there have been some questions around the trajectory of alternative accommodation nights growth across the industry broadly. Could you elaborate on kind of how recent demand trends as far to Vrbo and beyond the onetime impacts from things like the tech migration in Maui fires, have you seen any changes in customer preference for vacation rentals?

Operator:

Our next question comes from Anthony Post from Bank of America. Anthony, please go ahead.

Julie Whalen:

I'll take the first one. I mean as far as the bookings, I think this past quarter and the subsequent Q4 guidance that we gave those are both indicative of some shorter-term things that have occurred. So as we mentioned, we were unfortunately impacted by the Maui fires that brought down gross bookings lower than we had expected in Q3, and we're being thoughtful in our Q4 guidance of what could potentially be an impact associated with the uncertainty in the geopolitical environment. So we'll see how that plays out for the quarter. So early in the quarter, we've seen very little noise at this point, but that doesn't necessarily provide an indication of what's going to happen in 2024. And for all the things that Peter mentioned that we have completed and all the momentum we have in the underlying health of the business and coming out of the tech migration and all the goodness that's coming from the One Key launch and the growing base of app and loyalty members and all of that kind of adding on top of each other as we incrementally roll through the year should drive that gross bookings up.

Operator:

Our next question comes from Tom Champion from Piper Sandler. Tom, please go ahead.

Peter Kern:

Yes. I'll knock off the first. Yes. I mean our B2B business, we have a nice business in China. China, as you know, is a tough place to compete on a B2C basis and really none of the Western companies do anymore. So we don't have that benefit. On the B2B side, we're seeing a nice pickup. But I'll remind you that airlift out of China is still well below pre-Covid levels. There were some recent announcements in the last week increasing flights between China and the U.S., which is a good story, but it's still not a massive story. So you still have substantially less airlift out of China into most of the west. So it's not going to be again, it's not going to be a snap your finger and it's back to 2019 levels, but I think it's going to be a nice tailwind for a long time as hopefully, relations improve and more travel opens up, there's visa issues in China and other things. So we're seeing some good progress there. We power some of the local players in our B2B business, off-line travel agents and online. And there's definitely a pickup of travel. Some of that is intra-Asia. Some is even intra China, but for the big pick up, there is a piece that we really haven't gotten to yet, which is getting China back to real international travel at pre-COVID levels, which will take some time. But it's a nice tailwind, obviously, mainly for our B2B business, and that business has a lot of tailwinds. So it's just another one for us.

Operator:

Our next question comes from Deepak Mathivanan from Wolfe Research. Deepak, please go ahead.

Peter Kern:

Yes. Thanks, Zach. As I mentioned in my comments, we were prepared for some dislocation and some people being upset. Obviously, there have been a few, but actually, it's been considerably less than we expected and the behavior of the customer base has been frankly better than we anticipated. Hardly, we had a number of ways we were going to make that right with our customers and continue to do. But in general, we've seen less unhappiness and generally behavior that's consistent with their prior buying behaviors by and large. There are some exceptions, and we've had some programs to help with our most valued customers there. But again, we think we're moving into a really good state with being a gold or even platinum member of One Key and ton of benefits that come with that. And as I alluded to, we're starting to see them use their One Key cash on Expedia to buy other things. So it's the beginnings of what we are trying to ferment, which is this idea that while it may not be quite as rich, it's much more flexible. You can use it for many more things and with the improved member discounts and other added benefits we've added to the program. you can get just as much benefit out of the program, just built slightly different way and now way more flexible. So in general, we were pleased. I'd say if we took the over-under, it was definitely better than we had hoped and knock wood it remains that way, and we feel pretty good about how it's trending.

Richard Clarke:

Just the first one, thinking about your growth into 2024 and beyond and the ability to keep B2B revenues growing in the double-digit level. What visibility do you have of future deals or upside within your current deals to keep delivering that level of growth?

Richard Clarke:

Thanks. And maybe if I can just ask one follow-up to a question someone asked earlier. Just on the One Key launch, I guess there's been some questions around what's the cost to you of rolling that out? And maybe could you quantify what's been the level of contra revenue you've had to include to fulfill the decent growth you've seen there?

Operator:

Our next question comes from Mark Mahaney from Evercore ISI. Mark, please go ahead.

Peter Kern:

Yes. Sure, Mark. Well, so first of all, we were the first to launch it. We've been learning a lot as we've gone. We've talked at a few conferences about how we've learned to help customers engage with it. Sometimes they don't know what to ask. There's a lot of discovery going on in the world of generative AI around prompts and how to get people into the right questions, et cetera. So we're doing a bunch of work on that. We've recently, frankly, just highlighted it more, so people could find it. We weren't necessarily certain it was a net conversion winner or not anything winner. We just knew customers were curious. We wanted to see if we could help them with planning, et cetera. Since we've highlighted it more, we've gotten much more engagement. But again, it's early days, and it's not really I wouldn't think of it as impacting the business materially other than keeping us on the forefront of technology for our customers and the customers who want to experience it and discover through it. Now as I mentioned, we are using generative AI in many other ways besides just that, hey, I want to go to Paris, when is a good time to go to Paris question, but we're using it in our reviews to help customers sift through reviews and ask a simple question. We're using it in service. We're using it in a lot of places. So generative AI is a bigger story for us long-term and for everybody. But I think in terms of that one feature on the home page, it's still pretty small. People who like it really like it. I wouldn't say it's moving the business one way or the other, but it's a feature we want to have up there, and it's a feature we want to enhance. And ultimately, we want to use AI broadly and generative AI to take you more easily through the collective journey. Whatever part of it you can use it best for, whether that's home page, discovery, kind of greenfields trying to figure out a trip or anywhere through search, sort, purchase comparison, all of those places that are complicated areas for customers. We want to help use AI, use generative AI where appropriate to just take friction out of that journey end-to-end. And that's a journey we're on, and homepage is just one part of it.

Alec Brondolo:

Hey. This is Alec on for Ken. Appreciate the question. It seems like the business journey over the last couple of years has been focused on centralization, centralization of the tech platform, centralization of the loyalty program. How do you think about centralization of brands? Specifically, it feels like Orbitz, Hotwire Travelocity, the legacy brands have been a drag on nights growth over the last few years. Could it make sense to clean that up in '24? Thanks.

Peter Kern:

I think that's it. So thank you, operator. That's the last question. Thank you all for joining us today. We look forward to talking to you after the end of the year. Take care.

Operator:

Good day, everyone, and welcome to the Expedia Group Q2 2023 Financial Results Teleconference. My name is Colby, and I'll be the operator for today's call. [Operator Instructions] For opening remarks, I will turn the call over to SVP Corporate Development Strategy and Investor Relations, Harshit Vaish. Please go ahead.

Peter Kern:

Thanks, Harshit, and good morning, and thank you all for joining us today. Our travel demands remain robust, and we are pleased to see our continued execution result in solid performance for the second quarter. As gratifying as those results are, I am even more excited with the progress on our platform transformation journey, having just launched one key in the U.S., and continuing to be on schedule of our verbal migration. We are particularly pleased that we were able to meet our second quarter financial goals while electing to move some marketing spend from Q2 to Q3, where we believe it can be better spent in support of the launch of one key and our accelerated growth in the back half of the year. Industry trends have remained broadly consistent with the first quarter. And North America and Europe has remained stable with stronger growth in APAC and Latin America. Travelers worldwide continue to favor shorter stays in urban locations versus longer trips in sun and ski destinations. As far as pricing, both hotel and vacation rental ADRs are holding up year-over-year, while international cross-border airfares are stable. U.S. domestic airfares have seen some declines as capacity increases. Rental car rates continue to decline as inventories normalized from compressed levels last year, resulting in more attractive prices for consumers and more transactions. Overall the data continues to show that travel remains a top priority for consumers. As I explained before, our B2C strategy is to build products, features, and customer propositions that attract and help us retain valuable customers, and to move those customers into loyalty membership and app usage to amplify their value. These travelers drive higher profits per transaction and higher repeat rates, ultimately leading to higher lifetime value. In addition, as these customers have a higher propensity to come to us through direct channels, this helps us drive future leverage in sales and marketing. As a combination of all these factors, these travelers have a much higher return on investment and ultimately drive more profitable and faster growth as they stack up over time. As we continue to move from a purely transaction, room-night-focused world to one in which we focus on customers and lifetime value, we have been able to build a bigger, more valuable base of these high ROI travelers. Our focus on acquiring and retaining loyalty members and app users to drive this strategy continues to show good results. This quarter active loyalty members continue to hit new highs and were up 15% year-over-year in our core brands, and the percentage of bookings coming through our apps was up 300 basis points sequentially versus the first quarter. We know that members with the app have the best economics, which is why we have been so focused on growing this segment of customers. In our Expedia brand in the U.S., I am pleased to say that we have seen this cohort of customers increase roughly 135% versus 2019. As we roll out our strategy across all our brands and all our markets, there remains a significant opportunity to accelerate further. A couple of weeks ago, we took another major step forward with the launch of One Key in the U.S. This is the most flexible travel rewards program in the industry, with our core brands unified under one loyalty program offering our customers the ability to earn and use One Key Cash, a simple common currency, across our vast breadth of flights, hotels, vacation rentals, car rentals, cruises, and activities. In addition to the breadth of this program, this marks the first time any major vacation rental marketplace will have loyalty, which is a significant differentiator against our competition. It's early days, but as we have seen historically, our loyalty members are much more productive, and with this now best-in-class program spanning our biggest brands, we expect to drive many more customers into the program and substantially increase our base of loyal travelers. Overall, our B2C business is finally nearing the end of its major changes, and piece by piece getting the benefit of new capabilities and greater agility that comes from a unified stack. With One Key out the door, our last major tech lift is the verbal migration to our main platform. We have already moved 100% of our verbal U.S. web traffic to the platform and our on-track to complete the migration during the fourth quarter. As we've explained before, we expect some modest headwinds to conversion as we transition, but ultimately the payoff is well worth it with better conversion, increased feature velocity, and ultimately better performance from verbal overall. Our single-tech strategy is designed to give all of our brands the benefit of our entire suite of product features, including our latest advancements in AI and machine learning, to personalize and enhance the customer experience. On the topic of AI, earlier this year, we launched conversational trip planning, powered by ChatGPT and the Expedia iOS app. And last month, we launched it on the Expedia Android app. We have been learning from consumer interactions and are adding a number of new features to help consumers on their journey of discovery. Travelers can now start a new conversation by choosing from suggested prompts, and soon they will be able to return to a conversation at any time and even respond throughout a conversation by simply choosing a suggested response, all of which is designed to bring them one step closer to booking their desired trip. Along the growth and progress we've seen with our brands, we continue to see tremendous momentum in our B2B business, which grew revenue 32% year-over-year in the second quarter. Our B2B business has greater exposure outside the U.S. and has benefited by continued opening of markets around the world. The engine for our B2B business is fueled by the same technology, supply, and service that serve our own brands. And as we have advanced in all areas over the last several years, this has only added to the velocity of our B2B business. We believe we have the most successful and differentiated B business in the travel world with a large addressable segment still available to penetrate further. And our wins in the marketplace continue to demonstrate that point. In the second quarter, we announced a new partnership with MasterCard, where our tech will power MasterCard's global network of issuers so that their customers can spend their loyalty points on great travel experiences. And in another huge development for this segment, we've teamed up with Wal-Mart, where we are now powering their first-ever travel benefit for Wal-Mart Plus members through our white-label template solution. We also continue to expand our tech delivery to our existing partners, not only through our core TravelOS products, but through our expanding offering of solutions. After recently commercializing our fraud prevention capability, I am happy to announce that our Revenue Performance API is now in pilot with one of the largest hotel management companies. As our tech continues to advance, driven by our industry-leading AI capabilities and the acceleration of our single-and-platform strategy, there is much more opportunity to gain [lot of share] with our existing partners and to scale further with new partners. So overall, I'm very pleased with the momentum we now have in our accelerating product improvements as we move towards the second half of '23 and beyond. Over the last few years, we have taken on many difficult challenges in order to transform not only our tech, but our entire strategy. As we begin to emerge from this period of massive change, it is clear that we are building the best offerings for travelers, a better marketplace for our partners, and overall a better company. It is great to see so much finally come into fruition, and our entire organization is excited about the future. And with that, let me hand it over to Julie.

Operator:

[Operator Instructions] Your first question comes from the line of Eric Sheridan from Goldman Sachs. Your line is open.

Peter Kern:

Sure. Thanks, Eric. I'll take a crack at both of those. I'd say broadly, yes, I mean, what we're seeing is a relative, what I would call a relative normalization of seasonal trends and booking trends. There's obviously some dynamics around what is opening or more newly opened, and what has been open for a while, as we've seen, for example, this summer with lots of travelers going to Europe, where maybe they didn't go last summer, Asia opening up, and more travelers going there. Of course, parts of Asia like China still don't have full airlift out of China. So there's still differences. But I think broadly in terms of the effect of like COVID, last year we had COVID first quarter, and then the second quarter was a huge quarter because things opened up after Omicron. That's kind of normalized out, and I think in terms of booking windows, booking trends, they're moving around a little bit, but by and large, they're normalizing to what I would call generally pre-pandemic patterns. So I think that's the main thing. In terms of geo, again Asia will open up more. There will be more travel there. We're seeing APAC and LATAM growing faster because of those things opening more recently. So that's certainly a trend. But again, I think that normalizes once it's been opened, call it a year or so. And then as far as Vrbo goes, very hard to quantify. And obviously, the switch, the sort of consumer switch from Vrbo or vacation rentals generally to more hotel started happening in the back half of last year and earlier this year. So that's sort of a macro trend as far, so we'll be lapping some of that now as we get into the back half of the year. But as far as our journey goes, yes, One Key we think is a big opportunity for us it's the first time that Vrbo customers will have loyalty. It's a chance to get them involved in our whole universe of products so we can bring them into the other products. Obviously now, Expedia members, hotels.com members can use their points on Vrbo. So we think that becomes a very attractive reason to use Vrbo. So we definitely think One Key will drive a lot of cross shopping between the products. Hard to quantify yet, but that's a core belief in what we are trying to do with One Key. And then as far as the migration goes, as we've talked about, you're changing the product, you're moving it across, the last piece will be moving the app, which is very binary, so you tend to do it at the end. That's still coming, but we're excited about what the product will be able to do. We're excited about having all the products on one stack and being able to innovate across all of it together. And as we've talked about for a long time, that will eventually lead us to be able to sell much more easily Vrbo products across all brands, across our B2B products, etc. So we don't have a number for you, but I think broadly, I think we're going to lap the macro trends of shift from vacation rental to hotels later this year, and then, the migration stuff will still be around for a few more months, bu we're excited about being past it and the opportunities that presents.

Operator:

Your next question comes from a line of Lee Horowitz from Deutsche Bank. Your line is open.

Julie Whalen:

Hi, it's Julie. I'll take the first one. Yes, I mean, obviously, I'm sure there was some impact to the second quarter as a result of our decision to shift the marketing. At the end of the day, our top line was hitting our expectations and obviously what we had told the street about mid-single digits, and so we thought the right choice of action was to take that spend and to get the best return to tie it nicely with our One Key launch and also to set us up for the back cap. So we made the decision to take that money and push it into the third quarter. But sure, could we have spent more and maybe gotten some incremental nights and bookings in the second quarter? Sure, but we thought this was a better path to take.

Lee Horowitz :

Helpful. Thank you.

Kevin Kopelman:

Great. Thank you. As you think about the acceleration that you're looking for in the third quarter, the issue is being focused in U.S. and B2C given the One Key launch or is it going to be more broad-based?

Kevin Kopelman:

Great, thank you. And then could you just touch on the CapEx expectations for the rest of the year and drivers there? Thanks.

Kevin Kopelman:

Great, thanks, Julie.

Mark Mahaney:

Okay, let's see, I want to ask two questions. One, the travel bot or the ChatGPT experience that you have on the site, what have you seen so far in terms of, I think there's enormous potential here. I just don't know how long that takes and whether there's just a ton of tweaking that needs to happen in order to really get it right. How do you feel? What have you seen so far in terms of engagement? Has it kind of led to increased conversion rates, and if not, maybe it's way too early, what's a reasonable expectation for when you could actually see that. And then the other thing is on One Key, now that you're rolling it out, can you set up an expectation for when you think we'll see kind of the impact that has, I know it's just recently launched, but is that something you take one quarter or is it one full year before you really can tell how successful that's been in terms of a deeper engagement and maybe attracting newer users? Thank you.

Mark Mahaney:

Okay. Thank you very much, Peter.

Operator:

Your next question comes in a line from Justin Post from Bank of America. Your line is open.

Peter Kern:

Maybe I'll take those in reverse order. Take the sort of factual ones first. So yes, one of the pieces, not that relevant necessarily for the investment community, but that is important for the consumers, because we've expanded our member discounts as part of this One Key launch, so that where we used to have one level, basically, of member discounts, we now have, blue, silver, gold levels, and there are more discounts for higher tiered members, and that is part of the value proposition that we give to our consumers. Those are funded by our supply partners. It's a way for them to get to better and better higher value travelers, and that is an important added feature that we launched with, and we will be expanding over time. So that is certainly, booking has had tiered discounting from some of their supply partners, and that is a feature we have not had before, so I think, yes, that is a good competitive way. I will say that we also think we have those discounts on more valuable hotels that are worth more value to our customers who are more valuable. So, which goes to your first question, which is, yes, we have confidence that we are building a pool of more valuable customers, in the large part because we are getting them into more valuable states, so as we get them into membership, as we get them into app, and we follow how those cohorts perform, we know those cohorts perform for lots of good and thoughtful reasons, much better. So a member, of course, sees the member discounts, the loyalty rewards, and so forth, and app member does even more typically and comes back more directly, all good things. So as we build up those pools, and our blend of total consumers and total transacting consumers is blended towards these pools that have higher peak rates, higher LTV, et cetera, we are essentially building a bank of more value that is left to play out in the future. So that is why we do have confidence in what we are doing there. Obviously, we have done it particularly well as I talked about before in Expedia US, now we are doing it in more countries, now we are working on doing it with Hcom, and then expanding that to more countries, now we will be able to do it in Vrbo as well. So that is why we say we have a lot of runway left here, but we can see it happening where we have intent, where we have spent according to that, where we have driven the product, moved more customers into membership, and signed up into the app. Every step in that journey creates more value for us.

Operator:

Your next question comes from the line of Lloyd Walmsley from UBS. Your line is open.

Peter Kern:

Sure. I think the first one, the short answer is, it is too early. I mean, we have converted more than $70 million, don't have today's count, but over 70 million consumers into the One Key program. These are existing members, and also new members that have joined in the last few weeks. We've had lots of new members join in Vrbo. We've been able to activate, a customer who may be using Vrbo and may have been a customer of one of the other brands a long time ago, but now they're in a program where they'll see the benefit in the other brands. So we've done a lot of, sort of, the core work of getting customers aligned, getting their accounts right, getting their accounts consolidated if they had reports in different places, which was complicated. So we've made huge progress. It's too early to say that, there's not enough signal yet to say, well, people are, doing acting, behaving differently and doing lots of different things. And even in Vrbo, there's a lot of cross currents and a lot of the time is launching One Key. And a lot of our Vrbo customers, even though they're getting a great benefit, they're, they're having to understand, like, wait a minute, there's a membership program. What is it? Do I sign up to it? So there's the usual issues of launching something new and a product experience that people are accustomed to, but we've seen a lot of great response and, millions of sign-ups and I wouldn't say necessarily massively incremental in terms of the velocity, but just a lot of people engaging with it and signing up. And then as far as HGMP goes, yes, we have, there is a little bit of noise from our heaviest users about what does it mean for them. But I will say we've taken care of them. We've made sure that the value they had did not get diluted. And our view of the new program is that they get much more value through flexibility. They get value through the deeper discounts. We just talked about a member discount. So while it might not be constructed exactly the same, our heaviest users will get massive benefit and in our opinion, more benefit than they can get anywhere else in travel. So it's not like we went from, we love you and we give you all this and now we're going to devalue your program and not give you a lot. We're actually carrying over their value and we're giving them huge incremental flexibility, ways to spend their value on flights, on verbal, all kinds of things they couldn't do before and far more member discounts and other high-end benefits for our heaviest users, gold and platinum, et cetera. So they're going to get a ton of value and they just have to make, I think the industry has trained people to think they're going to lose out every time, loyalty program changes. This is not one of those circumstances. I won't say there's not a single customer who won't find that, they don't like this one as well as the last one. But this is a great program with a lot of value for the heaviest users and I think they will all come to understand it and love it. And appreciate the benefits. What they got, even though, it might be slightly different than it was. All right, thank you.

Operator:

Your next question comes from the line of Naved Khan from B. Riley Securities. Your line is open.

Peter Kern:

Yes, I think it's really just intent on our part, as we reacted to COVID and we started rebuilding things, in a number of markets in the rest of the world, we back down spend a little bit and we got a little more conservative as we wanted to build our new mousetrap, as it were. And I think now that we have greater confidence in all the things I've talked about, be it membership, the value of app downloads, and so forth, we've been driving back into a number of international markets where we think there are good returns and we've been seeing nice returns. Now, these are modest changes in the scheme of things. There's nothing dramatic happening, but we're just seeing, what I call low hanging fruit and opportunity for us to move back into some of these markets in a smarter way. So, again, not a huge story there, just that, we feel good about share in the U.S., we feel good about what we're seeing, early signs as we push back into these international markets. So, on share , we're feeling reasonably good with more on this.

Peter Kern:

Yes. I think on the last part, you're talking about vacation rentals. Is that what you're talking about?

Peter Kern:

Yes. I mean, I would say, look, we're working with them and working in the auctions around the world all the time. I don't think we've seen anything particularly different in terms of inflation or not in the auctions. I mean, the auctions have been inflating over the last several years. And of course, they're highly competitive, particularly amongst the biggest of us. But no, I don't think we've seen anything that's of any concern, et cetera, over what's happening in terms of pricing in those markets. And of course, we are trying every day to find better opportunities, higher long-term return opportunities to invest our advertising dollars, be it in app downloads or other kinds of environments, shall I say, that encourage those behaviors, as opposed to just Google auctions. So I think we're probably not alone in that, but that's been a core part of our strategy as we've tried to get away from simply trying to buy transactions and getting much more focused on what consumers we buy, getting them into the right state in the app, and so forth. So that's an ongoing journey for us, but that's the direction that journey will keep going on forever.

Peter Kern:

Thank you.

Jed Kelly:

Great. Thanks for taking my question. Just two, if I may. Just one, just the airlines that recently called out weaker domestic trends. Is there anything where there's just softening underlying demand or is that the pattern shifts that you kind of mentioned earlier? And then just thinking about your back half brand spend. Can you just talk about the efficiencies you plan to get on being able to market all your brands under one loyalty program versus marketing them all separately? And are you going to continue to market each of your key brands separately? Thanks.

Jed Kelly:

Thank you.

John Colantuoni:

Great. Thanks for taking my question. Sorry about the drop earlier. I want to talk a little bit about the One Key rollout. Can you help us understand what's changing from a loyalty perspective across each of the individual brands and how we should think about the sort of collective impact to take rate from these loyalty changes and perhaps some sort of other potential merchandising changes related to the rollout. And can you also help sort of talk a little bit more about the puts and takes of the acceleration in bookings growth? Next quarter, there's, the bites or slowdown in the system marketing spend and maybe some pull forward in the last quarter into Q1 from Q2. But I'm also curious if you've started to see an inflection point in some of the smaller brands where, they've gotten small enough to not have as material an impact on the overall business. Thanks.

Unidentified Analyst:

Very helpful. Thank you.

Deepak Mathivanan:

Great. Thanks for taking the questions. Julie, can you help us with the full year guide on margin expansion? We're almost into the peak travel season and you said that for 3Q, margin should be flat here on here. But anyway, you can frame for us what the full year margins can reach to. And then kind of related to that, how should we think about the headwind from fixed cost growth? You obviously have a little bit of a duplicative cost right now with all the replatforming efforts. Is there a timeline when we can expect this to somewhat sort of start to show leverage and maybe you can deploy them for other projects? Thanks so much.

Unidentified Analyst:

Got it. Thank you.

Operator:

That concludes today's call. You may now disconnect your lines. Have a nice day.

Operator:

Good day, everyone, and welcome to the Expedia Group Q1 2023 Financial Results Teleconference. My name is Emily and I'll be the operator for today's call. [Operator Instructions]. For opening remarks, I will turn the call over to Senior Vice President, Corporate Development, Strategy and Investor Relations, Harshit Vaish. Please go ahead.

Peter Kern:

Thank you, Harshit. And good afternoon and thank you all for joining us today. As I mentioned last quarter, this year marks the final phase in our major platform transformation journey. And I'm pleased to have started the year with strong performance. We posted our highest ever quarter for lodging gross bookings and free cash flow and our best first quarter for revenue. Throughout the quarter, we saw strong consumer demand with acceleration in international and big city travel and more of Asia reopening. The reemergence of major international cities has meant increased hotel demand, offset in part by flattening demand in vacation rentals as travel demand mix to urban destinations over extended beach and mountain trips. Similarly, air has continued to mix towards international travel and away from COVID era concentration in domestic. By and large, prices have held up quite well after several years of inflation. We've seen lodging ADRs hold fairly steady across geos. Air ticket prices, however, continued to increase as strong demand continues to outstrip capacity. The only area where we have seen any meaningful decline in average daily rate is in the car rental space where larger inventories have allowed rental companies to drive more volume at the expense of price. Overall, we are pleased to see broad travel demand remain strong in what appears to be a more structural post pandemic environment of people prioritizing travel above most other categories of spend. This has held up despite inflation and recession worries and even, more recently, bank system concerns. While economists continue to debate potential recession outcomes and clearly many unknowns are still out there, consumers have so far shaken it off and continue to travel. Against this backdrop in our consumer business, we continue to invest in our strategy of acquiring and retaining high value loyalty members and app users across our three leading brands. As I've explained before, these cohorts drive higher production and repeat rates versus other customers, ultimately leading to higher lifetime value. Q1 2023 was another step in this journey as we saw our active loyalty member base for our core OTA brands grow over 25% year-over-year and the percentage of gross bookings coming through our app roughly doubled what it was in 2019. This continued growth in our base of valuable customer cohorts, obviously, bodes very well for our future. I've also talked for a number of quarters about our platform journey, and in particular about the drag we had last year on our business resulting from the migration of hotels.com to the brand Expedia stack. I'm pleased to say that with that migration fully behind us, hotels.com is now back in growth mode. We are already seeing higher conversion, increased feature velocity and higher bookings. In fact, year-over-year bookings growth for hotels.com was nearly 20% in Q1 2023, which is beginning to approach the almost 30% we saw on brand Expedia. This inflection back towards growth was exactly what we had expected, and we were pleased to see the pivot come so quickly. As you may recall, we are following the same migration path with Vrbo, which has now started taking some traffic on the Expedia stack in our largest markets. Just as we saw last year with hotels.com, this work has slowed conversion and feature work on Vrbo for the past few quarters. And as we cut over, we expect some inevitable degradation and conversion due to the switch. But as we get this migration finished in the coming months, Vrbo too will be in prime position to benefit from the Expedia platform, and just like hotels.com, will benefit from reaccelerating testing, conversion and feature improvements. Our tech journey hasn't been easy, but we had to have conviction to give up some short term gratification to get to the promised land. With a couple of big last lifts finishing this year, we will finally be in position for all of our business to accelerate their velocity of innovation and deploy more traveler features as widely as possible. In particular, I'm excited about the power to deploy AI and machine learning to all corners of our product to enhance the customer experience and move towards our Northstar of true personalization. To that end, you probably noticed our launch of the Expedia plugin for ChatGPT and the launch of ChatGPT in our own Expedia iOS app. This would not have been possible at this speed or with this efficacy in our prior world. And it's just a small piece of what the future will hold. It is yet to be seen how impactful large language models will be in facilitating travel shopping. But for us, this is just one step in a journey to bring the best technology to our members and partners at an accelerated pace. And to be clear, we have already been at the cutting edge of deploying AI and ML across almost all experiences for our consumers. When they land on our site, we use AI to customize the sorting and filtering options and the images we render to make the shopping experience most relevant to them. AI allows us to deliver price predictions and enable comparison shopping, so they can pick the right product with confidence. Then post booking, we use AI in our service stack to help consumers self-serve their problems, and it even helps our customer service agents more quickly address issues. While we have been using AI and ML for some time to make the experience better for consumers, we will go much further this year to continue to deliver the best technology in online travel. Another exciting milestone ahead of us is our unified loyalty program, One Key, which will be released in July in the United States. It reflects the culmination of years of work on the technology side to get to a solution that enables earn and burn across multiple products and brands in our portfolio. We've been busy testing this program and sourcing preferred deals for our members, all with great results to date and we cannot wait to launch it this summer. I discussed many times how our broad investment in technology not only benefits the B2C traveler experience, but how it also enhances our B2B partner experience. This includes the over 400 million loyalty members we served through our template partners, the more than 35,000 offline travel agencies we power across more than 30 countries, all the way to our numerous API partners who take our inventory and certain tech capabilities to build their own experiences. On the back of this, demand in our B2B business continues to accelerate worldwide. We had yet another quarter of impressive growth, with revenue growing approximately 55% year-over-year. We continue to sign new business including SoFi, who has launched our full template product to their customer base. And as we look to enhance our partnerships with our biggest suppliers, we went live with both Hilton and Accor who will use our capabilities to sell packages on their sites. These are just a few examples, and we have many more wins coming this year. We continue to innovate for our supply partners and equip them with highly differentiated solutions. Last year, we spoke about our optimized distribution product that gives our lodging partners greater control of their wholesale business. This product has helped some of the biggest hoteliers in the world. And over the past two years, we have tripled the number of participating chains using this capability. There are significant innovations coming this year to give more control to our partners and allow smaller partners to participate in the product. I'm particularly proud of this product as it truly represents a winning technology for the entire industry, and allows us to provide much more than just a marketplace for our partners. Finally, though, somewhat more nascent, we've talked about our ambitions to externalize our tech in the form of micro services to help any kind of travel company use our tech to enhance their business. Our first pilot of our fraud capability started late last year and I'm proud to say we now have our first paying customer on the service. We also have other products in beta testing with a number of partners including our best-in-class service technology and our revenue management API. While still early days, we believe that by delivering our technology as micro services, we are greatly expanding the addressable market for our tech and cementing our technology is the core operating system for the travel industry. Next week, we will host our EXPLORE partner event at our Seattle campus, where we are excited to showcase what we've been working on for our partners and how we are helping our partners sell more, operate more efficiently and ultimately better serve travelers around the world. Overall, I'm really pleased with our progress. I'm excited that we're in the final innings of our tech transformation. And I'm encouraged by the incremental momentum we achieve with every step. We've been willing to take some short term lumps in order to get these moves finished, but the rewards are now clearly becoming visible in the hotels.com reacceleration and the sheer velocity of our tech delivery. And in our B2B business, where we have not had disruption and have only enriched our offerings, our growth has been phenomenal. No company is doing more to move travel tech forward and make the entire experience better for travelers. And ultimately, that is how we will win. And with that, let me hand it over to Julie.

Operator:

[Operator Instructions]. After first question today comes from Lee Horowitz, Deutsche Bank.

Peter Kern:

It's a little hard to hear you. But I think I got it. Basically, the way we think about it is our business, we said it last quarter, it's running at a similar level, about two thirds of the business comes from direct. That continues to grow as a nominal number, but as a percentage is fairly similar to where it was a quarter ago. And basically, yes, we are investing in app and loyalty and these longer term payback products. But remember, we're only taking a portion of our quarterly spend, if you will, and putting it into these channels. So it's not like we reversed the model and it's all into these long term channels. We are peeling off of a portion of it, a fairly modest but sizable portion, and putting it into these longer channels. It means we give up some short term payback and it means we stack up these customers over time. But given that it's not our full spend, it takes a while for this to stack up. Then you add to that, that we are now getting back to the conversion levels we used to have and accelerating through them as we get Hcom on the tech stack, as we get Vrbo on the new stack and we're accelerating brand Expedia itself because we're just upping the velocity of testing massively. So we're getting a lot of improvement. A lot of it's coming through this year and coming even as we speak. And so, the reason we have confidence in the leverage that will come in the back half of this year and the future is we're both stacking up the loyalty and the app usage and all these more direct channels. That's what we're doing with the money that we can tactically spend differently. But we're also changing and improving the product and the conversion in the product, so that every dollar will work harder in the future. So all of that's coming. And then One Key launches in July, which is yet again another sticky product feature that will add millions of people from Vrbo, customers from Vrbo into the mix and allow more of our loyalty members to spend across more products. So all of that is coming kind of at the same time, not that it's going to be a moment in time inflection, but it's building on itself and that's why we've said second half of this year will be stronger. And obviously, going forward, beyond that, once we get past the One Key rollout, et cetera, will be even stronger. So that's what gives us confidence in the marketing leverage. It's not like one tactical change in spend changes it all. It's a combination of building that up over time, plus adding the product benefits and getting all the technical work behind.

Peter Kern:

Yeah, I think, broadly, we feel like, from a share perspective in hotels in North America, we essentially held share, maybe slightly better. We're not over investing the problem. Again, it's a balance. This journey is a balance of how you spend versus how the technology comes online. We could have spent a lot more on hotels.com last year, but it wouldn't have been as effective. As hotel.com gets better, we can spend more. So all of these capabilities give us more weapons to fight better in the fight. And so, we feel like we've held maybe slightly better, and we should see acceleration from that. And equally importantly, we did pull back, as you know, in the past few years from some international spots where we were not as effective and as efficient. But as we now feel like the products improved, we have a marketing model that we believe in. We feel like we'll be in a position to start rolling out more aggressively. Not a North America story. It has been for a while. But this is really how do we grow beyond that as we get past these technical hurdles and are in a position to roll more quickly across the world.

Jacob Seed:

This is Jacob Seed in for Kevin Kopelman. Just a question on One Key launch. So with the launch in July, how are you thinking about some of the smaller brands that are not going to be included in the launch? And how are you thinking about managing them going forward?

Operator:

Our next question comes from Anthony Post (sic) [Justin Post] with Bank of America Merrill Lynch. Please go ahead Anthony.

Peter Kern:

I'll take the first part and then leave the capital side to Julie. I think the B2B business has been growing terrifically, as I mentioned in my prepared remarks. We haven't had to do any big technical migrations. In fact, we've added to the capabilities over the last couple of years. And we've seen the benefits of that in many of our business lines. That business saw great growth, in part because it is more exposed to some of the geographies that came back last quarter. So the opening of Asia is more impactful for our B2B business, Latin America, et cetera. So some of it is geographical mix that you're seeing there. But definitely, we expect our B2B business to continue to grow. I think I said a few years ago, this was an area where we saw lots of opportunity that we were going to push into. So we expect and we'll be driving as much growth there as we can, again, to fill in the pockets of demand that we would not otherwise reach through our B2C business. But absolutely, we expect our B2C business to accelerate as we get through this major surgery we've done over the last few years, which has taken a long time and is painful. But as we get across, we are in a better and better position every day to accelerate. We've got a few of these last lifts to get through for sure. But hopefully, we're on the bat 9 [ph] and we're close to the end of that. And we can put all our resource, technical product design resource against accelerating growth once we are across these things. I'm not going to say I expect B2B to slow down to B2C. I expect B2C to accelerate. And I expect both businesses to grow well in the coming period.

Operator:

Our next question comes from Eric Sheridan with Goldman Sachs.

Peter Kern:

Let me work backwards. I think B2B is a great business, a great tool for us to reach pockets of demand, as I said, that we don't otherwise reach or reach well. That might be geographical, like China, for example, where we expect a good rebound there and we have a nice book of business with partners in China. Or it might be a loyalty program in the market we're already in, but that has a captive audience that's burning points in a bank credit card program or something. So that business definitely gives us ways to participate in travel economies that we are not otherwise sort of going head to head in the B2C side. But as we talked about the B2C side, we've had presence in many markets around the world, some of which we are just as leaned into as we've ever been, and some of which we – as we talked about in prior periods, we pulled out of because the economics just weren't worth it. We were losing money and not gaining retainable share, I would say, without having to continue to spend and lose money. We believe what we had to do. And what we've been doing is building a better model, a better product, a better go-to-market marketing strategy that helps us acquire the right kinds of customers who value what we have, which is the best product, the best loyalty program, the best service in the category. And that may or may not be every customer in the world, but we believe we can target those customers in lots of geographies. There are big pockets of them that we don't touch right now that are opportunities and there are also pockets of them that we used to touch less efficiently that we think we can go back to with strength. So, I think you'll see us – it's not going to be a huge story in the numbers this year. Although we have seen a great comeback in EMEA, in Asia, in Latin America where we do participate. But that's a bigger story over time as we get our One Key launch done, as we get our product complete, and as we can start to move our strategy more holistically into new markets and target the right customers for us.

Chris Kuntarich:

This is Chris on for Lloyd. Maybe the first question on – just as we think about the 2023 double digit growth guides on both the top and bottom line, just philosophically, how do you think about potentially letting upside flow through on either the top line or bottom line for this year? Second, it sounds like things are turning around in the air product. Just can you talk a bit about how you think about air as a separate funnel potentially for driving room night growth from here?

Peter Kern:

I'll just take the second part on air. We've been innovating a lot on air. Now, it's important to remember, since if you go back pre COVID, we sold Egencia, our corporate business to Amex GBT, and we got out of the air business with our partner Chase. So there's some weird comps if you go back in history. But if you look at the air product, I think we've made huge progress on it as a product. You'll find we have price tracking and predictions now in most of the world. That's been a great engagement product. It's helped with conversion. It's helped with attach sales of hotels and other things. We've increased our speed, we've got smart shopping, which is a new capability of comparison shopping, looking at the best seats in the different economy, basic, economy, et cetera, and comparing more easily. We use AI to suggest the best option for each customer. So all of these things are in the works. We've improved our search speed considerably recently. So there's a bunch of work going in to make that product the preeminent product in the space again. And I think we definitely look at it as an opportunity. It's a unique capability, something we've always been strong in, something we can drive traffic through. We have a lot of opportunity to improve our attach rates and our packaging, if you will/. We have terrific package rates for many of our partners. And we've just started deploying as part of the run up to One Key, flight member discounts, which we've never had before, which is a great opportunity for airlines to use their pricing to help get the best customers out of our marketplace. So I think there's a lot of things that have been in the works and coming. And again, this is just one of the areas where I say the technology has been evolving through this period. And it's all getting to a place where it can be much more effective. And we haven't spent much time on it. But obviously, once everything's on the same stack, we start to have a unique capability to start moving more products across brands. So things we've talked about before, like better selling our Vrbo content on our OTA brands and through those points of sales becomes a reality. Selling Vrbo content through our B2B partners. There's some vacation rental content in our OTA brands that isn't on our Vrbo stack. So we will have that consolidated. So there's lots of opportunities that come from this migration that are all – air is one of them and we've done a lot there. But there are many.

Unidentified Participant:

This is Chris [ph] on for John. Can you double click on the commentary from last quarter around bringing margin expansion throughout the year and maybe just give us a sense for kind of what line items we should expect that to come from? And then help us size [indiscernible] you're anticipating as well?

Peter Kern:

And I'd just add one thing, which is the shape of the curve this year is we have a lot of work to get done. And that involves a lot of people being dedicated to these big lifts. But as we get towards the end of the year, a lot of that work subsides, so that we can stick with those people and that great talent on growth initiatives that are more near term generative. So that's part of what happens is every time we put something to bed, we get more resource available to drive conversion growth, to drive improvement in the customer experience that turns into money. So, that's the efficiency we get going forward once we're over these big lifts is much bigger. How much of it hits this year versus future years? TBD. But that's the journey we're on, is we've got to get over these big humps and then we start to – we've seen it already when we did the hotels.com conversion, migration. We freed up a lot of talent to work on near term conversion wins. And it's been hugely productive for us. Again, every time we do one of these, we get more capability back to put against more near term uplift in the business. And so, that's where we start to get more separation relative to the cost base. And that's partially this year, but it's obviously more going forward.

Tom Champion:

Peter, just any interesting observations behaviorally on the GPT plugin. Maybe too early, but just curious, any comments? I think this is self-evident in your implication, but the tech replatforming will be ostensibly complete in the US in July with the launch of One Key. Just curious if that's the case. Just a final one for Julie. I was a little surprised by the outsized impact of FX on EBITDA in 1Q. Curious if you can elaborate on that or add any details.

Julie Whalen:

As far as FX, obviously, it just really depends on which currencies we are transacting in and their relativity to the strength of the US dollar. And the difference between the delta on the top and the bottom line is really just a function of – Q1 is our lower earnings quarter. And so, it has a more pronounced impact on the lower level of earnings relative to the top line. It's obviously a much bigger numbers. So it's just a function of math.

Mario Lu:

The first one is a follow up on One Key. Mentioned it's rolling out in July. Is that a global rollout? Just US? And then is there like a rough timeframe we should think about in terms of when we should see the benefits of the joint loyalty program? I understand that take rates will take a hit initially once points are redeemed, but just curious how we should think about the expected payback period.

Mario Lu:

Just one for Julie. In terms of the 2Q commentaries on the top line and mid-single digit, any color in terms of the drivers to get to that in terms of what level of bookings growth or take rate we should expect?

Operator:

Our final question today comes from Jed Kelly with Oppenheimer.

Peter Kern:

If you missed it, I mentioned it. But, yes, we have seen a little bit of flattening in demand in VR. And that is largely because the length of stays are shortening, people are going to cities more than they're going to going to long, extended beach – COVID era beach vacations or mountain vacations where they took a month and went wherever. So that's definitely changed. Hybrid work has changed. So all of those things are impacting macro demand slightly. Now, much of it's going back to cities. In our VR business, we don't participate as much in the urban market, but we do have good product there. I mentioned it before, but we actually have good urban market product in our OTA brands, but it's not in our Vrbo brand. So one of the things that the Vrbo migration brings us is the ability to get all that content together. And that actually will help a lot. And as you think about supply, because we've had it kind of in pockets as opposed to all available everywhere, and that makes a big difference in supply. Having said that, we've grown supply well in our Vrbo, again, in our core product, which is home or apartment. And it's focused not on shared spaces or any of that. But we've had good solid growth throughout the period. And we continue to add product there, principally focused on places where we've seen the most compression overall in the world. We're not going to try to break brand new ground where we don't have demand. But we have seen solid growth in supply. We'll continue to push into that. But I think the biggest unlock for us will actually come when we get the Vrbo migration done. And all of our supply can move really to any point of sale and any endpoint in our brand system. It'll take us a little while to optimize. So don't think that's like a moment in time inflection point, but that's the biggest opportunity for us to amp up our supply and reveal it better to the demand in the market.

Operator:

This concludes today's call. You may now disconnect your lines. Have a nice day.

Operator:

Good day, everyone, and welcome to the Expedia Group Q4 2022 Financial Results Teleconference. My name is Emily, and I'll be the operator for today's call. [Operator Instructions] For opening remarks, I will turn the call over to Senior Vice President, Corporate Development, Strategy and Investor Relations, Harshit Vaish. Please go ahead.

Peter Kern:

Thank you, Harshit. And good afternoon. And thank you all for joining us today. This past year was an important one in our company's journey. We did a ton of work and made great progress on many transformational initiatives, all while delivering record EBITDA. Q4 was yet another step in that journey, despite the impact to our P&L from the severe weather. Hurricane Ian in early October and the winter storms in late December drove up cancellations, causing bookings and revenue for the quarter to come in behind our expectations, despite demand otherwise accelerating through the quarter. The good news is that we have seen those booking trends come back much stronger in January post the disruptions. So, 2023 is off to a great start. And we were really pleased that our investment over the last several years in service technology and capabilities allowed us to deliver best-in-class service through these difficult travel circumstance. As I've said many times before, when your strategy is centered around long term retention of valuable customers, every element of the work must deliver for the traveler. So big thanks to our service team for all their hard work, especially over the holidays. Now, as we launch into 2023, I'm particularly pleased with how our strategy of investing in and retaining high lifetime value members is showing accelerating improvement across our business. For the fourth quarter of 2022 versus 2019, our new customers that became loyalty members grew over 60%. And we entered 2020 with a record number of active loyalty members, which is 10% higher than any prior year. And just as importantly, our quarterly active app users increased by approximately 40%. For us, these are the most important metrics to gauge the progress of our strategy. Just to remind you, our loyalty members each drive two times the gross profit on repeat business over an 18-month period as compared to non-members. And our app users each drive 2.5 times the gross profit on repeat business over the same period. When you combine these two and have a loyalty member who also uses the app, this drives the highest production of all, and that group represented the fastest growing customer cohort for us in 2022. But as strong as those numbers are, for our overall business, they're even better in our Expedia brand in the US. This is extremely important because Expedia US is the business where we've been able to make our fastest product and marketing improvements, and where we have the most complete set of capabilities to support our strategy. And the evidence is clear. In the fourth quarter of 22 versus 2019, Expedia US grew new customers that became loyalty members by over 300% and entered 2023 with nearly 70% more active loyalty members than any prior year, and almost 60% more active app users. Expedia US was able to deliver almost 20% revenue growth in 2022 as compared to 2019, and there's still plenty of improvements yet to come. Of course, when you look at our all-up B2C numbers, the accelerating performance of Expedia US has been largely offset by our intentional deemphasis of some smaller non-core brands, our pullback in certain geographies where we did not have the right model, and of course, our much discussed technical migration, which required significant work, and like all migrations resulted in some short term friction. But what I'm really excited about is that with the proof now very clear that our strategy is working, we will begin more aggressively rolling it out to our other brands and our non-US markets. After years of democratizing travel, we are now taking a leap forward to use cutting edge technology, a better marketplace, a broader rewards program, and best-in-class service to drive true customer benefit and loyalty. Because when you take care of customers and give them great experiences, they keep coming back. And that's how you win. In support of this long term strategy, you will see us maintain a higher mix of marketing spend to channels that attract desirable long term customers, rather than just chasing short term transactions. Therefore, the parameters of when and who is worth marketing to and winning as a customer will be different. We have clearly proven the value of attracting and retaining the right customers, and increasingly, our P&L will reflect that. We're starting 2023 with the highest number of active loyalty members and app users for any year. And we will see further momentum in the business this year thanks to a much larger base of loyal customers. Of course, our confidence in our strategy is ultimately only possible because of the underlying technology that we have invested so much in over the last several years. This is what has enabled Expedia US to grow faster. And all of our brands and geographies begin to ride on that same tech stack, we will expand our ability to compete and win in more places. Work that created a drag on our business in 2022 like the migration of hotels.com to our core platform become big on lots for us in 2023. As one example of this, we expect our test velocity around optimizing our sites to grow roughly fourfold with the same resources this year and more engineers and product team members are freed up post migration and our tests can be run across our entire base of core OTA traffic. In other words, we will have many more tests where the winners get deployed across a much larger base. And as we continue to invest further in product and technology and new features and capabilities to take online travel to the next level, these improvements increasingly impact more and more of our customers more rapidly worldwide. No travel player in the world has done more over the last few years to innovate around the shopping and service experience to improve the travel journey for the consumer. And just to emphasize the point, all of our advances in technology, in product and in customer service not only benefit our direct customers, but continue to benefit our expanding base of B2B partners as well. Our B2B business is one of the largest in the world and continues to grow rapidly. The breadth and depth of our products are expanding as is our partner base, reinforcing the importance of our supply and our technology as the core operating system of the travel market. To that end, we added many new partners and grew significantly in 2022, despite agents still being greatly constrained. With the return of travel into and out of China in 2023 and a robust pipeline of new partners around the world, we anticipate significant growth and a great year for our B2B business. So as we wrap up what was the most profitable year in our history, we begin what will be another exciting year of growth and the last in our major technical overhaul. This coming year, we will finish moving all of our brands on to one front-end stack. Vrbo, the last major brands to come across, has already been testing traffic on the new front end, and will make the final migration in the coming months. This last step will then allow us to launch our new One Key loyalty program, which will span all of our main brands. It will be the broadest, most flexible loyalty program in the world. And for the first time, give vacation home renters the benefits of a loyalty program. And importantly, it will complement our many partners loyalty programs as well. So overall, I'm confident that with more technical tailwinds and headwinds this year, and with a proven strategy that we will be expanding on, we will once again drive strong financial growth while completing the last of our major changes. It has taken several years and a lot of hard work, investment and patience. But we're extremely gratified about where we are and what we know we can deliver going forward. And I'm even more excited about moving the last big boulders of our plan across the line and driving greater acceleration in the future. And with that, let me hand it over to Julie.

Operator:

[Operator Instructions]. Our first question today comes from Eric Sheridan with Goldman Sachs.

Peter Kern:

I'll start at the top. In terms of moving the businesses on to a single technology stack and front end stack, I think hotels.com is an instructive example, in the sense that last year we talked about this a few times. As we're moving hcom across, we obviously did less to improve Hcom as a standalone entity, because all the engineers were working on moving it. So, you lose a little momentum as you're moving something. And then there is typically an uplift period where you've got to optimize the new stack and the new product on the new stack to get back to where you were, and then get all the benefits beyond that. So there is typically, if you will, a lull that takes place as you move things and some friction that you have to absorb in the numbers. So we did that with Hcom, as I mentioned. We're now getting the benefit of much faster testing between all the OTA brands. Vrbo is the next one to move. It will suffer a little bit of the same things. But we think we can absorb that, as Julie said, and still show the growth we are planning for this year. And that unlocks, then, of course, being able to do One Key and other things. So there's a lot of unlocks on the other side, but you do have to sort of weather a little friction to get across and we've weathered it in the last year's numbers. We have a little left to weather this year. Again, we think will drive very good growth despite that. And, of course, when it's behind us grow even faster. So, that's what we're really looking at. And then, on the other side of it, you get the benefit of testing faster, improving the products faster across everybody. You get the benefit of One Key. And you also get the benefit of being able to then deprecate older stacks that have costs associated with them, engineers associated with them, etc. You can put all your resources on the most valuable thing. So, that's the big thing we've got left to do. Those are the two big hitters we're launching this year, but there's lots of other work going on under the covers constantly, both in optimization and in cleaning up and consolidating other back end things in the stack. And then, on the B2B front, there's a lot that's gone into what's growing, as I mentioned. We think Asia opening up will be good for us. We've had some big relationships there, including China where we haven't gotten much output during COVID. That will help. But really, we've been growing across many vectors. We've talked in the past about our optimized distribution product that we used to help hoteliers with their wholesale businesses. That's been growing very well. We've invested in our travel agent product, which has driven a lot of growth. And we've expanded, as I said, the breadth of our partnerships, the number of our partnerships. We continue to power a lot of the biggest supply partners, like airlines and others. So we continue to grow kind of in every dimension, sort of more partners, more depth with each partner, and new products coming all the time. So that continues to be an exciting area for us. And as we innovate faster with technology, with AI and other capabilities, those underlying capabilities become more and more valuable to our partners.

Lee Horowitz:

Just thinking about the investment plans for 2023 and how that impacts margins. So on the one hand, you obviously have investments in One Key, driving some incremental marketing investments. What are the areas that you see potentially offset some of those incremental investments from perhaps fixed cost growth, maybe underlying marketing efficiency via bringing that function under a unified stack? Or perhaps other areas of cost efficiency that you see across the P&L?

Lee Horowitz:

One follow-up, if I could. Obviously, you're seeing really strong underlying demand for the industry with growth into January that looks really healthy. Obviously, this is maybe somewhat counterintuitive, given the state of the consumer savings rates and inflation. To what do you owe sort of this strong underlying demand for the overall travel industry, given the macro backdrop?

Operator:

The next question comes from Kevin Kopelman with Cowen.

Peter Kern:

I think as Julie pointed out, January was north of 20% up in lodging, GBV, gross bookings. So we're definitely running ahead of high single digits so far. We'll have to see how the rest of the year plays out, rest of the quarter, rest of the year plays out. But it's really been driven by pretty much all quadrants. It's our brands. It's our B2B business. It's geographically dispersed. APAC is coming back a little stronger, but that's a relatively small base for us. So, it's been pretty broad. And right now, it's definitely running well ahead of where we were in the fourth quarter.

Peter Kern:

And I'd add, Kevin. I talked a little bit on the first question about friction. We spent a lot of last year doing some heavy lifting on things like hotels.com, having reduced testing, etc. We really spooled that up in the fourth quarter, and it's accelerating further now. So just the ability to be back and really innovating on the product in the day to day and the product is really valuable and it's increment by increment. It's small pieces. But when you add them up, it really can drive a lot. So conversions improving, lots of things are improving. So I think we're just starting to multiply those effects of all the work we've done along with the marketing and everything else. And hopefully, also, we're working in a good demand environment, which helps. But I think those things are just more tailwinds than headwinds again, and that's just helping to drive us a little faster.

Julie Whalen:

Yeah. That was I think called out in our remarks. But that was pretty much solely due to the weather-related incidents. ADRs have been holding pretty strong, but still elevated. I don't think we've heard anyone else speak of any issues with ADRs. We've seen a little bit of movement in Vrbo. But again, it's coming of off really high levels, and it's not that significant. Slight movement. But ADRs are really holding strong for us across the board.

Lloyd Walmsley:

Two, if I can. First just on the – I think on the marketing, the all-in the marketing side, loyalty, discounting and marketing and the plan for that to kind of be balanced through the year, is there a point where you get to the other side of kind of some of this longer dated spend and feel like you're going to see leverage as this bears fruit? And then sort of related to that, it sounds like the stats around loyalty and app users show a compelling uplift. How convinced are you guys that those boosts are incremental and kind of causal rather than just coincident with your heaviest users just gravitate towards those things? Anything you can share there would be great.

Peter Kern:

I would just add on your question of causal or not. What we've seen, Lloyd, is that we've been able to greatly expand the numbers at a pretty rapid pace and bring more and more people into the loyalty plans and into app usage. And our historical – those trends I gave about 2x and 2.5x with even higher multiple for app loyalty members, those have held even as we've expanded the pool. So, it's not just the devotee who's becoming a loyalty member. It's really everybody that we can get into loyalty, that we can get into app usage starts to see all the member benefits, starts to get the pricing benefits and points and other things. And that's consistently sticky at bringing them back. And as Julie says, over time, we'll create more leverage in the model because once we have this bigger and bigger base of loyal customers, then the marketing beyond that, beyond loyalty, et cetera, becomes, again, trying to buy the right customers in given places and add them to the pool. And that we think we can do more effectively once we have a bigger base and more efficiently.

Anthony Post:

Maybe one big picture question about the shape of the year. Your marketing spend is over 50% of revenues. I know you're working on a lot of projects to build a better customer base. Can you help us think about how you think about that long term? And when you said leverage this year, does that mean on that line? Are you thinking about as a percentage of bookings for 2023? Secondly, just a comp question. I know there's some tough virus comps – easy virus comes right now. Ton of bookings float in kind of in the spring. How are you thinking about the shape of the year, for our models?

Anthony Post:

We have easy comps now with virus first couple of months. And then you saw a big flood of bookings into the industry in April and May. Just want to make sure people are thinking about the models right and how you how you think about that.

Peter Kern:

Comps to last year.

Julie Whalen:

Obviously, [Technical Difficulty] that we believe on the year that we can drive double-digit comps year-over-year. We're obviously not speaking how it plays out by quarter. But I think what's super exciting is how we started 2023 at these levels with greater than 20 on our [Technical Difficulty] gross bookings and really coming out of the year strong. That gives us a lot of confidence. That plus Bex US and how it's performing under the covers gives us a lot of confidence for the momentum as we move throughout the year. But I wouldn't get ahead of us right now, still early in the year, early in the quarter, but we are committing to the double-digit growth on the year.

Brian Fitzgerald:

A couple of questions, guys. Could you give us an update on China outbound, your partnerships there and how those work in relation to other players in the market and any early thoughts on how you would pursue that opportunity as they reopen? The second one was just really quickly on the test velocity that it can grow 4x, Vrbo cuts over in the first couple of quarters, if I got that right. If you had to put a bow around the amount of testing across all your properties, are we in the ninth inning in terms of – or eighth inning in terms of [indiscernible] and then we're homing in on that 4X test velocity.

Operator:

The next question comes from John Colantuoni with Jefferies.

Peter Kern:

I think we could probably talk about your second question for a couple hours. But I'll take your first one first, which is, yes, we precisely believe that with brand Expedia – again, we talked about Expedia in the US. Expedia is obviously in a lot of countries. And the issue has been not everything we've developed was immediately available in all languages and all geographies. Likewise, not on all brands. So as we start to be able now with hotels.com on the same stack, with each benefiting from the same goodness that comes from tests and other things, we're going to be able to roll out that playbook to more and more places. Now, there's still some work to do. Hcom's loyalty programs still different than Expedia. Once we have One Key, that will simplify that whole ecosystem as well. But we believe that those big brands, inclusive of Expedia, hotels.com, now on the same stack, and Vrbo and our B2B business, they will inflect past the slower growth of some of the smaller things. But to be clear, we want to move back into geographies, we want to play this playbook out in more places, this is not about, like, keeping the good and slowing down the bad. And then there's no bad, but slowing down the slower growing. This is about keeping the focus on the winning strategy and deploying it in as many places in as rigorous and controlled way as we can. And you're winning in more places and driving the business that way. So, it's a bit of, you're right, the big, good stuff overtaking the slower growth stuff. It's also about deploying the strategy to some of the slower growth items where we think we can still drive, whether it's a geography or a certain brand in a certain market where we believe we can play this playbook out and have the same success. So it's a combination of those things. As far as AI goes, the big conversation, we already use a fair amount of AI and machine learning in all kinds of products. There's opportunities, for sure, in some of the newer things we're all talking about, like voice et cetera. In customer service, we're already experimenting with that there. In creating content and answering queries for customers. But we're using machine learning across the board in terms of personalization, in terms of how we sort for you, what we serve up to you. We'll use it in direct consumer communications over time, et cetera. So, we're using that. And as I mentioned, we're using it in testing as well as we develop more sophisticated algorithms to test multivariable tests. Do multivariable tests, that expedites all our testing. So we're using it. I'd say probably its biggest, highest value is ultimately in personalization. But you can think about that really broadly in terms of how you get service, taking care of how you search even for properties, natural voice search, which we already have a voice search capability, but that will get better with the benefit of the new AI capability. So all of those things become big opportunities to advance it. And I think we are by far at the forefront in our category in terms of how to use it and how we can use it to best improve the customer experience.

Tom Champion:

Maybe two quick ones for Julie. Julie, can you just quickly restate and clarify the guidance and expectations for the year? I think it was double digit growth. Is that in bookings? Is that versus 2019 or year-over-year? Can you just restate that for us? And I was also curious, your comments around headcount. It seems like a little bit of a different comment than we've been hearing this earnings season. How are you thinking about headcount through the year?

Operator:

The next question comes from Doug Anmuth with JPMorgan Chase.

Peter Kern:

I think, to your first question, we're not seeing anything – I'm sure we could dissect every variable and find some difference, but there's not anything, when you look at it broadly, that says luxury is doing well, but the bottom is doing poorly or vice versa. We are generally a little more biased towards the middle and upper end of the market. And we are seeing fairly consistent strength. As I mentioned, APAC, measured against itself, is coming back faster, but it had a longer way to come back. Obviously, the West has been back for a while. But it's also seeing nice growth. So APAC for us is not big enough to drive our overall number. So it really is kind of everything. And by and large, it's every class of product and class of – every type within a class of product. So there's nothing we've really seen that's driving like, wow, luxury is off the board and everything else is making up for other things. So we haven't seen much movement between products or trade downs or any of that. It's been pretty consistent. January, as I mentioned, we believe it's a combination of a lot of work we've put in in terms of improving the product, getting through some of the hardest transitions, getting back to testing, getting our marketing machine refined, and that's constantly improving. And we've been talking for a long time – Julie mentioned that we've been investing for a while in some of these long term vectors. And as we've all talked about, we gave up some short term business to focus on app downloads, to focus on getting the right kinds of customers. And we knew it would take some time for this to start to multiply on itself and get the benefit because people don't always book travel 20 times a year. So I think this is the benefit of time of catching up and stacking up the base of members, this base of app users, improving the product. As we've gone, we've launched a bunch of great features around flight tracking and comparison shopping and smart shopping and collaborative shopping and a bunch of new products, all of which have been very engaging in their own right. We're rolling those out to more places all the time. We just recently rolled out flight tracking to the rest of the world outside the US. So we're seeing great benefits in those things. And I think they're just starting to stack up now. There's no magic to January 1. So I can't tell you exactly why January. But post all the disruptions of the storms, we've seen really strong, robust demand and rebound. And I think it's a combination of a ton of hard work across our entire company.

Deepak Mathivanan:

Maybe a couple of ones for Julie. So, first, the guidance on margin expansion was helpful, but curious if you can put any more specificity to it. Understand that, obviously, macro creates a lot of uncertainties. But is there a level that we can expect should macro trends kind of remain consistent with what you've seen in January and maybe recovery holds up through the year? Also another financial question, maybe on buybacks. What is the philosophy in terms of maintaining the velocity of buybacks? Is 4Q kind of a good proxy for us to think about, given the business is very cash flow generative and you have plenty of capacity?

Peter Kern:

I think that was it. So thank you all for joining us. Appreciate your time and look forward to our next update. Take care. Thank you, operator.

Operator:

Good day, everyone, and welcome to the Expedia Group Q3 2022 Financial Results Teleconference. My name is Nadia, and I’ll be your operator for today’s call. [Operator Instructions] For opening remarks, I will turn the call over to SVP, Corporate Development, Strategy and Investor Relations, Harshit Vaish. Please go ahead.

Peter Kern:

Thank you, Harshit. Good afternoon everyone, and thanks for joining us today. Before we get started with the update on the quarter, I’d like to formally welcome our new CFO, Julie Whalen to her first earnings call. I’m excited to add Julie to our leadership team during 10 years as CFO at Williams-Sonoma, she helped drive significant growth in the business and in shareholder returns. I’ve also worked alongside Julie on our board since 2019 and she has chaired our audit committee since 2020. So she comes with a great sense of our strategic priorities and what we’re trying to achieve. I look forward to the expertise she can bring to our finance org and across our entire company. Now moving into the quarter. We were very pleased with our record breaking performance in the third quarter. We delivered our highest ever quarterly revenue and adjusted EBITDA, the ladder exceeding $1 billion for the first time in our history. We also delivered record third quarter lodging gross bookings. Despite some macroeconomic uncertainty and some short-term impact from Hurricane Ian, travel demand does remain strong and ADRs remain substantially elevated relative to pre-pandemic levels. This quarter, we also further delevered our balance sheet, which put us in a position to resume buying back our stock, which we continue to believe is highly undervalued. Going forward, we expect to continue to reduce leverage and return capital to our shareholders. Now moving to the B2C side of our business. As we’ve discussed before, our goal is to use great product innovation and unmatched membership benefits to drive more engagement with our customers and ultimately higher lifetime value from those customers. And the two biggest drivers of lifetime value are improving loyalty, membership and app usage. I’m proud to announce that in Q3 we reached an all-time high and active loyalty members surpassing 2019 levels in August. New Expedia customers that became loyalty members in the quarter group by nearly 50% versus third quarter 2019. And the rollout of our unified loyalty program, one key is on track for next year, which will be a big catalyst for continued membership growth. Our app downloads continue to be strong as well. But even more important than downloads app usages at an all-time high with quarterly active app users increasing nearly 40% versus 2019. And in the quarter we continue to see almost two-thirds of all gross bookings result from direct traffic. We are also continuing to see leverage versus 2019 when we compare our all up marketing spend against booked gross profit. And as a reminder, this spend includes direct marketing, but also discounting and loyalty spend, which are recorded as contra-revenues. In terms of our marketing mix, we have been shifting towards longer term channels including app downloads and other methods to capture traveler intent outside of classic performance channels. These longer term marketing investments, including loyalty and brand, are helping us build a larger base of long-term high value customers. But as important as marketing is, we are ultimately marketing a product and the product has to be great. So most of our energy is going into product innovation to build the best customer experience we can with the most customer benefits to drive loyalty and consumer love. Among our recent successes, we have introduced exciting new products features including price tracking, trip boards, and smart shopping, all of which are designed to engage customers, to inform customers and to ensure they’re finding the right product at the right time, at the right price. So just to remind you, our flight – excuse me, our flight price tracking feature, which we launched earlier this year, has been a great engagement tool. Since launch, we have seen exceptionally high notification open rates, which demonstrate the value that our customers see in this tool. This feature’s currently live on our app in the U.S. and is on track for global rollout in the first quarter of 2023. In Q3, we launch Trip Boards on brand Expedia where users can save their favorite lodging and activities and share and collaborate on trip details. This feature not only increased conversion, but has helped us expand our base of customers through sharing with family and friends. In the first two months, since its broader launch, we saw trip board users have twice the repeat visit rate, they were twice as likely to purchase multiple products, and most importantly, they transacted at four times the conversion rate versus non-users. And as for smart shopping, which is a tool that really helps travelers comparing and choosing between available rooms for a given property. We began leveraging machine learning recommendations to better match our customers with the right product and options. This has led to better consumer outcomes, more premium product sales for our partners, and ultimately higher value transactions for us. In addition to these new features during Q3, we finished the migration of the Hotels.com front end onto the Expedia platform, which allowed us to accelerate our optimization programs across our entire conventional lodging portfolio. While we are just getting started, the ability to test and deploy faster across one platform is already driving higher customer conversion, better customer experience, and improved signups to our loyalty program. So overall, we’ve seen a great reception from customers on these new features and benefits. And for us it has led to increased engagement, better conversion, and higher revenue per customer. I’m really excited about the success we have seen so far and we have a bunch of new features in the pipeline and a terrific opportunity to roll out all of these features worldwide. Moving on to the B2B front. We remain bullish on this massive opportunity and excited about our expanding role in the travel ecosystem. Everything we are doing on the main technology stack for our B2C products will have benefits that inure to the B2B business, as well as a ton of work we are doing specific to the B2B business that will lead to new products, new partners, and new revenue streams. In the third quarter B2B continue to demonstrate success with growth across our key product lines as we want wallet share with many of our existing partners driven by our expanded capabilities and improved product offerings. As excited as we are about the momentum in our existing business, we continue to build, pilot, and deploy new products and services for our open world platform. This quarter we signed the first pilot partner for our best-in-class fraud prevention product, and next year we plan to continue to deliver more new commercial products and services. I’m really excited about what’s on our roadmap for B2B and the reception we’ve been getting from the industry. So to sum it all up, we delivered another record quarter of results, rolled out more products, features and member benefits, and continue to add significantly to our member base and our app usage. All of which, will be great for our future performance and builds the base that we are looking for to grow in the future. So all in all, we’re feeling really good about our progress, not least of all because of the phenomenal team of people we’ve assembled to drive all of our acceleration. And with that, I will pass it off to one of our newest, Julie.

Operator:

Thank you. [Operator Instructions] Our first question today goes to Eric Sheridan of Goldman Sachs. Eric, please go ahead. Your line is open.

Peter Kern:

Thanks, Eric. I’ll take the first part first. I think this is consistent with a lot of what you’ve heard from the travel industry over the last couple weeks based on what we’ve seen. But there really haven’t been any material signs of fall off in demand for ADR for that matter in the world. There is a little bit of geographical mix change, APAC sort of coming back now with the opening of Japan and a few other markets. So there’s a little balanced shift issues and there could be ADR change because of mix for certain players including us. But there has been no real let up in ADR and there has been no real let up in demand. We still see pacing’s for the rest of this year and next year, considerably above where we were in 2019. So, I think, there’s a lot we all think about and watch the NBC or whatever, but so far there’s really no evidence to suggest there’s some bigger macroeconomic thing happening.

Eric Sheridan:

Great, thank you.

Operator:

Thank you. And the next question Naved Khan of Truist. Naved, please go ahead. Your line is open.

Peter Kern:

Yes, thanks, Naved. So on the expense side; I would say, Julie mentioned we’ve been trying to hold the line pretty clearly. Obviously there’s been inflation over the last few years, particularly in people. And we’ve certainly invested in people to build all the technology that we want, et cetera. But as I’ve also mentioned before, we see plenty of opportunity ahead to become more efficient. So, we will keep a pretty tight hand on fixed expenses going into next year. And again, as technology delivers, we think there’s lots of opportunity to continue to become more efficient. We think we can drive growth certainly without much more fixed investment and there’s more opportunities for efficiency than there are for increased investment. So, we are pushing hard to get across the line on a number of technology fronts. We have, we’ve built up in some cases capacity, human capacity to do some of that work. But overall we think that’s a general directional move towards greater efficiency. So, we’ll hold the line, but we expect longer term, more efficiency coming out of the business. And then as far as the often asked question about consumer demand, the answer is no. We have not seen trade downs. We have not seen any major moves, shifts in demand patterns. Obviously putting hurricane aside, which this lodges people and things like that, it’s really been a very steady, very strong demand picture. As you know, we’ve been differently selective about the traffic and the consumers we’re looking to get and how we’re building them up into long-term valuable customers. But overall, the macro demand seems quite strong still. And as I said that the pacing’s for next year are strong, so a lot to still be filled in next year, but so far we haven’t seen any of it.

Peter Kern:

Yep.

Lee Horowitz:

Great, thanks. Maybe just one on sales and marketing. We continue to see that deleverage a little bit, say quarter-on-quarter and versus 2019 as a percentage of bookings, getting your investments in longer dated ROI initiatives. I guess my question here is, what sort of timeframe should we be thinking about it in order to see the ROI and these investments flow through the P&L and begin to see some of the sales of marketing leverage and some of the initiatives that you’ve taken across the sales and marketing organization to drive leverage longer term, play themselves through? Thanks so much.

Lee Horowitz:

Understood. Helpful. Thank you.

Operator:

Thank you. And the next question goes to Kevin Kopelman of Cowen. Kevin, please go ahead. Your line is open.

Peter Kern:

Yes, I’ll maybe take those in reverse, Kevin. On the, when we think about LTV, it’s over a longer horizon. It’s usually 18 months to 24 months. So we’re not, and, as you all know, travel for many people’s not a, five times a year kind of thing. It can be a twice a year, once a year kind of thing. So it does take a little longer, as I’ve mentioned before, for some of these LTV investments to return. But that’s how we think about that timeline is, we’re sort of normalizing it over more like an 18 month to 24 month period as opposed to six months or something like that. And that’s really the tradeoffs you’re making in many cases, is buying that very short term intent, perhaps unprofitably versus buying long-term intent and long-term LTV, but it takes longer to pay out. So that’s the trade we’ve making with a portion of our investment. It’s not everything, obviously, but we have directed money that used to be in that short-term intent bucket into these longer term buckets. So that’s why it takes time. It’s why we didn’t pivot at all at once, because it takes time to build those customer bases that are those high LTV customer, customer bases that are then paying out at higher levels than the short term intent that we used to buy. So that’s how we think about that. It’s a balance and we’re constantly balancing it. As far as one key goes, we will launch next year. We will incorporate Vrbo customers among others into the plan. We will try to move customers who are in other brands, into the brands that have loyalty. So everything, we want everybody in the loyalty bucket. The value, as you know, we’ve had many different plans of many different values. We will normalize around one single value for everything for the currency. And we think, we’ve settled in a place that will be, very good for the customers. They’re gaining flexibility, they’re gaining the opportunity to use the value on all our products, which is highly valuable and we know they want it. And yes, we will have more customers in that base, so we would expect that base to grow over time. But the short-term movements will be sort of the movement between putting Vrbo customers into the pace, changing the some of the platforms like the Hotels.com platform, the stamps platform into a points platform and so forth. And so there’ll be some short-term puts and takes, but over time it’s something we think will grow at a rational level. It’s not going to spike to some crazy number. It’s not going to shrink. But it’s going to, we’re going to retake that capital, deploy it better across our entire customer base, and then hopefully if it’s successful, which we believe it will be, it will continue to build on itself and more people will join and we think the economics of that are very attractive.

Peter Kern:

Yep.

Jack Matten:

Hey guys, this is Jack on for Deepak. Thanks for taking my question. Just wanted talk about Vrbo real quick. Just providing any maybe high level trends here, I just seeing there, how it came out of the summer travel season and maybe expectations into the holiday season, and then sort of related there as well any trends in ADR as you’re sitting for Vrbo? Thanks.

Jack Matten:

Great. Thank you.

Operator:

Thank you. And the next question goes to Lloyd Wamsley of UBS. Lloyd, please go ahead. Your line is open.

Peter Kern:

Yes. Thanks, Lloyd. I think the way we think about it is we’re going to balance – we think of our portfolio of tools, including loyalty, regular way marketing, this discounting and other tools we use to drive sales. We think of that as one pool of capital that we’re investing to drive as award next year’s results. And so there are some things happening, including the ramp-up of loyalty that we are balancing against other types of investments. So there is a little noise potentially, as you point out, between take rate, which is the contra revenue stuff above the line versus conventional sales and marketing below the line. But from our perspective, we look at it as one pool of capital, and we are trying to balance the investment and driving that long term. We think that loyalty hook of getting all of those Vrbo members been attached to our other brands and attached to our other products is going to drive a very nice result. Now it’s not instantaneous as you point out, it’s not like spending on Meta. It takes time. They rack up points; they wait for their next trip, whatever. But we think that’s a big benefit in terms of expanding our base of customers, expanding our direct traffic, et cetera. So yes, there will be some – there may be some, I guess, I would say, across the P&L., there may be some movement top to bottom is a little more moves into loyalty perhaps when something gets taken out in some of the perhaps direct S&M spend, but we are looking to balance that whole thing. And as we get closer to it, we will give you insight into how to think about looking at the P&L going forward. But in general, we think we will balance it out. It’s just that there could be some small movements as we light up the programs and certain programs get changed from one brand to another. There may be some balance sheet adjustments for accruals and other things, noise like that. But in terms of driving the real P&L and real cash flow, we think we’ve got enough things to offset it and some other opportunities to expand margins at Vrbo that we can pretty much absorb it and chew it up in other places and again, manage that balance as we go forward of driving these long-term investments as against the short-term loans.

Peter Kern:

Yes. I think, look, we are under our competitors. We are thoughtful about how we want to deal with that with – for our host partners and for our consumers, there’s volume trade-offs for cost when you increase take rates as well. So there’s a bunch of things to balance, but we are looking at all of those things and have opportunity.

Peter Kern:

Yep, thank you.

Mark Mahaney:

Thanks. Two questions please. First, could you just address the issue of whether there are material share shifts going on in North America in the lodging market? And then secondly, I think you just touched briefly in the last question or two on Asia Pacific. To what extent have you – just any color commentary on – I think that’s sort of the last not shoe to drop, but shoe to rise. So just what that recovery path looks like for that region? Thank you.

Mark Mahaney:

Thank you, Peter.

Operator:

Thank you. And your next question goes to Brian Fitzgerald of Wells Fargo. Brian, please go ahead. Your line is open.

Peter Kern:

Yes. I mean we’re pushing in heavily into that. I would segment the last part to say there’s testing and optimization work, which is ramping up significantly right now and was what was sort of on hiatus in the middle of the year as we were moving Hotels.com. That’s now allowed us to be in a new position to roll out innovation winners, et cetera, across a much wider base and to test across a much wider base of our consumers. Your first question, Vrbo, that’s still on its own stack. It is next up. It is literally going to start testing traffic on the single platform by the end of this year, before the end of this year. But it will be a gentle – we mean to disrupt it as little as possible. But that, again, will give us potential future innovation. Now the Vrbo stack and the Vrbo shopping experience is a quite different thing than conventional lodging and shopping, I’m sure you’re familiar. So the ability to test the same types of winners across conventional lodging and Vrbo may not be quite as dramatic. But there are a lot of cross-cutting benefits like trip planning potentially or checkout or other things that will work for multiple products. So it’s all on a journey there. Vrbo’s the next to go. But I’d say the big benefit on the conventional lodging side, we’ve gotten across and now we are starting to iterate significantly on. And then the future part whether it’s trip planning or flight tracking or other things, that’s really another category that’s like innovating into new ways of shopping, new ways of sharing and collaborating, and we think that’s the future of the business. We think there hasn’t been much innovation in the space. We want to lead in this space. We – the consumer adoption has been very good. But of course, we’ve got to get it everywhere on everything. And we’ve got to keep going. So we really want to differentiate on the product, on the benefits of being a member, including loyalty, but also pricing and packaging and other capabilities. All of that, we think is what makes the product sticky. We’re doing a much better job of it now, but we will do a much, much better job of going into next year.

Peter Kern:

Yes, you bet.

Unidentified Analyst:

Thank you. A couple of questions for you. First, Peter, you look at – traditionally, we look at marketing to bookings, and I think you’re kind of arguing we should look at gross profit, which is up since 2019. So can you just kind of help people understand how you’re looking at your marketing spend maybe differently than the old management team? And then Julie, welcome aboard. I think the stock has been under pressure. There’s been a little disappointment that some of the margin improvement that was kind of speculated on after the cost cuts in 2000 hasn’t been as evident. Is there an opportunity to kind of – and maybe not on this call, of course, but in the future, give some guideposts for long-term margins for the company to help the Street? Thank you.

Julie Whalen:

Hi Anthony, nice to meet you. Regarding your margin comment, obviously, that is something we’re very focused on. I mean, certainly, in 2021, we took $1 billion of cost out and that certainly was the start of our hampering improvement. And if you look even through the third quarter today, we’re at 30% margin, which is over 400 basis points over 2019 levels. So, we’re still holding those cost savings from where they were with some slight movements here and there. But certainly, even as Peter mentioned earlier, we’re all about still maintaining efficiency, maintaining a culture of strong financial discipline. And certainly, that’s something that I look forward to bringing to the table as well. It’s something that’s in my track record. And so there’ll be things that we’re going to continue to look for and drive that margin even higher. And certainly, all the things that we’re doing from a strategic growth initiative perspective is all about driving profitable revenue and not just driving revenue at any cost. And so therefore, we do expect to have margin expansion over time. I mean setting a target is always difficult, because then you set a target we want to be even higher. So, I think at this moment, we’re just focused on growing that margin as fast as we can as a result of all of our strategic initiatives.

Operator:

Thank you. And the next question go to Tom Champion of Piper Sandler. Tom, please go ahead. Your line is open.

Peter Kern:

Yes. Thanks, Tom. I’ll go first. I think B2B has been doing extremely well for us. We view it as a tactical way to play in some parts of the world. Where we don’t play a B2C business, we view it as an opportunity to grow, grow our number of partners, grow our wallet share, as I referenced, and of course, grow our product offerings. And we’ve had incremental improvement over the years as we’ve added things like our wholesale business optimized distribution, which is expanding quite well. I mentioned we grew wallet share. We have many new partners in the pipeline, and we’ve acquired new partners. We don’t announce every one, but it’s a continuing expanding base. So, we see a lot of really attractive opportunity. We think there are lots of pockets of demand out there that we have not yet reached and that are challenging to reach without going to those partners directly and those partners view us as an extremely good and safe partner in the travel space to go to because we can do everything. We do it well, and they get all the benefits of all our technological advances as we make them. So, we think there’s a lot of benefits in that core business. And then as I’ve said, we’ve been pushing into this idea of externalizing more of our capabilities as micro services. That’s what our fraud test is about. We will test many other things this coming year, and we’re piloting them with different partners. But it’s a real opportunity for us to take our technological advances and bring them to the industry and help create greater efficiency in our partners running their businesses and then ultimately expand the universe of partners who can sell travel. So that goes to social commerce and other things that have been talked about in other industries, but we’re really in a pretty unique position to do that at scale as we roll out these technical capabilities. So, we’re extremely bullish there. We’ve expanded and improved our partnerships with many of our biggest supply partners through these kind of technological relationships, and we’re feeling quite good about it. Some of this stuff is very early. Those new products are quite early days, and they’ve got to get perfected and rolled out and then scaled. But that’s the pipeline of the future. And in the meantime, our core business and some of the more recent additions like our wholesale business, et cetera, are expanding quite nicely, and we continue to win business across the globe. So feeling really great about that business.

Tom Champion:

Thank you.

John Colantuoni:

Thanks for taking my questions. So, you’ve been pretty clear about prioritizing customer LTV in your marketing approach. But I’m curious how you’re thinking about the opportunity cost of losing out potential customers to competitors as they remain aggressive in driving share gains in your core market? And at some point, does their aggressiveness necessitate a shift in marketing strategy towards some of those lower ROI channels in case it’s reducing your opportunity to attract higher-value travelers and also to avoid the unintended impact of your pullback in those channels, helping competitors realize higher ROI because inadvertently reduced the competitiveness in the keyword bidding environment? And I have a follow-up. Thanks.

John Colantuoni:

Thanks. Appreciate that. And you mentioned some more opportunities to drive efficiency over time. Can you just outline some of the more impactful buckets you have for incremental efficiency gains on the fixed cost side? Thanks.

John Colantuoni:

Thanks. Appreciate the details.

Jed Kelly:

Hey, great. And thanks for sneaking me in. Just two, if I may. Peter, I think you mentioned earlier this year, you had pulled back marketing in some of the European countries because you weren’t happy with the ROI. Can you talk about where the product is for you to lean back into those countries? And then just on Vrbo, just on the supply, can you talk about any benefit you’re seeing from higher interest rates and getting potentially getting more Vrbo supply? Thanks.

Jed Kelly:

Thank you.

Operator:

That concludes today’s call. You may now disconnect your lines and have a nice day.

Operator:

Good day, everyone and welcome to the Expedia Group Q2 2022 Financial Results Teleconference. My name is Brika and I will be your operator for today’s call. [Operator Instructions] For opening remarks, I will turn the call over to SVP Corporate Development, Strategy and Investor Relations, Harshit Vaish. Please go ahead.

Peter Kern:

Thanks, Harshit, and good afternoon everyone and thank you for joining us today. Let me begin by saying that we were very pleased with our financial results in the quarter on the back of a continued recovery in all markets and products and our expanding margins. We've seen strong consumer demand for travel this summer and are encouraged that travel remains a top spending area even as other parts of the economy seem to be showing cracks. We posted our highest ever lodging bookings this quarter on the highest revenue and adjusted EBITDA for any second quarter and we continue to further strengthen our liquidity with a strong free cash flow and the early redemption of an additional $1 billion of debt. We delivered these strong results despite the current macroeconomic backdrop and the limitations and disruptions we've seen in air travel around the world. Of particular note, while domestic flight capacities have recovered close to 2019 levels, international flight capacity is lagging with long-haul capacity still down roughly 30%. While these disruptions and shortages don't appear to be abating soon, we do look forward to when these long-haul capacities return as this has always been a relative strength of ours. Now moving on to my main topic of the day. For the last few quarters, we spent a lot of time talking about the transformation of our technology platform and how that will enhance both our B2B and B2C businesses going forward. And last quarter, I took time out to explain in greater depth, how we were pursuing our B2B strategy, driving travel as a service to partners of all sizes. But as investors digested our Q1 results, it became very clear to us that we needed to clarify our B2C strategy and begin to provide incremental data to help you understand what metrics we think are important to measuring our success in pursuit of this strategy. In particular, there's been a lot of interest in the shifts in room night share, as travel has recovered. And whether something has changed in the market, or if it is just a temporary shift, as we put more of our attention into our technical transformation and attracting the right mix of consumers. Today, we hope to answer this more directly and give you a better understanding of our strategy and tactics, as we evolve our consumer business. As for the backdrop, I think by now you all have a decent understanding of how the mix effect domestic versus long-haul international or geo mix for example with the robust recovery of EMEA in Q2 can cover share results. And I also believe you are well acquainted with the fact that we've divested or shut down a number of noncore businesses, shedding certain volume over the last two years, whereas some competitors were buying business and thereby adding volume. So today, I'm going to focus more narrowly on how our long-term consumer strategy is impacting these short-term share issues. To be clear, we have been evolving our consumer approach from being largely transactionally focused, where we and the industry spent virtually all of our time, tuning our products for maximum arbitrage and performance marketing channels and spending more and more money on intermediaries, to a future where we build longer-lasting direct relationships with loyal high-lifetime value customers. This means that we have not chased all traffic available in performance marketing, no matter the cost and instead have focused on the pockets of consumers, we think will drive the highest long-term value and the best future shape of our business. To give you more perspective on why it's so valuable to focus on these types of consumers I'd like to give you a few facts about our biggest OTA brands. Over the last 18 months in our Expedia and Hotels.com brands, loyalty members drove approximately 3x the gross bookings per customer and over twice the gross profit per customer and twice the repeat business as compared to nonmembers. Similarly, app users drove over 2.5x the gross bookings per customer, 2.5x the gross profit per customer and 2.5x the repeat bookings versus non-app users. And of course when we combine the two and have loyalty members who also book through the app, you get the highest production of any customers. Given these core drivers our entire company is focused on getting the right customers in the funnel and then turning them into loyalty members and app users. And while both will accelerate as we deliver on our platform with better features better personalization and with one overarching loyalty program. I'm pleased to highlight that we are already seeing strong traction. For example in Q2, '22 alone we grew new loyalty members 33% compared to Q2, 2019. Similarly on the app side new app downloads grew 58% in Q2, '22 versus Q2 2019. Not surprisingly therefore, our direct business continues to grow with almost 2/3 of our B2C gross bookings in Q2 generated from traffic that came to us directly. And really this is just the beginning. With improving products and features including our price tracking product for flights which has been a huge engagement driver in the app and with the rollout of loyalty to all of our customers next year, we will be able to drive much more direct engagement with our customers. That being said it's also important to remember that lifetime value and travel does not come through the numbers instantly because of the frequency of travel for most consumers. While we have been gaining ground building up our base of high lifetime value customers and are confident in their ability to drive future velocity, it is not as quick twitch as buying transactions through Google and other meta channels. In the coming quarters, we will continue to update you on these important core drivers of our future success and provide any additional disclosures that may help you measure and understand our progress. For example, starting today we have added an incremental disclosure of room nights on a booked basis. This disclosure should not only give you a better sense of our trajectory, but should also help you better understand our marketing spend. But to be clear it is not the complete picture. Ultimately what you need to understand is that we are spending against the profit we derive from the market. And while we may currently look less efficient on even a booked room night basis compared to booked gross profit, we are still spending below historical levels. We have done this while allocating more money to channels that drive direct traffic and the kind of high lifetime value of consumers we seek. It is early days even for this but we know we have the best creative in the category and a great plot to acquire app customers and believe strongly in these veins of opportunity. Now as anyone forget while we've been making the transition from volume at all costs to the right volume with the right long-term characteristics we have also been going through a massive technical transformation as we move to a single platform. Transitions like this always entail certain short-term versus long-term trade-offs. The perfect example of which is our migration of Hotels.com onto the Expedia stack. We accelerated this over the last two quarters because the benefits of being able to optimize across our largest two OTA brands on the same stack are massive. But to be clear migrations generally disrupt customer patterns and can impact conversion in the short term. And we were no exception. We had to make some choices to prioritize speed over perfection. The really good news is that Hotels.com front end is now nearly fully migrated and we've been freeing up engineers who can now turn their attention to optimizing the full stack. This is just one example of the many choices we make every day to trade modest short-term disruption for significant long-term growth. And frankly we are more excited every day by our progress the acceleration of the transition and what is still to come. So in summary, we know we are massively improving our technical position. We know we are engaging more customers in our membership programs and our apps and we know both will drive significant improvement in our business. And in general, we are willing to give up short-term unprofitable volume for longer-term sustainable growth. Because we know that at any given moment a large portion of the traveling public is up for grabs searching around for the best travel options. The industry literally serves billions of searches and customers every year and rarely has engendered true loyalty. Traffic has never been an issue in travel. It's always been a question of retention. We mean to once and for all change that dynamic by providing a product and set of services, worthy of customer loyalty and ultimately, we intend to spend much less of our time and money chasing them over and over again in the wild. Of course, in the meantime, we will look for every opportunity to grab back share where it makes sense and where we are bringing the right kind of traffic at the right value. As fixated as some of you may be on share, I can assure you we are more so. Our competition has been very promotional and highly geared to performance marketing, but we are determined to build our business in a better way. And we fully believe that as we build our base of high lifetime value customers, we will be able to buy the right customers more efficiently and grow revenue and share far more quickly and profitably than we ever have. Let me end by reverting to our core theme. We are evolving all things in the business to a place of better customer-oriented products and capabilities, better service and understanding of our customers, personalization and ultimately, building what we believe will be the best and stickiest product in the industry. And all of these advancements also, benefit our B2B business, which continues to grow at an accelerated rate. Just this quarter we had a variety of wins. We now power Delta Airlines car rental offering along with hotel, which we have powered for some time and we've already seen significant benefit to our partner. We've become the exclusive provider of hotel supply to Avios, the rewards program for all the airlines under the IAG flag. And while we continue to find new ways to add value to classic travel partners, we have also expanded into emerging pools of captive consumers. To wit this quarter, we proudly partnered with Bilt, which has the first ever loyalty program for renters and we now power their travel portal. And as we continue to power old and new partners, we are also looking for new capabilities to externalize to expand our Open World platform product suite. Late last year, we externalized our travel ads platform that allows travel suppliers to advertise to our consumers. With this externalization, we are expanding the reach for our travel advertisers and the scope of what we power for our demand partners. This quarter alone we added travel as to multiple template partners. We continue to see enormous potential for travel as a service and the continued growth of our product lineup will help fuel our ambition to power the whole industry. So in closing, we had a record financial quarter and we added more loyalty members and app customers than ever before all while continuing to make huge progress on our technical transformation. We're grateful to our employees, our customers and our partners, who are helping us change the industry. And with that, I'll pass it on to Eric for financials.

Operator:

[Operator Instructions] Our first question comes from Eric Sheridan of Goldman Sachs. Your line is open.

Peter Kern:

Sure. Thank you for the question. I'll certainly try to put a little more color on it. Ultimately, as we drive towards high lifetime value customers and moving our customers into these high value positions in app in membership et cetera and up the membership ladder. We believe that we'll be able to use our marketing capital more efficiently through a variety of channels, including loyalty, including CRM and a variety of ways to drive more direct relationships. And ultimately, we believe we're going to get better and better at being able to buy the right kinds of customers out of the market. We are trying to do that now. We are doing it, I would say, with fairly remedial tools, but we are getting better and better as we get better at a more granular understanding of each customer and each customer's potential LTV and what channels they come from. So we're on that journey to basically drive lifetime value broadly, but also ultimately understand lifetime value in a very granular way, so that we can then, again, be buying that lifetime value out of the market in the most efficient way as we can. We think we're doing that now. But admittedly our tools are somewhat remedial. As we get all of our customer accounts together. You've heard us talk about consolidating data, consolidating the one loyalty plan across everything. As that loyalty plan reaches everybody, as we have one identity for every customer we are going to get better and better at understanding LTV and understand each customers' performance and that's going to allow us to get a lot sharper on how we acquire traffic and who we acquire. So, ultimately, we are looking to drive more efficient acquisition of the right kinds of customers. And as I've said on a couple of calls, that doesn't mean we're necessarily planning to spend less money, it means we expect to get more value out of the money we spend. And if we get really good at it, we may be spending more money and buying just more and more value out of the marketplace. So that is our ultimate goal. I think, there's lots of tools we have already to drive LTV, but we're going to have many more and a better understanding of how to buy the right kinds of customers out of the market as time passes.

Peter Kern:

Sure.

Kevin Kopelman:

Thanks a lot. I was hoping you could drill down a little bit more on how you view the current travel booking environment that you're seeing quarter-to-date, given you did see some of that choppiness early in the quarter, but then it sounds like growth has come back quite a bit since then. Thanks.

Kevin Kopelman:

Could you -- and also just as a follow-up, could you touch on puts and takes for EBITDA in the third quarter, given it's the -- it's typically the largest profit quarter for the year? Thanks.

Eric Hart:

Yes.

Eric Hart:

Over here, you got it. Okay. Kevin can you hear me okay? Okay.

Eric Hart:

As you mentioned, Q3 is our seasonal high from an EBITDA perspective. If I -- if we look at Q2, we feel good about where EBITDA came in, call it, in the aggregate or the quantum and then also seeing the leverage that I mentioned in my prepared remarks. And we continue to operate the business in a very similar structure, if you will. So we feel good about the quarter. As I also mentioned, our pacing also looks and when I say pacing the forward bookings or whatever language one wants to use on what's on the books already for the coming periods, that's also above 2019. Now, the bulk of the transactions still need to occur over Q3 or Q4 for that matter, but thus far, feeling pretty good about the trends that we're seeing. And then just adding a layer of comments on the – what Peter went through is, we continue to remain in an environment where there's more volatility in trading that I have necessarily seen in the business historically just given the pandemic and COVID and variants that come along and now disruption. And so there are periods, where you might see more volatility than we've historically seen, but the consumers continue to be resilient and continue to prioritize travel in their spend. And as Peter mentioned, and I mentioned earlier, the back half of July and early part of August, was back to similar levels of Q2.

Eric Hart :

Thanks, Kevin.

Operator:

We now have a question from Naved Khan of Truist Securities. Please go ahead, when you are ready. Your line is now open.

Eric Hart:

Hey, Naved, I'll take the first part of that, and perhaps Peter you take the second one. They are on a like-for-like basis. So, that is giving you a sense for what we believe is the more accurate representation of the trajectory of the business. And again, just for everyone clarification, it's essentially taking out Egencia, the Chase non-lodging components and then also the lodging service agreement that we have with Amex GBT, so that it gives you a sense "for our core business" and what the trends look like given the puts and takes that we've had given the changes that we've made over the last few years.

Eric Hart:

Yes. Hey, Naved, I want to just clean-up my quick remarks, because we actually have both in there both on a like-for-like, and on a reported basis. So let me just be really clear. We provided both numbers, which is the 9% on a like-for-like basis for total lodging gross bookings, and then the 8% on a reported basis. And then the WACC, itself is on a reported basis just to make that clear.

Peter Kern:

Yes. That's reported.

Peter Kern:

All the monthly are on a reported basis.

Eric Hart:

Correct. Just to make sure you heard me.

Eric Hart:

Thanks.

Lee Horowitz:

Great. Thanks for the question. Appreciating that long-haul capacity still remains constrained. Can you guys comment at all on what you're seeing in terms of urban travel trends either in the quarter or into 3Q, or are you still seeing kind of robust accelerated recovery there? And is it fair to think that you guys still kind of remain below 2019 levels within this travel quarter?

Lee Horowitz:

Great. And one follow-up if I could. In the past you guys have talked about struggle in terms of bringing on as much headcount as you may have liked. I guess given maybe some of the ground slack in the labor market would you say that that's no longer a problem, or are you still trying to kind of ramp in and having some I guess the word loss in terms of bringing new headcount in media?

Peter Kern:

Go ahead.

Peter Kern:

Yes, I would just add Lee that as we continue to make progress on our technical transition. We're constantly solving problems and freeing up people to work on new things. So, it's kind of we're solving it two ways, which is we're looking for talent in the market to help fill open roles where we need people and every day we're also kind of freeing up capacity that can work on the next thing. So, we're moderating it that way. And ultimately as I've said before we're going to get more efficiency out of the machine over time. So, balancing that trajectory is something we're always looking at.

Peter Kern:

Thank you.

Operator:

Thank you, Lee. Our next question comes from Tom Champion of Piper. Please go ahead when you are ready, Tom.

Peter Kern :

Sure. Thanks, Tom. So a couple of highlights I guess on Vrbo. I mean, first of all, the business continues to be strong well above 2019 levels. We've seen some demand -- sorry, supply constraints in our best markets. I think Southeast beaches in the US and such, but we have been adding supply at an accelerating level and actually in our strongest markets like US beach, et cetera. We've been adding supply faster than our main competition. So we feel pretty good about that trajectory and we're getting better at that kind of all the time. So in our strongest markets again we're adding supply, but there were constraints. There were markets sold out this summer for sure, and we'd love to have more supply in those places. As far as new partnerships go, I'd love to name a bunch of names. Unfortunately, in some cases we are constrained by our agreements with our partners, but we've seen really good growth in our B2B business and our B2B pipeline. We think there's a lot of products that we can help our partners with. And as our products get better all the things, I was talking about even with the Hotels.com, Orbitz front-end change that's not just getting on to one stack. It's also componentizing all the front-end modules, so that we can more easily use them and we use them for our partners to create their travel products on the front end. So there's a lot of opportunity in all the work we're doing to make the products better for our partners, and to externalize new things that we haven't externalized before, like our service capabilities, or our machine learning capabilities, or our fraud capabilities. So we're working kind of two tracks, which is we want to drive more value into our partnerships that we already have with the products already available, and we want to externalize lots of new products that we think will be valuable to the partners we already have and to a much wider base of partners. So, both of those things are going. There's lots of exciting things happening on both fronts. And most excitingly when we deliver things like we did with our new car deal with Delta or many others, they deliver more value for our partners. And that means, it's a good product, that makes our partners more successful, and us more successful. So I think it's one of those places that's really a great symbiotic situation, where we can use our technology and our supply to drive better outcomes for all our travel partners. And it really sort of turns those into partnerships instead of just the classic supply deals and other things we've always had. So we're excited. We think the growth -- there's plenty of growth there. I don't think it's like linear and just accelerates. I think we'll have new products that roll out, new exciting things that come. We'll have some big new partnerships that come over time. And each of those will add to it. And ultimately, the more products we can externalize, I think, the more partners will have and that's what we're most excited about.

Peter Kern :

You bet.

Operator:

Thank you. Our next question comes from Deepak Mathivanan of Wolfe Research. Please go ahead when you are ready.

Peter Kern :

Yes, I'll take a stab Eric, and maybe you can follow. I would say, Deepak that there are still plenty of markets that have not fully recovered. APAC for one, Latin America for another. And then within certain geographies there's still -- there are still places that are not as robust. But -- so there's plenty of opportunity. I think there's no sign that what we've seen as the robust recovery now won't continue for the foreseeable future. As Eric alluded to there's -- no one knows quite what's happening with the macro environment and when and if that will impact travel. But so far everything looks pretty strong. So I think there is still opportunity for growth from our perspective. The pie is enormous, right? I mean, we and the other big OTAs eat about I don't know 15% maybe of the global travel market, maybe a bit more of the big ones our main big competitors. So there's a lot of pie out there. And I think we have lots of opportunity in the strategy I was trying to describe to continue to grab high-value travelers that we can add to the pot and drive our business and stack them up. So we think there's plenty of recovery to be had. I don't know macro global travel is definitely still way under 2019 levels, because so many geos are not caught up yet and that long-haul air et cetera but ADRs have been very high. So we've seen escalated numbers driven by that. But there's definitely a fair amount of consumption in the world that's not back in the market. Eric, I don't know if you want to add anything?

Peter Kern:

Okay. Thank you, Deepak.

Peter Kern:

You bet.

Lloyd Walmsley:

Thanks. Two questions if I can. First on the marketing side, it looks like there was a bit of deleverage in the quarter and just looking at direct marketing per booked room night. It's up by my math, I think 28% year-over-year. Is that just a function of bidding up because of the higher ADRs or something going on a brand campaign? You guys mentioned efficiency improvements on like a gross profit basis. So if you can just explain that a little more? And then just second one on the product side, you guys talk a lot about improving the product and doing driving more direct from product improvements. Wondering how does adding hotel supply and localizing that supply fit in as a priority in the product strategy? Are you guys rebuilding supply acquisition team like where does that fit in? Thanks.

Eric Hart:

Yeah. Hopefully, you can hear me okay. Peter, if I can a thumbs up.

Eric Hart:

Thank you. Yeah. And so Peter spent a fair amount of time and I did well just around the gross profit and looking at it from a holistic perspective. But I do want to just make sure that I reflect and we reflect that we have said that we are going to be a couple of things. One is aggressive in marketing spend and the recovery. So to the extent that we see opportunities to acquire the types of travelers or customers that Peter mentioned, we are going to push into that and are seeing nice returns from that perspective. And then two is, the profile of the travelers and customers that we're acquiring because of a mix shift of marketing into longer-term relationships such as brand marketing or creative, as I mentioned and then also app downloads that we're essentially building cohorts over time that have a higher lifetime value, but also can take longer to hit the P&L if you will. So there's a timing aspect to it. So again, gross -- both gross profit, we feel good and we feel that that is healthy. Two is, we do want to be aggressive in marketing given the rebound from the pandemic. And then three is longer spend profiles from a mix standpoint in our marketing spend.

Eric Hart:

Thanks, Lloyd.

Brian Fitzgerald:

Thanks. Maybe a bit of a follow-on to Lloyd's question. As you look ahead into 2023 and the implementation of the Digital Markets Act in the EU, just wondering if you could offer any thoughts in terms of how that could change the marketing environment for you potentially benefit the business from a marketing perspective? Thanks.

Operator:

Thank you. We now have Justin Post of Bank of America. You may proceed with your question.

Peter Kern:

Yeah. I would just say -- so a couple of things. We don't really disclose repeat rate, but I'll state the obvious which is you heard what I said about the repeat rates of members of app users and how much direct business we have. So I think it's safe to assume that you can follow the trend lines of where that's headed as we continue to build these higher value higher repeat rate customers into our base. As for the time frame, we want to drive leverage in marketing broadly and long term, but it's not just up to marketing, the effectiveness of the product I think Lloyd asked about supply, the effectiveness of supply. All of those pieces play a part in marketing efficiency having the right product on the shelves, the right high converting product for the customer. And again, all the things we've talked about and moving them into the right products into membership into app et cetera. So there's a lot of pieces that fall together. Right now, we're interested in investing in the right types of customers that build that base of high lifetime value customers. And as long as we can do that in an efficient way, and again, as we look at all our spend, all up, we are doing that more efficiently right now as against book value. So we're very happy to keep investing in that. Over time, we will get better and better at finding those pockets, as I said on a more granular level. But right now with the blunt instruments we have, we are driving app membership all of it and the right kinds of customers into the funnel as best we can and we will get sharper and sharper on that over time. So I don't think there's a – we're not saying okay by the end of 2023 we have to pull x many basis points out of marketing. We're saying that as long marketing can drive the right base of customer – high-value customers into the machine. And as long as the machine is getting better at converting them into the types of customers we want, we're winning and we want to keep driving that.

Justin Post:

Great. Thank you. Maybe one follow-up. You do see take rates up from 2019. And I was wondering if the strategy is driving higher value customers that maybe spend on different types of hotels, or is that just more timing related? Thank you.

Justin Post:

Great. Thank you.

Justin Post:

Great. Thank you.

Operator:

Thank you, Justin. We now have Ron Josey of Citi. Please go ahead as soon you’re ready, Ron.

Peter Kern:

Yes. So to be specific, and I don't want to underwrite our instruments, but our goal is true granular understanding of every customer's lifetime value, and the difference of where those customers emanate from and what actions they take that indicate and drive, higher lifetime value. That is the holy grail of understanding customer value, and trying -- and getting super sharp and efficient on buying, as best you can all the right customers. Right now, we've given you some basic ideas, which is we know members perform much better. We know app users perform much better. We know, if they have both they performed much better. But that obviously, is a broad brush, not the finest brush you can have. And we ultimately want to have a very fine brush, so that we can know, if we find people in a certain performance channel, they're more likely to perform a certain way, maybe by geo, maybe by product that they come in on et cetera. So we want to have all that scope of information, and that involves understanding all our customers in a common way. As we've talked about many times, we have data on our customers that were in silos, because they were Hotels.com customers, or Expedia customers or Vrbo customers or Orbitz customers, or you name it. And as we continue to consolidate the data, as we continue to consolidate those customer files and as we get everybody essentially into one broad loyalty program, we will be able to understand customers at a much more granular level and that will give us more tools. I'm not saying our blunt tools, aren't good tools. They're just not as fine, as we can someday hope to get to. And then, as we add personalization on top of that, we will have a bunch more drivers that allow us to trigger more high LTV events. So, there's a lot of opportunity in that still to come. We're doing lots of good stuff now, but it will get better and better over time. And as far as grabbing back share, and mix shift to direct, we basically said, as I alluded to in general, we're willing to give up unprofitable short-term traffic for longer-term gains. That involves buying somewhat different kinds of traffic. As Eric alluded to, we've been much more leaned into a cap acquisition and other opportunities where we know there's more value. And that involves again, making short-term trade-offs whether it's in technical transitions where we have to give up something in the short-term, to move faster. So we've been willing to do that, and give up some of the historically highly unprofitable, the last incremental performance marketing customer purchase. So that's kind of what we've been going through. But we're getting better at understanding and being able to drive member sign-up. We were never that great, at getting sort of the owned sign-ups as honed as we wanted to do, getting the owned app downloads going faster. So every time we make that better, we see more opportunity then to drive into okay, now we can acquire this set of customers and they'll perform better, because we can get them into these high lifetime value activities and then we get more value -- drive more value out of them long term. So that's what I'm talking about, in terms of grabbing back share, where we can grabbing back opportunities. And these things are not perfect. And as we see veins to drive, we are looking for more and more veins to drive, that will drive growth and ultimately drive share.

A – Peter Kern:

You, bet. Thanks, Ron

Jed Kelly:

Hi. Great. Thanks for sneaking me in. Just two if I may. One, can you talk about how the stronger US dollar, could benefit your long-haul international business potentially into next year? And are you developing any strategies around that given your higher North American base? And then two, just Peter you mentioned, you're seeing stronger Vrbo supply gains over your largest competitor. Can you talk about where that's coming? Is that coming more from the property managers or individual homes? Thank you.

Jed Kelly:

Thank you.

Jed Kelly:

Thank you.

Operator:

Thank you. That concludes today's call. You may now disconnect your lines. And have a nice day.

Operator:

Good day, everyone and welcome to the Expedia Group Q1 2022 Financial Results Teleconference. My name is Jason and I will be your operator for today’s call. [Operator Instructions] For opening remarks, I will turn the call over to our IR Director, Jon Charbonneau. Please go ahead. Sorry about that.

Peter Kern:

Thank you, Jon. Good afternoon, everybody and apologies in advance. Eric and I are both recovering from cold. So, our voices may not be as loud as normal, but we will do our best and please ask for clarification on anything you can’t hear. Let me start by saying we were pleased with the quarter. We continue to see strong demand coming back. We continue to see efficiencies in the business. And in general, it pretty much had the shape we expected, which is to say that we had – we went into the quarter with Omicron looming. Last quarter, we mentioned that we expected that to have some impact early in the quarter, which it did. But very – we are very pleased that demand came back post-Omicron and Omicron hasn’t lived up to sort of our expectations, which were – that it would be the shortest wave. It would be the least impactful. And I think as we now go into BA2 and other things we are seeing, it’s really hard to even detect the blips anymore. So that’s great to see. We also then were hit with the war in Ukraine, which did have some impact on the EMEA markets. But again, the market – the consumers seem to absorb that information and now EMEA is back to its highest levels since COVID hit. So again, we have seen these impacts. But in each case, a recovery that seems too strong to be held down. So, the recovery has been strong. And nicely, we have seen it beyond just domestic travel, which of course have been the bright spot for a long time during COVID. We are now starting to see city business pickup, business travel pickup, international travel vectors pickup. So – and I would say, broadly, while some geography lag, all geographies are, in general, growing and returning. So despite the usual caveats for COVID, now a rising inflation to worry about and of course, the geopolitical situation, the pent-up demand that’s out there for travel seems to be outweighing anything the market can throw at it and we continue to be feeling very good about a summer recovery that should be very robust. And as I have said before, we have been spending into that recovery, particularly with an eye towards driving long-term customer engagement, buying the right customers, having the right mix of marketing to attract direct and long-term valuable customers. So, with an eye towards lifetime value, we are investing into that strong recovery and we will continue to do so. As an example, our teams have done a great job of driving Vrbo and app downloads. Vrbo, according to our third-party data from a company called Sensor Tower, was the number one downloaded app in North America in the first quarter of the year and that’s a place where we have had emphasis. Obviously, our emphasis will change through the year and we will push into our other brands as well. But app particularly is a place where we feel like there is a lot of long-term customer value. We are improving that product dramatically and we think that’s a great place to put capital right now. Importantly, our direct-to-consumer business, known part of the business and we have our big EXPLORE event coming up over the next few days in Las Vegas, where I am right now and I am pleased to say it is packed and the business seems to be booming at the hotels. But that event is with our business partners, all our supply partners as well as many partners with whom we drive demand. And I have talked about this a little bit before, but we have a thriving B2B business. I haven’t spent a lot of time on it, but this is the week where we will now come out and display all the work we have done to re-imagine the future of our business and our place in the travel ecosystem and what we have been doing for the last 2 years. So we are going to share that with our partners with general focus on overall traveler experience, how we are rethinking our marketplace and how our platform technology will not only drive our B2C business, but will enable our partners to do much more with their own businesses. And even though I haven’t spent a ton of time talking about, I just want to reframe that our B2B business is a terrific business was before COVID remains a strong business and we have made a lot of progress during the time of COVID to continue to expand that business, including one example, which is optimized distribution, which I think I have touched on before, but this is a product that we started in partnership with Marriott. We now just had IHG joined this year, so two of the largest global hoteliers in the world as well as many others, testing on it. And what it does essentially is it cleans up the wholesale business for these partners. So, wholesale rates have been a huge issue in the meta universe. They get bled out into the world and then find their way back into meta and they end up hurting hotel companies, because there are prices out there that are under the brand.com prices. We created technology to vote this and basically help our partners get the same B2B business and more in the wholesale markets, but do it in a way where their prices would be protected and they have – and they make sure they weren’t undercut by their own prices out in the world. So, it’s been a hugely successful program for Marriott, now IHG. Again, we hope many more partners will take advantage of the technology. But that’s just one example of the many things we are working on, talked about externalizing our technology before. We have had a white label template in a lot of ways where our partners can sell other products. We have airlines with whom we power packages and hotel packs. We recently added Delta to power their car path. We have expanded our offline travel agent business and our share of wallet with our API partners. So, it’s a great business. We see expansion for it. And as we will talk about a lot more this week at EXPLORE, we have a lot more ways we think to help our partners and expand the addressable market there. So as we move into that, we will continue to accelerate innovation in our platform and that innovation will drive not only our B2C business, but also our B2B business. And that’s why we are so excited about how we are rebuilding our platform. But all-in, we expect ‘22 to show continued recovery. We expect a robust summer. We expect to continue to drive efficiencies through the business. And the real work this year is on delivery, on delivering on the brand work we have done, which looks great so far. We are rolling out new Hotels.com brand work right now and I think the brands teams have done remarkable work. We have got a lot of new product innovation coming this year and we are doing a ton of work on the back-end platform. So, all of those things will be rolling out this year and will have some impact on this year, but really the impact is much longer term and we see great things ahead as those products all get delivered. So with that, I hope all of you to join us at EXPLORE. It’s going to be a great event. Our team has worked their efforts off to put on an amazing event for close to 3,000 partners who are here. And if you can’t make it, I invite you to watch the streaming and it should be really exciting. And it’s a chance for us to really display the work our teams have been working on for the last 2 years and all the pains taking time and effort they have put into changing our direction for the future. So with that, I will leave it to Eric.

Operator:

[Operator Instructions] Our first question comes from Eric Sheridan with Goldman Sachs. Please proceed.

Peter Kern:

Yes. Thanks, Eric. I will take the first one first, which is, yes, we are – we believe we can drive over time more efficient return on our marketing dollars. And we do believe that places like brand and app present real opportunities. But the main idea is that we are trying to find and mine the best means of long-term return. I think we and the industry has been very transactionally focused and we haven’t been great historically at measuring lifetime value and the different value of different customers coming in through different channels. We are getting much better at that and finer at that and we will look to build the long-term high value customer base that has the repeat characteristics and the high lifetime value that we want to drive as opposed to just chasing transactions and hoping the rest takes care of itself. So, I think that’s really the change. So, many of these areas offer opportunity, I mean, brand, we have always spent a lot on brand, but I would argue not always with the best creative, not always with the greatest impact, not always with a clear message. We are getting much, much better at that as the people we have added are driving great, great product there. And likewise, we have to improve the product, which goes to your second question, which is the higher ROI is really about not only bringing people in through the right channels, but it’s also having the right engaging products. So, all the work we are putting in to create a new app, which basically will be largely new over the course of this year and a number of other things we are doing to engage travelers. We are announcing a couple of new product features coming out this week at our event. So we are trying to create much higher engagement. Obviously, we would prefer it be through the app, all things being equal and then we can drive all those other channels, we will spend the money where we think we are getting the greatest return and we are driving those people into the right products. So, it’s hard to say where it’s going to balance out. I would say, until we get to more normalized times, it’s really hard to get a perfect read as compared to history in terms of percentages spent on X or Y or Z. But I would say our mindset is that we are looking for those veins, including app and many other things, where we believe we are driving the long-term customer – the type of customers and acquiring the type of customers that drive long-term value into business. That’s our approach.

Eric Sheridan:

Great. Thank you.

Operator:

Our next question is from Lloyd Walmsley with UBS. Please proceed.

Peter Kern:

Yes. Thanks, Lloyd. I will take the first one and Eric can take a crack at the second one. On the consolidation, we are a long way along in actually bringing together the data ops, algos and everything that goes to drive performance marketing. There is a long tail, obviously, because we are in lots of geos and lots of places that aren’t terribly impactful economically. But over time, we want to get much better in. So I would say we are a long way through that. As I mentioned before, getting that operationally right is great. Now, we have to test a lot of things to get the benefits you are referring to, which is how do we optimize for multi-brand, how do we optimize in different geos, etcetera. But the big heavy risk, I would say on the 80/20 rule, we are probably – we have gotten the big stuff. And now, it’s really about moving those tests through, as I just mentioned, finding these new veins, testing all these new veins, that’s the critical work. And right now, we are seeing a lot of demand and we want to drive growth, not just to like historic levels with better margins, but higher growing levels with better margins, too. So we want to invest into growth. And if we see the opportunities with the right returns, we will do that. So I think I think we can drive better returns and better growth, and that’s the goal. Again, the shape of the curve may change a little bit as we invest into these high-value lifetime value veins of opportunity. But we have the operational side, I think, a long way along. It’s not perfect yet, but it’s a long way there. And now it’s just about testing everything and getting sharper on the readouts. And of course, these are not exactly normalized times yet. So some of the data is still – there are places in the world where we can’t test yet because the recovery is not sufficient and so forth. So it will take us some time, but I think the big part of it is behind us.

Lloyd Walmsley:

Okay, thanks. Hope you guys feel better.

Operator:

Thank you for your question. Our next question is from Kevin Kopelman with Cowen & Company. Please proceed.

Peter Kern:

Yes, sure. As Eric mentioned, Vrbo remains above – nicely above 2019 levels. We are somewhat sublicensing. We will certainly sell out of many of our top locations for this summer. We’re already seeing that. That is where our focus on supply has been to add supply in the markets where we know we’re most constrained, and that’s been really good in terms of when we add supply. We know we can move it and our suppliers get great outcomes and everybody wins. We haven’t had as much focus, though we are turning our attention to that now of the broader overall supply gains. And again, we’re going to stick to what we do well, which is whole home vacation areas not compete – we’re not going to pivot and go after cities, except if they are vacation cities essentially. So we are sticking to our main product line here and what we know works and what we know our travelers want. But I would say the answer is yes we are a little bit supply constrained. We could certainly move more supply in our most high-demand markets, but that is where our focus on supply has been, and we are kind of gearing up the machine more broadly to go after not just that, but more broad supply in places where we think it will now come back more globally.

Peter Kern:

Yes. I would say Vrbo has been relatively stable. There is been some funkiness over COVID with month-to-month where demand has been high and because of where the waves were and other things. But I would say broadly Vrbo’s performance has been strong. We’re seeing lots of new customers coming to the product. I think the first quarter, we’re around 50% of it was new customers. So we’re getting a lot of new customers. We’re getting a lot of repeat, and we’re building that base of customers who have had great experiences with the product. So I think we feel like that will continue. Obviously, as hotel comes back more strongly, that’s another mix factor that will potentially change where the strength is, but we think Vrbo will stay strong, just hotel will get better.

Peter Kern:

Thanks.

Deepak Mathivanan:

Great. Thanks for taking the question. So first, just, Peter, I wanted to ask a little bit more about the last question. The cadence of accommodations bookings seems like somewhat flattened out between March and April around like high single digits, low double digits. Curious, any additional color you can add to that maybe geographically or maybe something specific? And then secondly, kind of related to that, I wanted to ask you how you think about the travel demand sensitivity to consumer spending levels and maybe other macro variables? It clearly doesn’t seem like it’s an issue right now, but how do you think and even plan for second half, if cyclical trends start to become more impactful?

Eric Hart:

Deepak, I’ll just – you used the word planning, so let me respond to that from a planning perspective. Generally, as you think about our marketing spend, a large percentage of that, of course, is on the performance of variable marketing side. We now have instrumentation, which we’ve talked a lot about that allows us to see on a real-time basis what that demand footprint is looking like, what the CPCs are looking like, where we can allocate capital across the different performance channels, different geographies, etcetera. So ultimately, we have the ability to see it in real time and ultimately make capital allocation decisions based on what we’re seeing. Of course, brand spend is a bit more batching. But at this point, what we’re seeing and everything that Peter just walked through, we continue to be optimistic about the summer and be at this point. And if that changes, then we will address how we think about investment in market if we need to. And I guess maybe the last comment is, we’ve dealt with a lot of volatility before over the last few years and built a lot of this implementation based on that. And so if things get more volatile, we will be in a position to make appropriate decisions in real time.

Peter Kern:

Thanks. It’s what happens when you start traveling again and shaking people’s hands, you’re bound to get a cold.

Naved Khan:

Yes. Thanks a lot. I just wanted to dig a little bit into the commentary on the new users on Vrbo. I think Peter you mentioned roughly 50% of the bookings came from the 50% of users will renew. I’m just trying to figure out how are you trying – how are you getting the – how are you acquiring the new users? Are these through word of mouth? Or are these primarily through performance channels? Just any kind of color commentary would be helpful. The second question I had is just on the return or the – at least the improvement in urban and cross-border and business travel. Maybe can you give us some sense of how these bookings in these sub-segments and compare versus 2019 levels?

Naved Khan:

Yes, thank you.

Naved Khan:

Understood.

Mark Mahaney:

Okay, thanks. Two questions, please. First, just we haven’t mentioned IDFA on this call. So just any quick commentary on whether you – the efficacy of your app marketing campaigns and whether you think you’re back to parity or wasn’t a major issue for you in the first place? And then I think, Peter, you talked a lot in the beginning about the B2B opportunity. I think click down a little bit more than you typically do. Can you just spend a little bit more time on helping us size that opportunity for Expedia versus the core market that you’ve been in? Just talk about the relative attractiveness of that opportunity. Thank you.

Mark Mahaney:

Okay, thank you, Peter.

Operator:

Thank you for your question. Our next question comes from Justin Post with Bank of America. Please proceed.

Eric Hart:

Yes. I’ll probably take both of them. So, on the first one yes, the way that you are dealing with illustrates on the CBD line that not all products have recovered at the same rate. Air does continue from a recovery standpoint for us. We have seen an acceleration, however, in air. As Peter went through a lot of the different intersections or vectors, I would add, to that one as well, we have seen that to start to recover as well. But it’s going to – it does hit a number of the intersections that are still, call it, behind where we’ve been benefiting from in the last few quarters, which of course, are U.S. verbal, etcetera, etcetera. So over the course of the year, we’d expect for that air continue to come back as there are more planes in the air, as there are more international flights, etcetera. But there is some headwinds there as we all have heard from the airlines around staffing and other associated issues. What I would say here is the primary driver, as you pointed out. On the comps for the summer, I would say there is nothing particularly that I would call out. Obviously, there are a few months there where depending on what year you’re comparing against. Vrbo had some particularly strong month. And if you go back to 2020 or maybe to 2019, but from a comp perspective, I think there is nothing over it.

Operator:

Thank you for your question. Our next question comes from Tom Champion with Piper. Please proceed.

Peter Kern:

Yes. Thanks, Tom. On the international front, as I mentioned, we’re already seeing, for example, out of North America, that international levels have recovered above 2019 levels, at least, on a dollar volume basis. So – but again, it is driven market by market. So EMEA trails that. APAC is far worse, and LatAm is in between. So the trajectory of when it’s all back and what is that – what is the – how does that comp over a normalized pre-COVID year. It’s yes we had to do more with COVID than anything else. But I think as we’ve seen before, the bigger travel markets in the west have buoyed the category and particularly for us since we’ve concentrated more there. I think we could easily get to pre-COVID international levels of volume in dollar volume before the whole world recovers, but it’s a little hard to predict because without the whole world recovering, other areas have to over-index. So right now, we feel good about it. I mean norms our home market, and it’s great that it is leading the charge. But obviously, to really comp to prior periods in totality, we could use the rest of the world coming back a little more. But I expect it’s entirely possible that by the summer, we could be at levels. And again, mix would be different and some of it would have to do with dollar volumes and ADRs, but we could be at levels above where we were in 2019.

Tom Champion:

Thank you both.

Operator:

Thank you for your question. Our next question comes from Lee Horowitz from Deutsche Bank. Please proceed.

Peter Kern:

Yes. Maybe I could ask you Lee, in your first question, are you asking competitiveness between us and other players or the competitiveness between hotel? I am not sure I understand the question.

Peter Kern:

Yes. I mean look, I think as we have talked about before, our main competitor has been highly aggressive. This is obviously a market where we are relatively dominant and they want more of the business. And we have talked about how COVID and the kind of changes in demand patterns were helping them and hurting us in terms of long-tail properties in smaller markets as against our relative strength in big cities and international travelers, etcetera. So, they are certainly focused on it and competitive. We always watch what they do. But I think we feel pretty good about our opportunity to continue to grow in the U.S. and obviously, we expect them to compete hard, but it’s our home market and we are strong here, and we think we have the tools we need to be competitive. And when demand patterns return to more normalcy, I think you will see that they were pretty much where we were. We may each make slightly different choices about where we think the long-term value is in customer base, but I don’t think there is any – there is not really something to see there from our perspective right now. In terms of take rates, all I can say is that we have renewed a lot of deals throughout COVID. They have been good renewals, not big bites. And our take rates have been pretty consistent and held. So, I think there is no – the sky is falling. So, we can’t pay anybody. And equally, I don’t think it’s going the other way, but we are also building in more opportunities in places like air and things like that, where we think there is opportunity to help our partners sell more premium products, sell ancillary products with their air tickets. We historically have not really been able to sell things like seat assignments and bags and other things. And now that increasingly, we are direct connecting with airlines, we are now able to sell those things. And actually at EXPLORE this week, we will have a demo of a new product that we used to help shoppers shop smarter and pick the right product for themselves and it’s helping drive more premium products and attach rates. So, we have a lot of opportunity to do better there. We got to make it happen. But I think – but in terms of the core deals with our partners, I think we are in fine shape.

Eric Hart:

Yes. And just to add a quick comment on just around – yes. Just a reminder that Q1 take rate tends to be our seasonal low for the year. I think you can see that in Q1 relative to Q4 and some of our historical numbers. And so as you are modeling, we ensure that you are taking a look at the seasonal curve that we have experienced in the past and expect that curve to be similar this year than it has been.

Operator:

Thank you for your question. Our next question is from Brian Nowak with Morgan Stanley. Please proceed.

Peter Kern:

Okay. Maybe I will take the second one first, and then Eric can give a little color on the first. But I would say – thanks, Brian. On the low-hanging fruit side, let me just kind of route everybody on where we have been, which is when you are re-architecting the whole platform and finally consolidating these different tech stacks and everything else, there is a lot of like foundational work that goes into that. And as a result, there is way less feature work and test and learning going on every moment of every day because you have got these big heavy lifts to move on to the same stack. In fact, this quarter, we have made huge progress in moving Hotels.com onto the Expedia stack, and we will be consolidating that over the coming months. And then those things unlock huge opportunities for us from an efficiency standpoint, from the opportunity to innovate across a wider breadth of travelers and we get more benefits to every traveler. So, we have just started to ramp up – ramp back up our sort of historical AB testing into conversion. And the exciting part is increasingly, we can do that with machine learning and not just with people designing different products. We have had a lot of wins. Some of the products we are rolling out of EXPLORER. We have – I mentioned the smart shopping idea where we are getting people to buy more premium products. All those things are helping with conversion and helping with, if you will, dollars per transaction and those kinds of issues. So, we are seeing it in a number of places. But I would say we are still like just reigniting that work because we have been so busy on foundational work. So, I think there is probably a lot of low-hanging fruit to be had. We do have some exciting products rolling, features rolling out this week, and we will continue to do that. But that’s a few things. It’s really the day-in, day-out AB test and machine learning, driving better conversion. It’s really impactful when you get it right. And when you are not doing it, it certainly slows it down. So, I think there is a lot of opportunity, but I can’t – I could give you 1,000. It’s hard to give you two that are going to be the difference makers. It’s a bunch of little things that make a difference. And we are in a much better place if you think about even just the Hotels.com example I gave you, we would have to test things on Hotels.com, test different things on Expedia, test other things on Vrbo, we will get to a place where we will be able to test everything across everything and that’s just a much more impactful way to make change and drive better traveler outcomes and better conversion. So, that’s what we are focused on, on that front.

Brian Nowak:

Okay. Thank you both.

Operator:

Thank you for your question. Our next question comes from Jed Kelly with Oppenheimer. Please proceed.

Peter Kern:

Yes. So, go ahead Eric.

Peter Kern:

Yes. And I will just close on that point before I take the other one. As things normalize and we get out of these COVID tons, as Eric mentioned, all these old flight cancellations, there is a high – much higher propensity of flight cancellations still than there was pre-COVID and major disruptions like when we get to normalized then, we should see more benefit even than we have seen so far in our service economics. So, that’s more to come, but should be good news. As far as the Vrbo on Expedia, etcetera, as I mentioned, we are consolidating the front-end platforms right now. We have come long way on Hotels.com. Vrbo is next to go for us. And when those things come together onto one front-end platform, it’s going to be a much, much, much better experience for all our customers coming through whatever channel they come through to get to book Vrbo content. And this is another place where our B2B business will benefit because we know we have many rewards programs and other places who want our Vrbo content. So, we will have yet again another way to drive demand through our B2B partners with products we haven’t always been able to deliver to them because of the complexity. So, this is a foundational thing we are doing. It’s not so much about the tip of the spear, like can we put more properties on Expedia. It’s really about merging those stacks and get them all on one front-end stack. And when we do that, which is coming this year, but still work to be done. That will free up a lot of opportunity for us to drive that and innovate around how that experience should work in terms of booking Vrbos through our other brands.

Peter Kern:

Thank you.

Operator:

Our final question comes from Brian Fitzgerald with Wells Fargo. Please proceed.

Peter Kern:

Yes. Not so much. We haven’t seen the volumes really decrease. I think directionally, what the EU is trying to do makes sense, but it hasn’t been very impactful. And there is a lot of debate going on with the commissioners about how to wrangle Google Meta and whether the industry has a view on whether it’s fair or not, but how the EU might go about and use generally been more aggressive than the U.S. in terms of regulation, but how they might go about trying to get Google to deliver a fairer marketplace. But so far, we have not seen any real reduction. Google Meta continues to be extremely strong and an important – obviously, therefore, an important place for all of us to have to deal with. So, I don’t think we are going to see much change there, not yet.

Peter Kern:

Thank you. And with that, I think that was our last question. I just want to be clear if – I think some of you might be able to make it or might be making to our EXPLORE conference if you can, I invite you, if you can to make time to watch it streamed or taped. We have been a little – because we have a lot of rollouts coming in terms of product delivery and some exciting things that are coming out. And I think if you get a chance, you will get a better understanding of what our B2B ambition is. But suffice it to say that we think this is an important time for us to pivot in the industry and really explain to the industry how we are going to be a different player in the market and an enabling player in the market, and we believe it’s going to allow us to expand the marketplace for our partners and ourselves dramatically. So, if you get a chance, please tune in. And otherwise, thank you all for your time, and we will talk to you in a quarter. Take care.

Operator:

Good day, everyone, and welcome to the Expedia Group Q4 2021 Financial Results Teleconference. My name is Emily, and I will be the operator for today's call. [Operator Instructions]. For opening remarks, I will turn the call over to IR Director, Jon Charbonneau. Please go ahead.

Peter Kern:

Thank you, Jon. Good afternoon, everybody, and thank you for joining us. Let me start off with a few broad comments about what we experienced in the fourth quarter, which I would say, even though we had to deal with a meaningful Omicron wave and a bunch of disruption in travel, and of course, that was not great for travelers worldwide, it was encouraging in many ways. And I think what we observed most notably is that the issues that involved were really issues of inconvenience. There were border shutdowns. There were planes out of service because pilots and crew were sick, things of that nature, but there was far less consumer fear over traveling. And really, it was an issue of the inconvenience of the health issues. What we believe will come from this, presuming the next waves continue in ever lightening way, is that the world has essentially gotten accustomed to the pandemic. It will enter perhaps an endemic stage. And governments and industry, et cetera, will adapt much more easily as the next waves come, and in turn, this will continue to disrupt travel less and less. And certainly, the consumers have remained willing to travel throughout. And with the return of staff to the air and the relief of border issues, we are seeing a solid return to travel. Eric will take us through the numbers and the trends, but suffice it to say that we are pleased to see that bookings have strongly rebounded since opening, anywhere the Omicron has tapped out. And certainly, we're seeing that broadly across our biggest markets. I've talked before about mix effects, and I won't belabor those, except to say it continues to be real. Certain areas are doing better than other areas, more challenged than other parts; geos -- certain geos are more difficult than others. But in general, we feel good that big cities have not recovered as much yet, and that is a good guide for us. International travel is still yet to return as strongly. That is another good guide for us. So we feel like directionally, the things that are -- will be coming back generally benefit us and we're looking forward to the days of those returns. With that said, I'm not really prone to doing retrospectives, but we are starting to focus much more on the future of our business and what we're going to deliver instead of how we manage COVID day-to-day. And I thought it would be useful perhaps to just reflect on where we've been and where we've taken the company over the last couple of years since we entered COVID. So first of all, the thing you've all observed and clearly have light is that we've been able to simplify and make the business more efficient. And it's easy to observe and it's important -- obviously, there are more important things to our long-term future, but I'll spend a minute on simplification. We've been able to use our push for new technology solutions, our push to reorganize the company in a more single-goal fashion. We've optimized third-party spending and tools and many things, and we've become a much more efficient enterprise, in fact, today. And I should mention, as you know, we've also shut down or sold off certain businesses that we believed were noncore. As a result of that, we're running the company now with roughly 10,000 fewer people than we were at the end of 2019, which is a great credit to the people who are here, who have driven a ton of hard work towards that goal of really running the company in a smarter, more efficient, better way. So that's been the big push there. And I would say that as we still face challenges of hiring people. We're like all the tech companies, but we have had a great influx of terrific talent. I think that momentum is increasing. And that mix with the great talent we have has really created -- put us in a great position as we move forward. And as we start to move to really being focused on delivery of new tech, new experiences and improving the traveler experience as our core fundamental goal. But as I say, efficiency is not the story here. Efficiency is a great thing we've been able to achieve, but the real story of our future is about what we're doing to drive the business forward. So just to break that into a few parts. On the demand front, as you know, we've combined our multiple brands working in silos into one unified house of brands with a singular focus on driving travelers to the right product at the right time. This strategy is built on superior creative, making the brands make sense together, buying together in an efficient way and, of course, using performance marketing along with brand to really drive a more efficient way of bringing travelers into our universe. We believe we are well on our way to that journey. Hope you enjoy our Super Bowl ads in a few days. I think they're terrific. But it is a unified strategy that's about really delivering end-to-end, a great demand generation strategy that is efficient and we believe can drive better outcomes in the future for us. We also believe, as you know, that loyalty will play an important role, and we are bringing our loyalty programs together. And that will begin to take shape over the course of the year and I think, pay dividends for years and years to come, and we're excited about that. On the technical front, now this has really been the heart and soul of what we've been working on, which is getting to a singular platform so that we can drive a velocity of innovation for travelers and for our partners and really take travel to the next iteration for the online app-based travel business. We've been on this journey for a while. We've talked about how we're moving multiple stacks into a single stack. That's more than just like efficiency story or anything else. It's really about building it at a set of micro services with APIs that can be externalized and can more easily be used internally to drive these great outcomes for our travelers and our partners. And when I say travelers, I really mean all travelers because for the first time as we build this out, we will be able to create innovation in our stack that impacts all our travelers, our B2C travelers, our B2B travelers all in the same moment. So when we make an improvement in the checkout path or we make an improvement in the app, all those benefits will enure to the traveler wherever they come from, and it will be able to drive real impact instead of the siloed way we used to have to work our way through it. So I think it's a really important step for both how we run our business, how much innovation and velocity we can bring to the travelers and partner experience, and frankly, just generally, how we innovate and drive the entire industry forward. We're really excited about what's coming. It's a big year of delivery for us, but there are amazing things coming, we think, for the traveler, from the discovery elements to the service elements and everything in between. And again, that will enure to the benefit of all travelers in our ecosystem. And finally, on the B2B side, which is really now an amalgamation of our B2B partners who drive demand and our partners who bring us supply, and more and more, we see that as one universe. We combined those teams into one group that essentially can have a 360 relationship with any partner, and therefore, any partner can benefit not only from selling into our platform, but also taking services out of our platform. And we think that approach is going to be really powerful. We've kept very close to our partners over the pandemic. Obviously, we've kind of shared challenges and opportunities. And we've renewed a lot of deals across lodging, air and car. And most of these deals have come with expanded capabilities where we've delivered more for our partners and we believe help them drive their own businesses to better outcomes. We're excited about this partnership approach. It's no longer just about supply or just about can we drive them in, it's really about can we make our partners' businesses better, and we're keenly focused on that. So to close, I'll just say we never count COVID out. We've dealt with a fair number of body blows over the last couple of years, but the industry has proven and resilient. I think demand has proven even more resilient, and we expect a significant rebound. And while we're excited to rise the rebound, the important thing for us is really delivery. We have to deliver on all the promises we've made about how we're going to improve the product, traveler experience and how we're going to continue to run an efficient and effective business. And I would just say, ultimately, we believe in the reigniting of travel. We think we're going to play a central role in it. We're not intended to just sit back and ride it. We want to be important in driving the future of the industry. And we believe we can bring that not only to travelers, not only to our own business, but to the entire travel ecosystem, and that as well we will be focused on this year. And with that, I will turn it over to Eric.

Operator:

[Operator Instructions]. Our first question today comes from the line of Kevin Kopelman from Cowen and Company.

Peter Kern:

Yes. Thanks, Kevin. Well, I'll say a couple of things. First, this is an ongoing effort. As recently this quarter, we just revamped our Expedia loyalty program to create a construct that we think is better for travelers and kind of directionally in where we're headed more broadly for a loyalty program. But there is a lot of migration going on. We're migrating the old stack, as I talked about. We're migrating the brand front ends onto one set of rails. And we are rebuilding our loyalty platform to accommodate one broad loyalty construct that can serve all the different brands. And so the big difference that's coming is really that the loyalty program will cover all our brands, all our products, and you'll be able to earn and burn across all of them, which is a great innovation. All the research shows that it's the most important thing to customers is having the breadth of products. And so we think it's going to be a great win for them. All the details are still being worked out on exactly how that policy and planning will work, although I think the Expedia construct is more or less in line with where we're headed in terms of how points work, et cetera. But it will take the better part of this year to get all those pieces lined up. And of course, a rollout of the loyalty program, including converting loyalty people over from one to another and adding it to front ends that haven't had it in all of those pieces, it's not just like you flip one switch. It's a switch after switch after switch. So I think it will take us the better part of this year to be -- really have the product where we want it and be starting to convert everybody over to it. But -- so I think next year will be the big impact here of the whole stickiness and totality of loyalty. But I think it's a big year for us as we build into it. And hopefully, we'll be moving some of the program over that in the course of this year.

Peter Kern:

Yes, sure. Well, I think, look, there's a lot of benefit in that for us in the sense that historically, big cities and international have been an area of strength for us relative to some of what we've seen during COVID like domestic travel into tertiary markets, et cetera, which have been historically weak. On the other hand, we benefited greatly. Vrbo has been super strong. It's benefited from the leisure travel and the longer-term travel of vacation around, some people liking that during COVID where they can isolate with their families, et cetera. So it's a little tricky to predict. But I would say broadly, the stuff that's left to come in many ways favors our strongest areas. So I think that's positive. But the mixes have been hard to predict over time. And so I don't want to get too -- get too much into prognosticating, but I think we've got some good runway ahead in where the puck is going. Mixed 2 metaphors there. But -- and we feel good about that. You never know what the back-end unintended consequences are, but I think being positive now and with everything that's left to come is making us feel pretty good.

Naved Khan:

Great. Two questions, please. Maybe just one on the comeback in travel. As it continues to build in '22, how do you see the mix of direct versus paid traffic coming to your platform? Can you maybe just touch on the opportunities between the different levers that you have to pull between CRM versus branding versus performance channels? And then maybe just another one on capital allocation. So you continue to deleverage and also you have kind of gotten preferred out. How do you kind of see the scope for M&A opportunities here and maybe other use of capital, like share buyback? Just maybe talk about that a little bit.

Eric Hart:

Great. And I'll take the second part of the question around capital allocation. I know we've talked about it in previous quarters and I think our message remains the same. We are keenly focused on cleaning up our balance sheet, if you will, given the disruption that we've experienced over the last couple of years. That includes delevering the business. We've talked about the preferreds that we paid off. We've talked about the Eurobond we're paying off, and we're going to continue down the path of delevering which, of course, can take the form of growth in the underlying EBITDA, but also -- and pay down debt as appropriate. We want to lower the cost of capital as well. In my prepared remarks, I talked about a couple of areas where we are quite significantly reduced the cash flow required to service, whether it's the preferreds or different debt instruments. We're keenly focused on maintaining investment grade and quite proud that we've been able to do that over the last couple of years given the amount of disruption that we've had. And then a slight other lens on that as well is, if Peter's talking about the growth opportunities ahead of us and the opportunity for the company and want to make sure that we are enabling that as best we can so that we can go as fast as we can in achieving that vision. Specifically on 2 components that you mentioned on M&A. We're always open for business. Even during the heart of COVID, we were open for -- to business to a certain extent, but obviously, that wasn't necessarily the right opportunity or the right time as things coming up, but we are looking at different opportunities opportunistically and a few themes that we're thinking about. And then on buybacks, I think you can look at our long history. It's something that we have done regularly and consistently. I fully suspect that we will get back to that at the right time and something that we will think about over the coming months. But again, we're going to observe COVID. We're going to clean up the balance sheet, if you will, and all the components that I've talked about, that's where we're focused right now.

Operator:

Our next question today comes from Eric Sheridan from Goldman Sachs.

Peter Kern:

Sure. Thanks, Eric, and I hope you're well as well. We -- the way I think you should think about it is this, we have -- as I mentioned, there's a lot of work still going on in building the platform to getting the platform right. When those things are right, they will drive further efficiencies. So when you say we've exited the program, it wasn't like a program with a goal that we ended and said we're finished. This is an ongoing drive for us to create the most efficient enterprise we can, which is not about taking people out, it's about being efficient in how we work, what we work on, how technology aids us, et cetera. There are lots of places where, for example, I'll give you one, service. We continue to build the best service technology, I believe, in the industry and scale it consistently. We are building skills across the enterprise, so the customer is getting service their own issues themselves and easily. It's an ongoing process. But the benefit of the efficiency borne of those improvements has not really been seen because COVID has had this enormously elevated service demand on the industry. So as we normalize out to historical propensities for service calls, et cetera, et cetera, there is real benefit down the road on how we do that. Now you alluded to there are places we are "investing" in. I mean that is really just our way of saying we are pushing to drive this innovation and drive us across these bridges as quickly as we can. And if we have -- if we need to invest more in people and resources to drive some of this innovation, we will do it. But the innovation in and of itself will drive incremental efficiency. So I don't think this is a long-term like -- this is a long-term sideways to down -- or I should say, expanding margin story, we believe, driven by the technical efficiencies that the product will drive. And if there's some bumps in the road as we get there, we have to flex up to drive on innovation faster, we may do that because we think it's the right thing for the traveler and for our partners. But overall, there's still much more opportunity to become more efficient over time for margins to expand, and we believe that's what we will continue to drive towards.

Lloyd Walmsley:

Two questions, if I can. First, any update on just the marketing integration consolidating data and ops into a unified group, like any early learnings there? And then secondly, can you kind of help us parse out the strong ADR growth? Like how much of that is a function of HomeAway growing in the mix? And I guess, more importantly, like what are the puts and takes of how you see ADRs migrating over the course of the year? Like is this still a big tailwind because like-for-like channel pricing is going up? Or there's like a shift back to core hotel to offset that? Like how do we think about ADRs over the course of the year?

Eric Hart:

And on the ADR side, I'll give a sense for a look back and then a look forward. Obviously, I won't go into the details, but to help you frame it. When you think about the historic -- core ADRs, they continue to be strong across both hotel and Vrbo. I think you can see that across some of the other industry companies or metrics. And then our mix, in particular, has benefited from more weighting to the U.S., more weighting to Vrbo, more weighting to vacation destinations where there typically are higher ADRs. So our high ADR performance, if you will, is a mix of both core ADRs and the mix that we've had over the last quarter and prior to that as well. Moving forward, we do expect core ADRs to remain strong. We think this is going to be a strong rebound travel year. We obviously have lots of bookings already going into the summer period where we can see the ADRs are holding up quite well. And -- but I do think you need to look at when you look at the -- take the core into the projection of our business. Presuming some of our other areas of our business come back, it's still going to be a mix. We're going to go into some primary markets that have some higher ADRs. We're also going to mix into Europe a bit more, particularly APAC when it starts rebounding, LatAm, so on and so forth, more in the hotel and presumably Vrbo, not predicting any degradation in Vrbo but just from a mix perspective. And so as you project that ADR for us, I expect that will normalize to a certain extent over time. But again, it's on the back of 4 underlying strong medias.

Justin Post:

Great. First question, can you help us at all with summer booking pacings, whether lodging or in total, versus either '19 or last year? And then second, I don't know if you can help us at all, but just thinking about Vrbo as a percent of the total. I imagine it's grown a lot over the last couple of years. But if you could help us think about where that could be today.

Operator:

Our next question comes from Deepak Mathivanan from Wolfe Research.

Peter Kern:

Yes. Thanks, Deepak. I'm glad you find it tricky, too. We also do given everything that's moving around. And as I mentioned, it's one of the challenges in trying to quantify for you or anyone or ourselves exactly how much progress we've made in terms of marketing efficiencies because the traffic patterns are so volatile, mix is so different, et cetera. I mean you just take something like air as an example, the air market has changed considerably. It's largely domestic, very relatively international. We've historically been strong in international. We've improved how we're approaching it, as you say, across our brands. We've consolidated spend. We've learned a lot about the multi-brand approach, but it hasn't really paid off yet in, for example, international air because there's just not much of it. So the short answer is, we made a huge amount of progress as I said, in terms of tools, in terms of data, in terms of insights, in terms of being able to test and learn across a much broader swath of our enterprise. But being able to quantify really how much better it is in basis points or something that would give you a projectable marketing efficiency is still very challenging. We believe it's much better. We believe we are in a much better positioned to capitalize on the future state of normalcy. But there's no question the tools and the capabilities are in a much better place, but we have to pay that off and demonstrate it to the world and ourselves. And it's in process, but it's going. So I think we feel very good, but we acknowledge it's difficult for you all to see it. And we're just going to have to wait for things to normalize, so you can see the benefit.

Operator:

Our next question today comes from Stephen Ju from Credit Suisse.

Peter Kern:

Yes, sure. Thanks, Stephen. I would say we are still building to it. It is a core part of our plan. And by the way, it's not simply so that we can provide it to our own travelers. It's also so that we can provide it to our B2B partners so that they can provide it to their travelers. So it's a quite interesting and substantial opportunity, we believe. We do have it integrated. It's not a great integration, but we do have it integrated into Expedia and Hotels.com. The issue has been, it only works among other things, not being a great product experience is what -- the main thing we have to fix. But also, it does not have an approach that works for the properties that you have to reserve and then we have to -- they're not instant, the ones where we have to go to the owners and see if they are located for the booking. That is a construct. That is not part of what is currently possible in the Expedia brand or the Hotels.com brand, et cetera. So it's kind of a 2-part thing. One is we want to improve the product experience for the traveler and make it a better integration, make it easier to book, make the content more usable, easier to understand, so the travelers can make the decisions. And then we want to expand the universe of the type of properties that can be available through those pipes. And that is where the big -- where another big expansion and the idea comes. Those are both in the works. They will take some time. I would say they're not our highest priority, but they're far from our lowest priority. They're big, important thing. We have teams working on it, and we will -- we expect to continue to see improvement. We have a lot happening on the front end of the product this year in terms of integrating a number of our brands to the same front-end rails and a lot of opportunity to improve those experiences and roll out a new construct, et cetera. So all of those -- you have to obviously, I don't know, operations question, but as those things roll out, this experience will get better and better, and we believe will become a bigger feature of the business.

Mario Lu:

First one on cancellation rates. I believe the lodging numbers you provided earlier was [indiscernible]. So I was just curious, was it much higher in 4Q and early in 1Q due to Omicron? And if so, do you think those that cancel could potentially be a tailwind to future bookings?

Mario Lu:

Great. And then just second question in terms of remote work and longer duration stay, the lodging side of business. Have you guys seen that kind of drive bookings already at Vrbo or even the core business? And then how long is the opportunity do you think that is in the long term?

Operator:

Our next question comes from James Lee from Mizuho.

Peter Kern:

Thanks, James. Appreciate the questions. I think on the first question, which is supply in major cities for Vrbo, it's never been a great strategy of ours. It's never been a huge focus of ours. We do have some in some big international cities. Again, I think much less for the one-night stay kind of thing and much more for the family vacation, that sort of thing. We think there's opportunity there, and we will continue to follow the demand trends. And as I've mentioned, we've been focused on not just sort of buying supply across the universe in everything and really being much more targeted and where the demand is and where we can get return for the homeowner. So we'll continue to do that. But Vrbo is not in the same way like some of the other choices focused on being a replacement for hotels in cities. We have a lot of great hotel partners in all the major cities of the world, and we see them coming back more strongly, and we think that's where the business is going to be for now. Of course, we want to continue to expand Vrbo wherever it makes sense and that we'll certainly look at cities where it makes sense. As far as the brands, I would say this, it's on the brand team to figure out the best way to consolidate the brands in a construct that makes sense for the traveler. This isn't a construct that makes sense for us or we think it's cool, it's about what makes sense to travelers and why and how they need different products to do certain things. If over time, we conclude that we need fewer brands. I'm not sure it will be all under one, but we may conclude we need fewer more certainly, that we're going to lean into fewer, if that makes sense, we will do that. But that's what the brand team is working on now. We've got new brand propositions for all our major brands rolling out soon. And I think over time, we will figure out what is right for the traveler. And certainly, as we integrate our loyalty programs, it is going to bring the brands much closer together and put us in a much more simplified position to decide whether fewer makes sense, et cetera, and have everybody still caught up in our web of loyalty and all the good things and good products we bring to the market.

Jed Kelly:

Great. Nice work over the last 20 months. Just 2 questions, if I may. Just how should we view Expedia relative to the Google risk going into '22, which is looking like a nice demand environment relative to 2019? And then Peter, you talked about you really can see nice margin expansion longer term for Expedia. Do you have like a long-term margin target you guys are kind of shooting for above 25%, 30%? Can you help us there as well?

Operator:

Our next question comes from Tom Champion from Piper Sandler.

Peter Kern:

Tom, it's Peter. I'll go first. In terms of cohorts, again, I think it would be a mistake to draw too much from anything that's going on right now. As I mentioned, patterns are much different, the volatilities and ebb and flow of cancellations and other things are much different. What we're more keenly focused on is looking at cohorts in terms of engagement with the app, how that changes as we make improvements in the product, et cetera. I think there, we're seeing the directional things we hope to see. We have a lot, a lot, a lot more to deliver. So it's early days, but our focus is really on that. I don't think we've seen any new patterns that are either alarmingly good or bad in terms of how travelers act, how many of them go on to the Google and Meta world versus come direct. I mean, direct -- most travel companies benefited from mix to direct, but that was only because there was less demand in the open seas. I think as demand continues to rise, there's not really any reason to imagine that, that will be greatly distorted except for the example, we do a good job of, again, getting travelers to the app, getting them locked into our ecosystem, getting them understanding the benefits. So that's what we're focused on. And I think anything else, frankly, to -- it'd be wrong to draw any conclusions based on the volatile times we've been in. So we'll see as things normalize, but we'll let you know if we see that.

Operator:

Our final question today comes from Richard Clarke from Sanford C. Bernstein.

Peter Kern:

I'll take the first one, and then Eric can cover the marketing costs. Thanks for the question, Richard. I would say you could have made the same argument during COVID when there was compressed demand in a number of places. We did not see what you're alluding to in terms of suppliers playing off. I think, as I said, we have a common challenge. We're all working together for every hotel in Miami, there's another one in New York that was suffering and many big chains, et cetera, hundreds of hotels across good and bad markets. And I think we're all in it together. As I said in my beginning remarks, we're in it to try to help them optimize their business as much as optimizing ours. And I think there is definitely a shared sense of we can all build this better together. So I think there will be a lot of demand if there will be some compressed places. I think there will be enough places to go that the demand will find an outlet. And I think we provide unique services in terms of people being able to find things, discover where they want to go, find alternatives, et cetera, and provide a great value for our supply partners, including the many things we do for them beyond just allowing them to supply on our platform or with the partners in demand generation of other products or technology, et cetera. So I think it's my sincere hope that our supply partnerships or our partnerships more generally are going to get bigger and broader and more beneficial to both sides over time. And this isn't going to be the classical site for who's got a little leverage for the last nickel on a given day. So I don't think we'll see that. I think we'll see everybody trying to benefit from the upward trend and riding it together. And some of our partners will get their direct traffic. We'll get our direct traffic and everybody will do the best they can with those travelers. So that's what I expect.

Operator:

Those are all the questions we have time for today. So I'll now hand back to the management team for any concluding comments.

Operator:

Thank you, everyone, for joining us today. This concludes our call. Please disconnect your lines.

Operator:

Good day, everyone. And welcome to the Expedia Group Q3 2021 financial result teleconference. My name is Johnny and I'll be the operator for today's call. [ Operators Instruction] For opening remarks, I will turn the call over to SVP and CFO Retail, Patrick Thompson. Please go ahead.

Peter Kern:

Thanks, Pat. Thank you all for joining us today. Eric and I will make some brief comments and then of course, take questions. Let me begin by saying we're very pleased with the quarter we had in Q3, nearly matching our adjusted Net Income and EBITDA from 2019. But I would add that if not for Delta, this would have been our most profitable quarter ever, and I think it's a tremendous milestone for the Company to be here while we are still in the throes of COVID and still coming out. And a testament, really, to the work we've done to simplify the Company, to focus on technology, and to run the business more efficiently. And with that performance and what we're seeing in the market, we have the confidence to further pay down our preferred stock, which we did a few weeks ago as you would have noted. On which of course is not a big milestone for us putting COVID behind us. As far as the trends for the quarter go, I'll do high-level and Eric will give a little more detail. We went into the quarter following a strong Q2 and good momentum. But as we remarked last quarter, Delta had begun to have impact. We saw it impact cancellations, we saw it impact booking trends. But as we got through August and into September, the Delta fears particularly in the U.S., began to wane and we ended stronger in the back half of September and that has continued through into the fourth quarter with even greater strength. We've seen improvement across all segments, really. Well, we heard domestic have led even though segments which have been harder hit by corporate and international travel have been coming back. Cities have been returning as well. And so all-in-all, it's been a broad-based recovery, but it has been led obviously still by Weezer and domestic travel. And for us, Vrbo has been a particular highlight and beneficiary of that. Few highlights on Vrbo, since you've always asked. We've seen a strong share growth in our focus markets. And in particular in the U.S., about half of our customers so far in 2021, more than half have been new customers. We expect to book in excess of $2 billion of earnings for new Vrbo hosts who came on the platform this year. And looking ahead, we are already seeing better bookings for next summer than we saw this time last year. So, the trends continue to be quite strong there. And while the story will continue to be impacted greatly by mix effect, which I talked about before, we are feeling more and more confident. And as international vectors open up, which you've no doubt all read about, this is a particular strength of ours historically, and we think again that is a mix effect which will generally benefit us. And COVID recovery of course remains somewhat bumpy and as unpredictable, to say the least. But we're feeling good and at every turn we are seeing demonstrated that when people can travel, they will travel for business, for pleasure, and everything in between. And we are looking forward to seeing the rest of our business return. In terms of some of the details in the business on the marketing and brand side, our focus continues to be on bringing customers efficiently back to the platform and retaining those customers for the long term and building those long-term direct relationships. Obviously, the better our product is, the better our customer experiences and the proposition, all those things add to that direct relationship and we're feeling confident about the work we're doing on all fronts. But marketing, of course, is the typical sphere. And with our new focus on being a family of brands, we have launched -- announced that we will be launching one loyalty program which will actually cross all our brands and all our products. We think it will be the most powerful loyalty program in the industry. And we're really excited about bringing that extra usability and an added value to our customers through that loyalty plan. Because when we get to a place where people can use it across all brands, across all products, we think that just adds tremendous value to the customer. And you should expect to see us do more of that. We will be looking for more ways to unify our brands in a united front of bringing value to the customer in every way we can. We spent the better part of the last 6 quarters building out the organization. And in particular, in the last few months, building our creative organization. We've improved, as I've talked about before, all our performance marketing tools and technology. And we're very excited about our position right now. But we went into the third quarter and specific with a much more aggressive posture. Delta hit, we have -- we've pulled back somewhat. And now again, that we are seeing things growing and recovery building again. We are winning back in. We intend to go on the offense with all the new tools we have in our arsenal and our marketing group. And we expect to go on offense and expand share across the world. On the B2B front, which we haven't talked about a lot in the past quarters, I just want to highlight a few things here. We brought our groups together as I remarked. Last quarter, our supply team and our business we have called Expedia Partner Solutions, which is a business we have used to power other partners in the travel industry. We brought those together, officially on the last few months, and we're seeing lots and lots of opportunity for those businesses to build on the relationships we have with our supply partners, with our B2B partners and find increasing ways to drive their business and drive their success on our platform. But in particular, UPS itself has done well even during COVID. We've won wallet share with our partners. We've had many new signings. And for the first time in late October, we actually booked more business than we did in 2019 in that business and that has continued into November, so great signs there. And then finally, on the Egencia front, you've all seen earlier this week, we announced the conclusion of our transaction with Amex GBT. We have merged Egencia and the Amex GBT. We will retain a significant equity interest. We feel really good about that corporate. We believe this will become -- coming roaring back. And Egencia even during this time of transition had its highest signings this year that it's ever signed in terms of new clients in the first-half. So, lots of good signs there. But I think that deal is also emblematic, as I said before, of our desire to power more of the industry. We want to power Amex GBT with our Expedia Partner Solutions business, with our technology, with our supply, and that is something we will continue to build on as the months and years unfold. So very exciting. And I just want to thank the Expedia team who did a tremendous job building that business, getting it to a place where we could find such a great transaction, put it together with someone else, and in working through the time we had during the transaction and doing just a terrific start. So, I thank them, Expedia team, in getting to help closed that transaction. And then finally, while I've talked a lot about technology in the past, and I will see this brief. I am as excited as I've ever been since I started about a few months ago about where we are in terms of our technology evolution. We certainly have a lot of work left to do, but it can't be understated the importance of finally being aligned on our technology, on our roadmap, on our architecture. We have one plan and everybody is rowing together and our velocity is increasing. And I think delivery, most importantly, the customer, will increase along with it. But just for clarity on the front-end, we're focused on being at first, data and design driven and focused really on personalization and using all the data and machine learning and the opportunity is great, better and better experience for the customer and for our suppliers. And on the back-end we're really re - architecting everything. As I've talked about, we've moving from this many technical stacks to one stack on one pool of data that serves all the outcomes, all our partners, all our customers and it's really getting exciting. And finally, I just want to say this moment for us is really important as we move into 2022, getting all of this aligned, getting the work streamlined, getting everybody on the same roadmap is a really powerful opportunity. And it reminds us that we're finally getting to what we wanted to be getting to which is delivering new value to the customer. We've been internally focused for a lot of COVID. COVID was a tough thing to get through. But we are now in a position where the entire Company is aligned. We can see the light at the end of the tunnel in terms of COVID and the opportunity to innovate for the customer and bring great new products and value are really exciting to us and we're looking forward to doing that. And with that, I will pass it over to Eric.

Operator:

Of course. [Operator Instructions] Our first question comes from Naved Khan of Truist Securities. Naved, your line is now open.

Peter Kern:

Sure. I'll go first and Eric can take on the cost issues. I would say we're still working towards a better marketing world for the Company overall, which yes, means more efficiently being able to get customers. But it's a many pronged attacks. It's the performance marketing issues that I've talked about before. We have come a huge way in terms of the tools, the data and the algorithms, etc. But COVID has been a bumpy time and we have not found normalized time to really get everything tuned exactly how we want. So yes, we believe there's opportunity ahead to that. We also believe there's significant opportunity for our brand teams to really be much more impactful than they have historically. And that has impact not only on driving direct customers, but it has impact on how people respond to performance marketing, and other things. So, there's many places where those teams can have more impact and ultimately be more efficient in attracting customers. But it's not entirely on that, right? We've got to build better products. We've got to have better engagement circles with the customer. We've got to improve our service every -- we need to improve in every part of our game to continue to make the customer stickier and bring them back and want them make this their phrase to come for travel. So, marketing can be more efficient, but it's really a virtuous cycle and how we've streamed marketing together with the experience. And with the new efficiency, the second question goes to all of that gives us more opportunity to reinvest in more profitable long-term customers. They create a long-term value for the enterprise.

Naved Khan:

Thank you, Peter. Thank you, Eric.