Expedia Group Q2 2021 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2021

Key Takeaways

  • Expedia delivered meaningful sequential improvement in Q2, with revenue down ~33% vs Q2 2019 (improving from ~52% in Q1) and a step up in bookings, notably in June as domestic travel rebounded.
  • Vrbo’s deferred merchant bookings reached $4.26 billion, driven by strong growth, supply compression in key destinations, and longer booking windows, indicating robust demand for vacation rentals.
  • The company continued simplifying its portfolio by agreeing to sell its HMC (Egencia) business to Amex GBT—retaining a minority stake and securing a 10-year lodging supply agreement—expected to close in 2021.
  • Expedia made significant cost and margin progress, reporting $201 million in adjusted EBITDA, $1.8 billion in free cash flow (excluding restricted cash), and maintaining $5.5 billion of cash plus a $2 billion revolver, with Moody’s upgrading its outlook to stable.
  • The Delta variant and varied government restrictions introduced volatility in July, with international and corporate travel still muted—especially in APAC and major cities—making the full recovery timeline uncertain.
AI Generated. May Contain Errors.
Earnings Conference Call
Expedia Group Q2 2021
00:00 / 00:00

There are 9 speakers on the call.

Operator

Hello, and welcome to the Expedia Group Q2 2021 Earnings Call. My name is Emma, and I'll be the operator for today's call. I'll now hand over to SVP and CFO, Retail, Patrick Thompson. Please go ahead.

Speaker 1

Good afternoon, And welcome to Expedia Group's financial results conference call for the Q2 ended June 30, 2021. I'm pleased to be joined on the call today by our CEO, Peter Kern and our CFO, Eric Hart. Following Discussion, including responses to your questions, reflects management's views as of today, August 5, 2021 only. We do not undertake any obligation to update or revise this information. As always, some of the statements made on today's call are forward looking, typically preceded Please refer to today's earnings release and the company's filings with the SEC for information about factors which could cause our actual results to differ materially from these forward looking statements.

Speaker 1

You will find reconciliations of non GAAP measures to the most comparable GAAP measures discussed today in our earnings release, Which is posted on the company's Investor Relations website at ir.xpediagroup.com. And I encourage you to periodically visit our IR website for other important Unless otherwise stated, all references to cost of revenue, selling and marketing expense, general and administrative And technology and content expense excludes stock based compensation. And all comparisons on this call will be against our results for the comparable period of 2019. And with that, let me turn the call over to Peter.

Speaker 2

Thanks, Beth. Good afternoon, everybody, and thank you for joining us today for our Q2 Earnings call, I'll be relatively brief and then Eric will take over and we'll take some questions. I'll open with saying that in general, Q2 was quite strong and a major improvement on Q1 and we were pleased With the progress we made with particular strength in North America and the U. S. As I've said before, the market has been driven by a lot of COVID related changes in patterns, domestic travel has been stronger, VR stronger, whereas international Travel, corporate travel, even big city travel has been relatively muted comparatively.

Speaker 2

The good news in That is that we find ourselves in a relatively stronger position in the U. S, our largest market and the largest travel market. But in places like APAC, where we have a largely international business, that obviously has not responded as quickly. So as we look across Our performance, there's all those moving parts in the mix. And together, what that delivered in the second quarter was Generally improvement in the April, May time period and another step up in significant step up in June, not unlike what we saw in the first Quarter with a step up in March.

Speaker 2

July has been impacted somewhat by Delta and the Delta variant and we've seen some Backwards movement in July, but in general still relatively stronger performance compared to earlier parts of COVID. As As it pertains to travel patterns, I think it's important to keep in mind that obviously we don't know where Delta is going. Places like Australia have had shutdowns, whereas other parts of the world, including parts of EMEA, things are opening up somewhat more. But there's a lot of unknowns, including in the U. S, and we're starting to see some of that percolate through cancellation rates and more volatility in the numbers.

Speaker 2

I I think it's also important to keep in mind that as we move into the Q4, where traditional trends would have had leisure Coming off and corporate coming up, etcetera. There's remain a bunch of unknowns across the globe in terms of back to school, back to work and how people will travel In this portion of our COVID times. That being said, as we focused on marketing, Q2 was obviously a time of relative strength and we aggressively pushed into marketing. We saw the opportunity to get in front of the building momentum in travel. And as we've talked about before, we have a long term goal of building more brand recognition and pushing more into brand Creating longer term relationships with customers.

Speaker 2

Performance marketing on the other hand remains considerably volatile, especially as we've seen Cancellation rates more recently growing slightly. So we were relatively leaned in in Q2. We That to be gleaned in Q3, but with a bias towards brand building for the long term margins of customers and we do believe Whenever COVID subsides in a way that gives people real comfort, there's so much pent up demand that travel will Outstrip anything we've really ever seen before around the globe. And as we move into the brand building, I just want to emphasize that this is an area We felt there was opportunity to be stronger. John Bezelman joined us in the middle of the quarter.

Speaker 2

John, it's a great talent coming to us from Apple. He is a terrific brand builder. And brand and performance When they work together, we have to really define and build our brands and I've talked extensively in the past about rationalizing the brands, making them work together And allocating capital appropriately and with great confidence in what John will bring and has already brought to the organization. Likewise, on the tech side, we brought in a new CTO, Raffi Murphy from Verizon Media. This again, as an emphasis, I've spoken about this several times, but We have to be a technology first company and to do that we need great technology leadership.

Speaker 2

Rafi brings a world of experience to us. And as we move from our multi stack, multi domain enterprise that we've had historically into one platform That can serve with all our brands and all our business partners, it was really important to have great technical leadership across the organization. So I won't belabor every technical gain, but we are making real progress. We have plenty of work still to do, but we are feeling quite optimistic So in general, as we watch COVID play out, We're focusing really on investing in our technology and people, organizing our brands and allocating appropriately among them, simplifying our business and of course maintaining the rigor we've had around driving margin improvement. And more broadly, we believe that as vaccines continue to roll out across the globe, that will bring greater security, greater comfort and greater willingness Travel, but the road may still be bumpy for a while as we watch all the variants play out and various government responses to them.

Speaker 2

I'll just close by saying we launched today something very important to us that our employees are passionate about, which is A partnership with UNICEF wherein we will drive for every app transaction we have In the company, we will donate to UNICEF to drive vaccination into the developing world. It's clear that Not everyone has the access that the Western world has to vaccines. And it's our view that until the world is more fully vaccinated, We really can't expect travel broadly to be back to normal. So we believe in the movement. We believe in the equitable distribution of vaccines.

Speaker 2

We want to drive that for all the obvious societal benefits and ultimately because it's good for our long term business goals. So with that, I will turn it over To Eric, thank you.

Speaker 3

Thanks, Peter. In early 2020, I outlined multiple areas of focus, and I want provide updates on all of our businesses around driving margin expansion through better unit economics. And since that time, we've made significant progress reshaping Our cost structure through the fixed and variable cost initiatives we've outlined in detail on previous calls. Another major focus has and will simplifying our business to help enable the company to move faster and also ensure we're focusing on the most attractive opportunities for future growth and profitability. This has Included selling or shutting down businesses we viewed as non core to the business going forward.

Speaker 3

To put this into perspective, since the beginning of 2020, we have either shutdown or sold 8 businesses, and these simplification efforts have continued with the sale of Aldis last month, which I would point out will have an immaterial impact to our financials. In addition, in early May, we announced the binding offer from Amex GPT to acquire our HMC business. Since then, we have been diligently working different aspects of the offer, and this week, we officially accepted GBT's offer. Based on where things currently stand, including all relevant regulatory authorities have Clear the transaction and all relevant employee consultations have been completed. We now anticipate closing the transaction during this year, 2021.

Speaker 3

As a reminder, the deal includes 2 major pieces we outlined last quarter and we remain very excited about. First, we will have a minority position our ownership position in the combined business. And second, we will also enter into a 10 year log in supply agreement between Amex And the DPS. Finally, this deal further illustrates the continued progress on simplifying our business. Now shifting to the P and L.

Speaker 3

On revenue, total revenue was down approximately 33% versus Q2 2019, Which was a meaningful improvement from last quarter with revenue down approximately 52%. We saw continued strength from Vrbo and improving trends within our hotel business, While ADRs were effectively up across the board from last quarter. From a geography perspective, on a revenue basis, the U. S. Showed meaningful sequential improvement in Q2.

Speaker 3

EMEA revenue also improved and LATAM and APAC revenue remained roughly flat versus Q1. On our cost basis and overhead, we have significantly improved our cost basis versus pre pandemic levels, which is reflective on the considerable Progress we've made on the cost initiatives outlined in detail over the past 18 months or so. While we won't see full benefit in the financials until we return to more normalized business levels, We remain confident in realizing largely all of the fixed and variable cost savings targets by the end of this year. Overhead costs totaled Approximately $544,000,000 in Q2, an increase of approximately $40,000,000 versus last quarter, which was in line with our The increase sequentially was largely a result of the shift in compensation structure from bonus to salary, which took effect April 1 and we outlined on previous call. As it relates to sales and marketing, we increased our spend in Q2 driven by signs of other recovery, Although, total marketing spend was still well below pre pandemic levels.

Speaker 3

For Q3, we are balancing investing into the recovery to build our brands with recent softening trends in bookings That we've observed in July and that Peter mentioned, the net of all of this is we anticipate that we will further close the GAAP versus pre pandemic spend, although it will still be well below In total, adjusted EBITDA was $201,000,000 and included a negative contribution from Egencia, We showed some improvement, but continue to lag our retail business. We attribute the approximately $260,000,000 of sequential improvement adjusted EBITDA to typical seasonality as well as the improving trends we've mentioned throughout the call. On to free cash flow, which totaled Approximately $2,300,000,000 in Q2 on a reported basis. Excluding the change in restricted cash, which is primarily driven by the change in Vrbo's deferred merchant bookings, Free cash flow was approximately $1,800,000 Moving on to the capital structure. In terms of the balance sheet, we continue to be investment grade Today, I want to point out that Moody's recently changed our outlook to stable from negative.

Speaker 3

There is also no change in our financial strategy going forward. We remain Committed to delevering back to more historical levers at levels as the recovery continues to progress, while also continuing to look for ways to reduce our cost of capital, With the underlying goal to be in a strong enough position to restart our capital return program to shareholders. In May, given the positive trends we were witnessing combined with the confidence in our We paid down 50% of the preferred stock that we issued in 2020. We have the right to pay off the remaining balance And we're closely monitoring and intend to pay it off when it's prudent to do so. So that's again something we'll continue to watch over the course of That said, I remain confident in our liquidity position, which includes approximately $5,500,000,000 in unrestricted cash as well as a $2,000,000,000 untapped In closing, we're pleased with the further stabilization of our business in Q2 and remain optimistic about the future of travel and that it will come back as Peter mentioned earlier, and we like something that we haven't quite seen before.

Speaker 3

And with that, Emma, we're ready to take our first question. Emma, are you there?

Speaker 2

Hi,

Operator

Our first question comes from Naveed Khan from Truist Securities. Please go ahead. Your line is now open.

Speaker 4

Yes. Thanks a lot. A couple of questions. Maybe just one for Eric. If I look at the deferred merchant bookings, they're up 25% versus 2019.

Speaker 4

Reported bookings are down 26% versus 2019. Could you just maybe help us understand the gap there? What is driving the differences And the two numbers. And then I have a quick follow-up, maybe just on the simplification of the business. Are there other opportunities that you see on the horizon to

Speaker 3

How about if I take the first one and Peter perhaps you take the second one? So on the first one, we our deferred merchant bookings Balance was approximately $8,240,000,000 as of the end of June. And if you compare to June the previous year, it was approximately 4 point There was an increase in what we call the core deferred margin bookings, which is our more traditional or

Speaker 2

conventional lodging business. And that reflects,

Speaker 3

obviously, lodging business and that reflects obviously improvement on our I guess that's compared to 2020. So I think you'll see on the core business that it's largely in line with where the real difference is, is coming on the Vrbo side of the business That ultimately and remember that is restricted. So there's approximately $4,260,000,000 that's in that deferred Marshall bookings For Vrbo, and that just reflects the healthy growth that we've seen in Vrbo that we've talked about a number of times before. And I would say that there's no increased risk, if you will, on that core DNB relative to, I think, where we were in 2019.

Speaker 2

Yes. Thanks, Eric. And I'll just add now that in terms of continuing to simplify, I don't think We expect many more sales or mergers or those kinds of simplifications, but there continue to be opportunities for us To simplify how we do business and I think what I referenced about some of our new leadership, the opportunity to simplify how our brands work together, What we're doing on the technology side, we believe we'll continue to unlock opportunity for us, but it's not as simplistic Perhaps as a sale of a business or something like that. I don't think we have many of those left.

Speaker 4

Got it. Thank you, Peter. Thank you, Erik.

Speaker 2

Thank you.

Operator

Our next question today comes from Kevin Kopelman from Cowen. Please go ahead, Kevin. Your line is now open.

Speaker 1

Great. Thanks so much. Could you give us a sense of where lodging bookings shook out relative to 2019, Both in the Q2 and then what you're seeing in the Q3 quarter to date? Thanks.

Speaker 2

Yes. So I'll take a go Eric and Eric can add color. Basically, We saw, as I mentioned, a good step function improvement in the Q2, particularly into June, And we're feeling quite good about that. July started out a little down and as Delta has Relative to June and the delta has reared its head, we've seen some more volatility and July is sort of in line with the earlier part of Quarter of the second quarter. So hard to tell how the rest of Q3 will shake out.

Speaker 2

It's been very responsive to The new cycles, but we're obviously optimistic that more openings opening to international vaccinated travel, etcetera, We'll create more opportunities, particularly, as I mentioned, in the international business, which has been a relative strength of ours. June was the high point. July is looking a lot like April and May.

Speaker 3

Yes. And then in regards to Vrbo in particular, we're not going to go into detail, if you will, on the trends in Q2. But as you think about it going forward, The business continues to perform well. It should be excited about it. We're seeing terrific consumer engagements in it.

Speaker 3

And one of the things We are seeing is that there continue to be longer booking windows associated with Vrbo. And as we project forward in Q3 and beyond with those longer bookings. Our hypothesis is that people have been exposed to the category. They've had a great experience. They're looking to book again.

Speaker 3

They also saw compression that was occurring particularly during the summer. So people are going in And reserving the house that they want for whether it's the holiday season or even into next year as well. So again, Time will tell in Q3 and Q4 going forward what seasonality looks like in the state of the world that we're in, but we continue to see some really interesting trends from longer data bookings

Operator

Our next question today comes from Mark Mahaney from Evercore ISI. Please go ahead, Mark. Your line is now open.

Speaker 5

Okay. Maybe I'll try to 1, I just want to ask just a numbers question. Sales and marketing as a percentage of revenue, and I know this is a shortcut, but It was higher in the June quarter than we've seen in quite some time. I think it was the highest we've seen in the June quarter in several years. I know you've gone through a lot I think Peter, I think the expression you used was volatility in performance marketing.

Speaker 5

So just talk about how illustrative the June quarter was in So the optimization that you want out of your brand and performance marketing spend, you look at that number and you say, well, that's the opportunity and or did those Did that level of sales and marketing spend come in largely as you'd expected?

Speaker 2

Sorry, go

Speaker 3

ahead. Yes. Peter, maybe I'll just give a little bit of context. I think one of the things to keep in mind, Mark, is that Remember that our revenue is on a state basis and oftentimes our marketing spend is generating bookings that we're not going to get revenue for in So another period, if you will. And as I just talked about on the Vrbo side, we're continuing to see very long booking windows as a higher mix of our overall transactions.

Speaker 5

So So it is

Speaker 3

quite difficult and we're seeing other shifts and booking windows across different products as well. And so being able to compare quarter over quarter to Again, historical quarters, it is quite difficult. So I just caution you that that simplified form that you admittedly said was simplified. We have to be a little careful of that because of those booking windows looking around and the difference between marketing spend, booking and stay dates. Fair enough.

Speaker 5

And then the second question is to do with go ahead, please.

Speaker 2

No, no, go ahead.

Speaker 5

The second question has to do with brands. And you still have this stable of brands and you talk about different strength in different regions and you talked a little bit about Vrbo. What about some of the other brands? And would you call out ones that you think are doing in this environment are doing particularly well and those that seem most challenged Just comment on the business just from a brand perspective and the brands other than Vrbo?

Speaker 2

Sure. I think broadly the brands are acting within a range, I would say, of performance. But we have seen, as I've mentioned, I think before, opportunities, for example, in Australia where our local brand, What If And our local VR brand have performed very well because they had a domestic travel bias in that market. And therefore, in a world where there was much more domestic travel, we leaned into those brands relative to leaning into, let's say, Expedia brand, which has more international Appeal or an international travel appeal. So we've seen regional moves like that.

Speaker 2

I think broadly though and you see some reactions, We believe Hotels dotcom has a slightly higher percentage of unmanaged corporate travel within it. And of course, corporate travel has been greatly reduced during COVID. So we've seen some movements like that. But I would say Probably, the brands have performed within a range of one another. We are doing a lot of work to figure out long term how we want the Brands to work together as a family of brands rather than as competitors.

Speaker 2

I've mentioned some of that within performance marketing, but I think you'll see that Broadly across the enterprise as John and the team get to rationalizing how those how we can make those brands all Additive to one another as opposed to competitive. And we are continuing to market again fairly aggressively Behind the brand spend. And my comment about the volatility in performance marketing is just to say there continues to be a lot of risk And getting over your skis in performance marketing because of the volatility in cancellation rates, shutdowns, other things. So on balance, we are slightly more biased towards Brand building and yes, this is a time where we feel for the reasons I said that travel is going when it can rebound fully, it is going to be extremely robust And this is not a time where we want to be quiet in the market. So we are doing lots of things, including our recent move to support UNICEF, etcetera, To get in line with our customer base, get them invested in our brands and the relationship and drive that for When the future comes pouring in and while that is volatile, we don't exactly know when that will be, we know it's coming.

Speaker 2

So we want to make sure we're there for

Speaker 3

Thank you, Peter. Thank you, Aaron.

Operator

Our next question today comes from Deepak Mathivanan from Wolfe. Please go ahead. Your line is now open.

Speaker 4

Great. Hey, guys. Thanks for taking the question. Just a couple of ones. So first, Eric, can you help us think about take rates and booking window dynamic for the second half?

Speaker 4

With all the moving pieces, it's a little bit of a challenge to kind of translate bookings to revenues. Any additional color that you can provide there Take rates and booking windows based on what you're seeing in July would be great. And then the second question, can you talk about the supply acquisition campaigns on the Vrbo So how has supply side generally has been at Vrbo? And how should we think about the benefit of this translating into bookings Maybe in the back half and then also into next year. Thank you so much.

Speaker 3

Thanks for the question. Listen, I understand your question on the first part when it comes to take rates and booking windows, and it's something that we have causes a lot of work and volatility, If you will, on our assessment on our side as well. And I would love to be able to give you more granular responses on what that projection would look like into Q3 and beyond. The truth be told that things are just moving around quite a bit when it comes to those booking windows. And then from a take rate standpoint, it's really going to depend on this mix.

Speaker 3

And as Peter and I both mentioned, Vrbo continues to be strong. We've seen conventional hotels come back sequentially. We've seen that in the air. We continue to see that in car, which It's been quite strong as well and has nice take rates associated with it. And again, we'll kind of stop there, but you get the point through the various products.

Speaker 3

And so between a combination

Speaker 2

I don't know what happened there. Apologies. I think Eric cut out on us. Hopefully, you can still hear me. I'll just finish by saying where he was going is the combination of mix Has been really different during COVID, so it's a hard thing to tie back to historic levels.

Speaker 2

Air and other things are down More considerably than lodging, car, etcetera. So it's a little Hard to give you much guidance there except to say we expect to see continued mix shift during this somewhat COVID period we are in. But we also believe that over time and broadly everything will revert to the medium in terms of mix And we should see more predictable take rates in that period.

Speaker 4

Okay. Thanks, Peter. And then the second one on supply acquisition campaigns related to Volvo. Can you talk a little bit about that?

Speaker 2

Yes, sorry about that. Yes, we have been focused, I think we said it last quarter, but we've our principal focus has been on compression markets And we've seen good growth there and good additions. And when we can add inventory there, we see Very good return on that effort. We have not gone to sort of a broad global Turn to everywhere acquisition strategy because we just don't think it's a prudent use of resources as so many places are still Close down, but we are taking a much more targeted approach. And as the world opens up, I think you'll see us expand those targets.

Speaker 2

But in general, when we've been able to add Inventory, again, focused on compressed areas, that has been quite productive for

Speaker 4

us. Got it. Thanks, Peter. Thanks, Eric.

Speaker 2

Yes. Thank you. We'll find Eric.

Operator

Our next question today comes from Justin Post from Bank of America. Justin, please go ahead. Your line is now open. Great.

Speaker 6

Thank you. I think we're all trying to figure out what your earnings could look like on the other side of this. And so market share is important. People are going to compare, you're down 26% bookings versus 2019 to booking, which is in the low double digits. So just wondering if you can help us understand how you think about market share in your core U.

Speaker 6

S. And Europe markets right now? And second, maybe you could explain some of the differences, maybe your percent of air bookings or how much of your bookings are international versus domestic? Thank you.

Speaker 2

Yes. Thanks for the question, Justin. And I'll just say, So a couple of things to think about there. First of all, as I mentioned, broadly, when you look at conventional lodging plus VR, We believe our position is stronger in the U. S.

Speaker 2

Than pre COVID. But again, that's not the same for all markets. And if you look at a market like EMEA, Which came back strong over the summer and came back principally in domestic. That obviously favors some of the other players. And our business in places like EMEA and APAC, as I mentioned, are more international focused.

Speaker 2

Now that goes to airlift as well Because we're very good at delivering long haul air, which has been virtually non existent during The COVID period. So you've seen again a bunch of these principles at play where we've benefited But from some, obviously benefited from others. And we generally believe that international will be the next major thing to open up And that favors our position in many of those markets And we will see that rebound through that side of our business and through air and all the pieces that are attached to that. But that's really what's going on in market share more than anything is this domestic versus international Exercise, there's also more bookings into small markets as people have stayed domestic and gone The equivalent in the U. S.

Speaker 2

Is the small motel near a national park, etcetera, that has not been a traditional strength of ours. We have been better in big cities. Big cities have lagged somewhat, New York, San Francisco, etcetera, Paris, London. So those factors are all at play. And I would just say that there's been a lot of activity at the lower end of the market And because of the domestic thing and that's been driving a lot of room nights, but not necessarily a lot of dollars.

Speaker 2

So you're seeing shifts like that. We feel pretty good about our position definitely in the U. S. We'd We love to be strong in all dimensions of our game across the globe, but we think again that most of this reverts to the mean over time. And as it does, we will benefit from the return of international travel significantly, where in many places in the world that is The biggest part of our business.

Speaker 1

Great. And maybe one follow-up.

Speaker 6

Have you disclosed ever how much air bookings were as a

Speaker 3

This is Eric at my back. Can I get a thumbs up? Yes. Yes. No, we've not broken that into detail at this point.

Speaker 6

All right. Okay. Thank you.

Speaker 3

Thank

Operator

you. Our next call today comes from Brian Nowak from Morgan Stanley. Brian, please go ahead. Your line is now open.

Speaker 7

Thanks for taking my questions. I have 2. To go back a little bit, kind of drill into the U. S, can you just help us better understand where your U. S.

Speaker 7

Lodging business, Excluding Vrbo is now versus 2019. And then secondly, kind of again focusing on the U. S. Ex Vrbo and Lodging. What can you sort of tell us about the customer dynamics?

Speaker 7

Are you is it mostly existing customers? Talking about contribution from new people you're bringing to the platform. What has sort of driven the growth of the core lodging business in the U. S. Ex Vrbo so far?

Speaker 3

Yes. Perhaps I'll take the front end of that Peter, if you want to take the back end of it. I understand that it's the part trying to parse verbo and the conventional locking that we're I'm not going to go into detail on it at this time. On the Vrbo side, I think you've heard us a couple of times anyway, continue to see we're seeing nice performance. We Continue to gain share in our primary markets in that business and feel really good about it.

Speaker 3

On the conventional lodging side, we have seen continued improvement each month of Q2. We've seen a bit of softening in July. But again, at this time, we're not going to go into detail on the breakdown between those two. But Net net of both of those is that we feel good about where we are in the recovery that we're seeing during the quarter.

Speaker 2

Yes. And I'll just go into the customer dynamics a little bit here, Brian, which is to say, I think during COVID broadly, as everybody was marketing somewhat less, we saw a lot of direct business. We all were Happy about that, but it's more of a function of not going out and searching the market unless less people out in the market searching. I think as it has rebounded, It's headed more towards usual norms. But again, we've been perhaps more Conservative on the performance marketing side because we with cancellation rates so high and other factors going on, closures, etcetera, It's easy to spend a lot on performance marketing and not get the return because people don't end up traveling.

Speaker 2

So We are seeing, I would say, a mix relatively towards existing customers. I think that's what you'd see across the industry. It's why app Usage is up and other things are growing. But again, I think as the market is rebounding and more people are out in the market Searching, you'll start to see us get back to more normal relationship between old and new. Now I will say A big part of our focus as an enterprise is to create longer term relationships and greater lifetime value And stickiness and love for our brands with our customers that involves many things obviously on the marketing side, on the product side, on the On the service side, all things we're focused on improving.

Speaker 2

So that's a 3 60 kind of enterprise Effort, but we do intend and we do plan to build those customer relationships in a different way we hope And historically where we've all had to go fishing in the Google client or whatever and that was the only place to find new business. So we're hoping to change those dynamics over time. But we have been we have seen in general during COVID a greater performance from existing customers.

Speaker 7

Got it. And just to go back to Eric's answer, it's really helpful to go back to Eric's answer. So the bit of softening in July, is that more pronounced On the traditional lodging side, the Vrbo side, or is it sort of evenly spread between the product sets?

Speaker 3

Yes. I think we're seeing it largely across, even expanded beyond the lodging across all of the product types. Yes. Whether that persists or not, TBD.

Speaker 5

Yes. Okay. Thanks.

Speaker 2

Thank you.

Operator

Our next question today comes from Stephen Ju from Credit Suisse. Please go ahead. Your line is now open.

Speaker 8

Okay. Thank you so much. So Peter, I think you wanted to kind of talk about potential permanent changes to consumer behavior. I think vacation rentals versus hotel is fairly well understood. But are you But are you noticing any change in terms of folks favoring Agency versus merchant, because I'm sure they probably learned last year that paying ahead of time and trying to get refunds later on is probably Something that they probably don't want to do again.

Speaker 8

So are there kind of hence sort of meaningful differences in the conversion rate Between the two types of transactions you can call out, and does that positively or negatively influence your customer acquisition

Speaker 3

I'll take take the front end of that as well. I would think about it less about merchant and agency that we have seen continue. I think we talked about this a couple of quarters ago, waiting to the agency side of the business Consumers want more flexibility, but ultimately what they're looking for is that flexibility. So it's more of nonrefundables Sorry, refundables, is that what they're looking for given the uncertainty in the environment? And Peter, feel free to add, but that hasn't necessarily changed our customer acquisition strategy, our sort strategy or whatever else in the end.

Speaker 3

We're a marketplace running A travel company, and our job here is to meet with customers and what they're looking for that meets the needs and the use cases that they have, and I will continue to do that. But As I said on the front end, there is continued weighting to the refundable side and the agency side.

Speaker 2

Yes. And I would just add, Stephen, that we're Trying to drive, as Eric says, we're not trying to drive the customer to any particular outcome. We provide choice by and large and we let the customers do what they want. There has been a There has been a relative bias during COVID for pay later. As you say, perhaps just a greater sense of security around the idea.

Speaker 2

But there's nothing that I think suggests that that's necessarily a permanent thing. I don't think we know enough yet and we'll see as we come out of COVID. But We've seen merchant rebound considerably and that may well persist. Okay. Thank you.

Speaker 2

Yes.

Operator

Our next question today comes Mario, please go ahead. Your line is now open from Barclays.

Speaker 1

Great. Thanks for taking the questions. I have 2 on ADRs. They're up 21% this quarter year on year, I believe 22% versus 2019 levels. So any further breakdown you can provide in terms of this growth whether it's geo mix, Organic rate increases or shift to remote, and how sustainable you think this is for the back half of the year?

Speaker 3

Yes. Peter, I'll take that one. So thanks for the question. And I think the 3 categories that you laid out, the answer is, I guess, yes Yes. So it is a geo mix.

Speaker 3

And into the U. S, it's a mix into Vrbo, which typically has Higher ADRs as well. And then we're seeing for core ADRs increase in some products more than others. So a bit more color there is On the Vrbo and car side, I would say, in particular, that's seen meaningful increases in their ADRs, whereas air Has started to recover, but clearly not to the extent of those other 2 and would say the same for conventional lodging. It's sort of somewhere in between, let's say, higher than air, Not to the Vrbo and car side.

Speaker 3

Projecting forward, we are, as I mentioned earlier, on the Vrbo side, for instance, continue With this long booking windows and if you end up with any kind of supply compression and or that that's what customers are Traveling with and again, as I mentioned earlier, I think people have really enjoyed that product experience. You can continue to expect Very possible to expect that you would see that in Virdo going forward. On the card side, listen, they've got a supply issue. I think that's been discussed in various Forms before, and that's going to take some time to work through. But how much demand remains for cars as we get out of the summer season is a bit TBD.

Speaker 3

And as generally, presuming that July is a bit of an anomaly, if things start to recover again, I think you would continue to see ADR increases or healthy If you will, going forward. So again, not going to get into specific of trying to predict where exactly those are going to land, but that gives you a sense of the trends that we're seeing across the different products.

Speaker 6

Thank you.

Speaker 3

Thank you.

Operator

Our next question today comes from Jed Kelly from Oppenheimer. Please go ahead. Your line is now open.

Speaker 1

Hey, Great. Thanks for taking my question. Questions 2, if I may. Just can you give us an update on the Vrbo integration with brand Expedia? How is that Trending and how are you trying to think about that ahead of the winter?

Speaker 1

And then as you kind of look out in terms of like the international Travel recovery. I mean, has your thoughts changed as you even see countries like Iceland and Israel that You are really highly vaccinated dealing with higher spikes, higher case counts. How is like the change of the interim how do you view the international recovery if it looks like we're going to have changing a multitude of different government policies towards COVID? Thank you.

Speaker 2

Yes. Thanks, Jed. I think I'll do your second one first. It's frustrating and confusing and complicated. Countries have taken different approaches even within the EU.

Speaker 2

We've spent a lot of time with EU commissioners about trying to Synthesize the rules and make them consistent because people traveling within the EU have issues with what the protocols are. It remains a big unknown. I would say we know that vaccines are Definitely the biggest part of the answer at least that we can see so far and of course there's lots of work going on, on other treatment protocols For COVID, so I think we'll continue to see improvements and ultimately COVID will be something the world learns to live with And people will be traveling again. So we're starting to see international travel. It's not 0.

Speaker 2

We're starting to see conversations today with the U. S. Government. It was quoted that Biden is considering opening up the U. S.

Speaker 2

To Foreign travelers who are vaccinated. So I think we'll continue to see that push as countries want to get their tourism businesses back and And their business travel business is back. So they're countervailing issues and I think there will continue to be pressure for people finding ways to make it happen. We're clearly not done seeing pockets of issues with COVID and reactions from local or national governments to that issue. So I think That's why I say there's a variety of unknowns out there and we're just playing it out and trying not to end up Upside down over marketing to a market that ends up with a problem.

Speaker 2

So that's one part of it. And then on the Vrbo integration, I would say It's work that continues. It's not where we want it to be. We have more content on decks and actually on Hotels dot com. But the end to end customer experience is not where we want it to be.

Speaker 2

So we are iterating on that as we continue to make progress Towards unifying our tech stacks for our lodging business, it's a core part of that process. But I would say it's not the most important thing in that process. It's a good opportunity for us and something we believe in. But there's a series of steps as we bring those facts together. And it continues unabated, but it is but it's not where we want it to be yet.

Speaker 4

Thank you.

Operator

Our next question today comes from James Lee from Mizuho. Please go ahead. Your line is now open.

Speaker 5

Thanks for taking my question. Can you talk about with the new CTO coming in, Maybe talk about some of the top priorities that you'll be undertaking. And also secondly, I think last You guys talked about the success of integrating the marketing platform, something like 75% on that platform. Can you give us an update And maybe a little bit implication on the efficiency of the marketing in the back half. Thanks.

Speaker 2

Yes. So thanks, James. In terms of the CTO's top priorities, it's really as we move to 1 unified Technology team and unified architecture. The role of the CTO is to define where we're going, how we're doing it, What the rules of the road are and how we do this integration from going many stacks to few and we create this multi tenant Extensible kind of set of capabilities. And I think that's a it's a broad It cuts across all the technology in our enterprise and Rafi is hard at work driving that.

Speaker 2

There's also As we get back end right, there's also the customer facing side, which is all about the UI and UX. We want to be an app first Company and we're driving progress to be that. We want to be design focused and we have a focus on the move ahead of design, Building out that capability in the enterprise, so it cuts across many things. And it's really about bringing excellence to all those Disciplines, so that we can just give the best customer experience we can And drive improvements across all the pieces, conversion, engagement, all the things we want to have. As far as the marketing Question goes and bringing our performance marketing together, I would say that number is up from 75 to probably But again, the more that's sort of a benchmark, which is to say, it's how we're getting everything on common tools, Common data sets, common algorithms, but it is what's exciting now is the opportunity to begin to test new algorithms, test opportunities Cross brands, test the opportunity to gain efficiencies and how we market multiple brands and performance marketing, etcetera.

Speaker 2

We're in the early days of that, but that is what these achievements of getting to the state have given us. And I would say we're in a funny time where Traffic patterns are unusual because of COVID. So you're sort of testing at the new algorithms and doing a lot of new Performance marketing against a backdrop that's a little bit unusual and confusing, so we don't always have the volumes to test everything. But there's a lot of exciting work going on there. And As I said all, we believe that will generate meaningful efficiencies and better operation in terms of performance marketing, But it is hard to benchmark because we don't have normal traffic levels and normal patterns.

Speaker 2

So it's hard to say it's going to give us percent more efficiency or why we have to see it in action against the more typical backdrop. So more to come on that, but we're making steady And strong progress, and we're a long way down the consolidation of tools and data and all the things that those percentages reference.

Speaker 6

Okay. Thanks, Peter.

Speaker 2

Thank you.

Operator

Our next question is from Andrew Boone from JMP Securities. Please go ahead. Your line is now open.

Speaker 4

Hi, guys. Thanks for taking my question. On marketing, on brand spend specifically, can you talk about what brands And where are you investing? Is this supporting brands that are a strength? Are you guys building brands anywhere else?

Speaker 4

And also, should we think of this as more of a permanent change to your marketing Strategy or is cancellation rates normalize? Are you guys going to shift the spend back to more of just for all

Speaker 5

type levels? Thank you.

Speaker 2

Yes. Thanks, Andrew. I would say a couple of things. 1, yes, we're investing in relative So for example, Vrbo has been an area of considerably increased investment during the past several quarters. Other opportunities regionally where we've put money, whether that's in traditional brand spend or Social or other things.

Speaker 2

So regional brands in some cases have seen increases as well. I would say while we are leaning into that And we are leaning into our biggest brands obviously in strong markets like the U. S. We believe we can do a lot better in terms of Brand messaging, getting cleaner on the brand propositions and as I mentioned, getting all the brands to work together as a family of brands as opposed to As sort of traditional almost competitors. So we think there's a lot of opportunity to Not just spend into brand with a bias towards brand building, but spend that money more efficiently against even stronger creative and More efficient ways to build brands.

Speaker 2

So I think there's a lot of opportunity there. And yes, we intend to also grow in new geos As we refine our capabilities there and pick markets where we are going to go on the offensive. And then I think as far as performance goes, I think what we're talking about when I say we have a bias towards brand building is we want to build long But brand spend and performance work together. The stronger your brands are, the better performing your performance marketing is. As long as performance marketing can return the kind of returns and bring us the kinds of customers that are sticky and build long term value, we will spend into that and we will spend As much as that makes economic sense to do.

Speaker 2

So I don't think it's an either or question. It's a question of right now Having a bias again towards that brand building while we see how performance marketing shakes out. But as we get better, We believe we will be able to continue to invest in performance marketing more efficiently than we ever have and bring the right kinds of customers with the backdrop of Brand building that really creates sticky customers for the future. So I think you'll see us do both. Don't exactly know where the ratios will bear out.

Speaker 2

We think the company was over biased towards performance marketing because it just didn't have all the tools we needed across The brand enterprise, but we think now we're in a much different place. So that's where we're going to go. And I think with that, I thank you, Andrew. I think we're at the end. So I just want to say thank you, everybody.

Speaker 2

Thanks for your time. And I hope we got all your questions answered, and we'll speak to you in the quarter. Take care.

Operator

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

Powered by Quartr