Expedia Group Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
November 3, 2021

There are 12 speakers on the call.

Operator

Good day, everyone, and welcome to the Expedia Group Q3 2021 Financial Results Teleconference. My name is Charlie, and I'll be the operator for today's call. For opening remarks, I will turn the call 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 Q3 ended September 30, 2021. I'm pleased to be joined on the call today by our CEO, Peter Kern and our CFO, Eric Hart. The following discussion, including responses to your questions, To reflect management's views as of today, November 4, 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 by words such as we plan, we expect, we believe, We anticipate, we are optimistic or confident that or similar statements.

Speaker 1

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. 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. Speegigroup.com. And I encourage you to periodically visit our IR website for other important content. Unless otherwise stated, all references to cost of revenue, selling and marketing expense, general and administrative expense and technology and content expense exclude stock based compensation.

Speaker 1

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, 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 but 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 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.

Speaker 2

And with that performance and what we're seeing in the market, we had the confidence to further pay down our preferred stock, which we did A few weeks ago as you would have noted, which of course is another 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. But 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.

Speaker 2

And 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 Q4 with even greater strength. We've seen improvement across all segments really, while leisure and 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 leisure and domestic travel. And for us, Vrbo has been a particular highlight and beneficiary of that.

Speaker 2

A few highlights on Vrbo since you always ask. We've seen strong share growth in our focus markets, 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 $2,000,000,000 of earnings for new Vrbo host who came on the platform this year.

Speaker 2

And looking ahead, we are already seeing better bookings for next summer than we saw this time last So the trends continue to be quite strong there. And while the story will continue to be impacted greatly by mix effect, which I've 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 It's unpredictable to say the least, but we are 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.

Speaker 2

In terms of some of the details in the business, on the marketing 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 experience is and the proposition, All of those things add to that direct relationship, and we are feeling confident about the work we're doing on all fronts. But marketing, of course, is the tip of the spear. And with our new focus on being a family of brands, we have launched I announced that we will be launching 1 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 are really excited about bringing that extra usability and 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.

Speaker 2

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 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 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 Q3 in specific with a much more aggressive posture. Delta hit. We have we pulled back somewhat.

Speaker 2

And now again, that we are seeing things growing and the recovery building again, we are leaning 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 had called Expedia Partner Solutions, which is a business we have used to power other Partners in the travel industry. We brought those together visually in 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.

Speaker 2

But in particular, EPS itself has done well, even during COVID. We One 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 And that has continued into November. So great signs there. And then finally, on the Agensia front, you've all seen Earlier this week, we announced the conclusion of our transaction with Amex GPT.

Speaker 2

We have merged Agencia into Amex GPT. 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.

Speaker 2

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 GPT 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 Agensia team who did a tremendous job building that business, getting it to a place where we could find such a great transaction and put it together with someone else And in working through the time we had during the transaction and doing just a terrific job. So I thank them and our expedient team that helped close that transaction.

Speaker 2

And then finally, while I've talked a lot about technology in the past, and I will keep this brief, I am as excited as I've ever been since I started about 2 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 to the customer We'll increase along with it. But just for clarity on the front end, we're focused on being at first data and design driven and focus really on Personalization and using all the data and machine learning and the opportunity to create better and better experience for the customer and for our suppliers. And on the back end, we're really re architecting everything as I talked about. We're moving from this many technical stacks to one stack on one pool of data It serves all the outcomes, all our partners, all our customers, and it's really getting exciting.

Speaker 2

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 It's 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 And with that, I will pass it over to Eric.

Speaker 2

Thank

Speaker 3

you, Peter. I'm also pleased, as Peter mentioned, with the overall recovery Our business, as you will see it includes 2 quarters in a row of positive adjusted EBITDA and in Q3 excluding Agencia it was roughly on par with the Q3 2019. And with that, I wanted to start by providing an update on the booking trends that we have seen and we are seeing. Following the pullback we witnessed for much of Q3 and into the 1st part of September due to the delta variant, we saw a notable broad based improvement across geos And product lines. Overall, total bookings for all products net of cancels were down 30% versus Q3 of 2019, which was slightly worse than the 26% decline we saw last quarter.

Speaker 3

Given the continued volatility of the recovery, we also want to provide Additional monthly detail on our total lodging bookings net of cancels. That, of course, includes both hotel and Vrbo, And those were down approximately 17% in July, approximately 25% in August, 19% in September and further improved to down negative 2% in October. And again, that September was also down, of course. The trends in October that we saw, again, that was negative 2%. They did improve throughout that month, so we exited at a much improved rate relative to the start of that month.

Speaker 3

Moving to the P and L, starting with revenue, it was down approximately 17% versus Q3 of 2019, which was a meaningful improvement from last quarter with revenue down approximately 33%. We saw a significant improvement in both Vrbo and hotel revenue, which benefited from seasonally On summer travel, revenue margin for the Q3 was approximately 16%, up from approximately 10% last quarter. This was primarily due to typical Q3 seasonality in the business and product mix weighted towards launching. On sales and marketing, direct spend in Q3 was approximately $1,100,000,000 which is down approximately 19% versus Q3 of 2019 levels. And as Peter mentioned, we reduced spending given the reversal in trends we witnessed in the Q3.

Speaker 3

However, going forward, given the more positive recent trends that we've discussed, we are again leaning into marketing spend in Q4. Moving on to overhead costs, they totaled approximately $530,000,000 a slight decrease versus last quarter and below our expectations. We saw lower than anticipated discretionary spend, which was down roughly 90% versus the Q3 of 2019 as employees continue to largely work from home in the quarter. I would also call out slower than anticipated hiring as there continues to be a high degree of competition for talent, especially for technology roles. Looking ahead, we expect overhead to increase by approximately $40,000,000 sequentially in the 4th quarter, primarily due to lower capitalized labor due to the holidays as well as higher anticipated headcount and people costs.

Speaker 3

In total, adjusted EBITDA was approximately $855,000,000 which is approximately $650,000,000 improvement over the last quarter, driven primarily by typical Moving on to free cash flow, which totaled negative $1,400,000,000 in Q3 on a reported basis. If we exclude the change in restricted cash, which is primarily driven by the change in FERPA's deferred merchant bookings, free cash flow was negative to approximately $450,000,000 As a reminder, the Q3 is traditionally a low quarter for free cash flow due to seasonality. In terms of the balance sheet, we continue to be investment grade rated today and remain committed to deleveraging back to more historical levels as well as further reducing our cost of capital. As you may recall, we refinanced some debt earlier this year, which yielded $80,000,000 in annual interest rate savings and last month as Peter mentioned given the improving trends and continued confidence in our liquidity position, We paid off the remainder of the preferred stock. In total, paying off all the preferred stock this year, it will save us approximately $115,000,000 in annual dividend Hey, Alex, going forward.

Speaker 3

Finally, on to Egencia, I want to echo Peter's comments and thank the Egencia team as well as All of those Expedia employees who are involved with Agensio for their dedication and hard work. I would also like to point out Page 17 of the earnings press release, which Provides details on Egencia Financials. For the Q3, Egencia generated $55,000,000 in revenue And negative $18,000,000 in adjusted EBITDA for the again, the 3rd quarter. As it relates to Egencia costs in the Q3 2021, rough numbers, but approximately $35,000,000 was recorded in cost of sales, dollars 20,000,000 in sales and marketing, And the remaining roughly $20,000,000 is spread across tech, content and G and A. Going forward, we will record our minority stake in the combined company within the other Net line of our income statement.

Speaker 3

And in terms of the 10 year log in supply agreement with our Expedia Partners Services business has entered with the combined company, We will account for it like any other standard EPS deal. As a reminder, at 2019 volumes, we expect this deal the EPS deal to be worth In excess of $60,000,000 on an annualized basis for EBITDA. In closing, as Peter and I both mentioned, we're quite encouraged by recent trends and the pace of recovery is clearly improving. Things are getting better. And I remain Truly, I'm very optimistic about the future of travel in our company.

Speaker 3

And so with that, Charlie, we are ready for our first question. Of

Speaker 4

course.

Operator

Our first question comes from Naved Khan of Truist Securities. Naved, your line is now open.

Speaker 5

Yes. Hi. Thanks a lot. A couple of questions. Maybe, Peter, maybe you can Give us some color on your thoughts around marketing spend.

Speaker 5

Do you continue to see scope for More efficiency here going forward. Where do we stand today on this? And then the second question I had is just around The organizational structure going forward, I think you guys had outlined cost savings from the reorg, $750,000,000 in fixed costs $200,000,000 in variable. As we think about the organization build out from here on, where do we stand with respect to these?

Speaker 2

Sure. And I'll go first, and Eric can take on the cost issues. I would say, we are 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 attack. 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, etcetera, but COVID has been a bumpy time And we have not found normalized times to really get everything tuned exactly how we want.

Speaker 2

So yes, we believe there's opportunity ahead for 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 them, right? We've got to build better products. We've got to have better engagement circles For 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 Stick here and bring them back and want them make this their place to come for travel.

Speaker 2

So marketing can be more efficient, But it's really a virtuous cycle of how we stream marketing together with the experience and that and with the new efficiencies that your second question goes to, all of that gives us more opportunity to Trying to reinvest in more profitable long term customers and create long term value for the enterprise.

Speaker 3

Great. Thanks. I'll take the second part of the question regarding the costs. So just to remind everyone, the program is both fixed and variable costs. On the fixed side, we the most recent update that we provided was 7 $100,000,000 to $750,000,000 and we expect it to land in the higher end of the range.

Speaker 3

And on the variable side, we said to achieve greater than $200,000,000 But remember That's at, call it, normalized level or 2019 levels because we need the volume to come back to be able to see that fall into the P and L. I would say both of those are substantially complete. It's been a ton of work by the teams to simplify the business, and I think we're feeling really good about the fixed And the variable side, but I'll also add, we are a technology company. We're going to continue to invest and improve our services for our customers And in the way that we operate this business. So while this program, I think, has been a tremendous accomplishment of ours in simplifying our business, We don't expect to stop there, and we'll keep going.

Speaker 3

But I think from a program perspective, I think we can put the $1,000,000,000 Q1 to rest.

Speaker 5

Thank you, Peter. Thank you, Eric.

Speaker 3

Thank you.

Operator

Thank you. Our next question comes from Kevin Kopelman of Cowen and Company. Kevin, your line is now open.

Speaker 6

Great. Thanks so much. Could you dig in a little bit into this, the significant improvement that you saw in Booking trends in October, if you could talk about kind of key segments, geographies at all, maybe Vrbo versus hotel? Thanks a lot.

Speaker 2

Yes. Thanks, Kevin. I would just say generally, I know it feels bland, but we've seen it everywhere. Cities are picking up, International has picked up. There are virtually every area has seen growth.

Speaker 2

I will say That some of the benefit we have seen, I've talked about mix effects before, when cities were forbidden places That obviously hurt us. Cities have been a great market for us. And as we've seen cities come back, now they're still greatly lagging Major leisure destinations like beaches, but they're coming back and that return benefits us probably disproportionately compared to some others. So that mix effect thing, we have some winners and some losers as always, but we've seen cities come back more. We've seen relative The growth we've seen in sort of the consistently strong leisure areas and the opening of international channels, the announcements from the U.

Speaker 2

S, Singapore, etcetera, about allowing international travel. We see that live up basically as soon as it's announced. We see search queries go up. And again, in places like EMEA, where we're traditionally stronger in international travel as compared to domestic, Those openings, I think, augur well for us going forward. So it really is a broad based recovery.

Speaker 2

I mean, it is every I mean not down to every country because there are blips in countries that have COVID spikes etcetera, but down to every region. And some regions are trailing dramatically like APAC and Latin America, but they're improving too. And so it's really broad based and It's just what the base you're building off of and some are different than others.

Speaker 3

Yes. And the only add to that is, as we've talked about, there were multiple quarters now. There will be volatility in the recovery of the series of many stories and a lot of the intersection points that Peter just mentioned. So We'll continue to monitor, manage our marketing spend appropriately. As we did in Q3, we have the brakes on some areas of that just because of we saw a bit of Slow down.

Speaker 3

But so far, so good in October and going forward.

Speaker 4

Very helpful. Thank you.

Speaker 3

You bet.

Operator

Perfect. Our next question comes from Deepak Mathivanan from Wolfe Research. Deepak, Your line is now

Speaker 4

open. Thanks. This is Zach on for Deepak. Just two questions. First, Your kind of large main competitor in the space reported last night.

Speaker 4

Your roommates are still lagging, I think, down 33% in the Q3 versus 2019. That's lagging kind of bookings performance. I just is there any kind of driving force or explanation driving that delta in performance? Is it Mix, certain markets lagging, is there a timing delay? I know there's difference in reporting structures.

Speaker 4

So any kind of color there would be helpful. And then just On COVID restrictions, I know it's very dynamic and hard to predict, but are you seeing any differences in terms of travel restrictions and Implications on demand when we see COVID cases rising in certain markets now versus 6 or 12 months ago? Thanks.

Speaker 2

Yes. Thanks, Zach. A lot of good questions in there. I would say, first off, yes, you have to remember that they report unbooked, we report on stage. So it's Sometimes challenging to compare.

Speaker 2

But I would say, as I've said before, and I mentioned regarding cities, the mix has helped them. They've always been better in Smaller markets, long tail markets, etcetera, we've always been really strong in big cities. When cities were dragging, And cities get built by international travelers, so we also have been strong in long haul air for those travelers, like all those mix effects actually impact things. And so some of them we won in, Vrbo has been a beneficiary, some of them we lost in big cities and international travel. So It's always been a balance.

Speaker 2

We are less focused on room nights rather than room dollars, if you will. I mean, it's a little misleading. We could book a 1000000 more 1 star hotels nights and it wouldn't mean much to our P and L and we could book 100,005 star hotels, it would mean a lot. So you have to take it all in balance, but we are feeling good about the recovery. And in general, our numbers Domestically, are running ahead in lodging of where we were 2 years ago.

Speaker 2

So I think we're in good shape there, and we feel good about that. And again, We have had a somewhat conservative bent along the game with COVID. We've been, Eric mentioned, tapping the brakes. We've tried to respond. Sometimes we get over Sometimes we're behind the recoveries.

Speaker 2

It's a balancing act, but we are getting more confident, more aggressive and I think you'll see us continue to lean in to gain share across the globe. In terms of the COVID question, It remains to be seen and every as Eric said, every story has its own. But I will tell you, if you look at recent news, for example, of the COVID cases in The UK spiking from recent openings and I was in London and it was amazingly open. I would say that queries have remained elevated since the international announcements to the U. S.

Speaker 2

And they remain elevated and we have not seen a pullback From the caseload news. So I think that remains strong. And of course, science is helping us out along the way. We just announced that kids will be Able to be vaccinated in the U. S, which is a great benefit for society, let alone our business.

Speaker 2

And likewise, the announcement today about The U. K. Approving the Merck pill for treatment. This is, I think we all agree, is probably going to be an endemic, not a pandemic. And the more treatments we get and the more ways we get to deal with it, the better off we're all going to be.

Speaker 4

Very helpful. Thank you.

Speaker 2

You bet. Thanks.

Operator

Thank you. Our next question comes from Eric Sheridan of Goldman Sachs. Eric, your line is now open.

Speaker 7

Thanks so much for taking the question. Maybe following up first On the growth initiatives when you're looking out against the recovery, are there any things we should be keeping in mind in terms of the ability to continue to grow supply Or align some of your supply priorities, especially outside of North America to capture as much of that growth as you can. And second question, guys, Coming back to capital return and how you're thinking about a more normalized environment, Booking called out the ability to possibly return capital to shareholders as we get into early 2022, any updates there on how you're thinking about return of capital on the balance sheet over the medium to long term? Thanks so much.

Speaker 2

Sure, Eric. I'll take the first one and Eric can comment on the second one. But I would say that we continue to look tactically around the globe And what the right vectors are to focus on in terms of supply. I don't think we feel like we're terribly deficient, but we've been a little bit peanut buttered around the globe As we did with Vrbo during COVID, we were very focused on those compression markets, freeing up A supply there, making that supply really successful right out of the gate. And that is the virtuous cycle that we think is most valuable.

Speaker 2

So You will continue to see us do that for Vrbo, but you will also see us do that in a very targeted way around the globe. And that's with a focus that's tied into where we are marketing, Where we are driving our brands, where we think we have the opportunity to win. And again, remember, in many markets around the globe, Our B2B business, our Expedia Partner Solutions business drives those markets more than our direct relationship with consumers. And so driving the right supply to feed those businesses as well is a critical piece. So we will continue to drive into it.

Speaker 2

I would say Anything we've been relatively modest in terms of supply growth during COVID, with a particular focus again on Vrbo, which It was a different use case. But as things are reopening, we're seeing more demand. You will see us go after in a targeted way more And again, in a very targeted end to end way, keen on the markets we're focusing on growing and where those markets want to travel to. So We feel very good about that opportunity. It's just a question of focus.

Speaker 2

It wasn't a big focus during COVID, but as things improve, we will continue to roll that out.

Speaker 3

Yes. Thanks for the question Eric. I'll take the second component of that. And I would say just from a macro level that our philosophy is and strategy is consistent. 1st and foremost, Want to remain we are and want to remain investment grade rated and we'll commit to that of course going forward.

Speaker 3

2nd Yes, our commitment to continuing to lower our leverage ratios and get our cost of capital down. We've taken some great steps on that this year and we'll To make progress as we move forward on it. And 3rd, we as a company have traditionally been committed to returning capital to shareholders in different forms. I would say right now is, again, not necessarily the right time for us to do it, but it's certainly something that we're committed to doing over the long haul, and we'll just continue to observe and make What we deem to be, if you will, the right choices at the right time to come forward.

Speaker 7

Thanks, guys.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from Mark Mahaney of Evercore. Mark, your line is now open.

Speaker 8

Thanks. Just two quick questions. You referred to those growth rates for the 4 months July, August, September, October. I'm sorry, was that room nights So was that bookings? And then secondly, I know you've said that generally all the regions are recovering just to be specific about it.

Speaker 8

And I know that there are flare ups Some countries, markets here or there. But in the major European markets like Germany, you didn't see a you have not seen a Whatever, a dampening of demand at the end of October recently?

Speaker 2

Thanks. Yes. I'll take the second part first, Mark. There are some blips There and there, for better or worse, I wish our business were bigger in domestic EMEA, but we don't Feel those blips in quite the same way and we had the countervailing issue of more interest in international. So that has probably offset some of what others may have seen.

Speaker 2

But yes, there are blips here and there. And but as I mentioned, even in countries that are more COVID challenged, In general, we have seen sustained interest probably buoyed by the international vector as opposed to perhaps what was going on in the summer.

Speaker 3

And then Mark, on the first question, it is lodging gross bookings now cancels. Okay. Thank you both very much. Thank you.

Operator

Thanks. Our next question comes from Mario Lu of Barclays. Mario, your line is now

Speaker 9

Great. Thanks for taking the question. So I just wanted to ask about your comment on continuing to gain share And alternative accommodations in your key markets. Can you expand on the initiatives that you guys have made on your end to allow you guys to gain share and whether you think that is sustainable.

Speaker 2

Yes. Thanks, Mario. Look, I think It's a combination of good work we've done and popular use cases. We know that the Whole Home solution has been a very popular Solution during COVID and that has helped us as compared to say apartments and cities where we might be less strong. But on the what are we doing side, we've done a tremendous amount to work on the brand, to land the brand, to make people really think about it as A primary source of Vrbo as a primary source of vacation options, we've invested more than ever, much more than In that brand, and we've really driven it hard.

Speaker 2

And as I mentioned, more than half our users so far this year, Our customers have been new customers to the experience and we think the experience is great. So we do think we have sustainably landed The experience and the use case and the brand and that will continue to benefit us for many years to come. How share exactly shakes out when the market moves back or people are going to cities, things will change. We're not strong everywhere in terms of Vrbo Supply, we are more focused on leisure destinations. But we think we have sustainably put Vrbo in the minds of Many people and other brands in other parts of the world that are strong like stays in Australia, etcetera, and that is really a powerful long term benefit for us.

Speaker 9

Great. And just a quick follow-up, in terms of the new users, onto the platform, how those user behavior Kind of match those prior users or have they been stronger during this time? How should we think about the new cohort? Thanks.

Speaker 2

Yes. I think it's early to say. I'd like to tell you that people use turbos every 2 weeks, but they tend to need vacation time and they tend to need school vacations and other things. We'll know more as things unfold. But again, as I said, bookings for next year are already running well ahead Of this time last year when there was a lot of pent up demand for Vervos already.

Speaker 2

So I think we are seeing the multiplication effect Adding new successful customers to the experience and piling those things up and people figuring out that they better book next summer, they better book Christmas, they better post spring break. And that's really a powerful wheel cycle that works for us. So we're really excited that we've added so many happy customers to the experience and we believe there will be tremendous long term value from them.

Speaker 3

Great. Thanks.

Operator

Thank you, Mario. Our next question comes from Doug Anmuth of JPMorgan. Doug, your line is now open.

Speaker 10

Hey, this is David on for Doug Anmuth. Thanks for taking the questions. I see. So first, Peter, you talked about Improving the user experience a few times in your prepared remarks. So I assume combining the loyalty program is all of those, but curious to hear where you see biggest opportunity looking ahead.

Speaker 5

And then secondly, could you guys talk

Speaker 10

a little bit about how your book to stay window looks like today and how that compares to What you saw earlier in the year and historically?

Speaker 2

Sure. I'll take number 1 again and let Eric do number 2. I would say, frankly, we see enormous opportunities across a wide swath of work to improve the customer experience. Some of that is yes, things like loyalty, things that we can do to enhance what it means to be part of our platform, But it's also in the product, it's also in payments, it's in our CRM relationship with customers, how we give them information, how we reveal And give them discovery and find the right products and the right value at the right time. All of those things are real opportunities and right for innovation.

Speaker 2

We We invented this industry 25 years ago and I wish we had done more along the way to innovate for the customer. We've done a lot, but there's tremendous opportunity ahead for us In virtually everything we do from service to on the product to how they discover and book multiple products in a trip So how they get informed about cancellations or delays or other things in the trip and how the app becomes their companion In terms of the experience, we are working across all those fronts and determined to keep bringing innovation to the customer every week, month, quarter For the next many years in a way at a velocity that we haven't done in a long time.

Speaker 3

Yes. And then on the to your second question, just on booking windows. We continue to see it revert back and trend towards more of what we would have seen or expected in 2019, No, it's still is a bit skewed. So for example, on the hotel side, it continues to be a little bit on the shorter term side and Vrbo a bit on the longer term side as a So still a little bit impacted by COVID and booking patterns, but generally trending

Speaker 2

back to more normal levels.

Speaker 10

Great. Thank you.

Speaker 3

Thank you.

Operator

Thank you, Doug. Our next question comes from Jed Kelly of Oppenheimer and Co. Jed, your line is now open.

Speaker 1

Hey, great. Thanks for taking my question. Just what you mentioned on the loyalty program Across all the brands, can you sort of talk about how your tech stack is going to be able to do that and Sort of merchandise, say, flights with Vrbo and then developing more of like a vertically integrated tech stack around your loyalty program?

Speaker 2

Yes. I wouldn't describe it quite that way, Jed, but what the way I would think about it is we're building every domain Where we that we own, so think loyalty, checkout, etcetera, to be multi tenant And to work across our brands and our partners because we have many, many B2B partners. And in doing so, We enable our brands, our multiple of brands to live on one stack, to live in one currency if they wish, To allow you to burn that currency and burn that currency wherever you want. And this is one of the powerful things that We talked about new Vrbo customers coming on the platform, but imagine when they're not only in the Vrbo product stream and enjoying that, But then they're earning value that they can use across air and other things when they have different travel needs. And likewise, the inverse, the Expedia and Hotels dotcom Travelers who might want to rent a Vrbo for a vacation.

Speaker 2

So that expansion of being able to spend across all those brands, That architecture for our technology, which is really building everything we do into multi tenant, ultimately having all our One app, all on one stack, and one way. That doesn't mean we want to separate brands, but they'll run on the same technical infrastructure. They'll have their own differentiation for brand, etcetera, or products, but it's all going to be built for multi tenant. It's all going to be built for us and for our partners. And we have the richest data set really travel data set in the world.

Speaker 2

And that data set powers Learning, all our AI and our ability to innovate constantly in terms of what the customer sees, how the partners participate And that's just super powerful once we get it right. Now there's a lot of work still to do, but we can see the path now and we are all aligned on that path.

Speaker 1

And then any update on where you are in terms of having more verbal supply on Brand Expedia?

Speaker 2

Yes. I mean, it's tied up in the same questions, Jed, which is we have Vermo Supply and Brand Expedia, but the experience isn't terrific. It's a little disjointed for the customer. We can't do everything. This is the one of the many things That are the power of bringing these tech stacks together that allow us to seamlessly move content around onto different stacks, Make the checkout process seamless, make the servicing seamless, make it all feel like it's coming from the right place.

Speaker 2

It's not just one piece. It's not just about getting the content up. It's got to work all the way through the customer experience because we're in the business of getting and retaining customers, Not just getting transactions. So that is a process we need to solve end to end and it is more than just what you've historically heard about Hey, can we get the content on brand Expedia? Now we need to do it.

Speaker 2

It's a big opportunity. Frankly, it's one of a dozen of equal opportunity. But all of it is enabled by getting the tech right.

Speaker 5

Thank you.

Speaker 2

Yes.

Operator

Thank you, Jed. Our next question comes from Andrew Boone of JMP Securities. Andrew, your line is now open.

Speaker 10

Hi, guys. Thanks for taking the question. So with travel coming back and booking calling out, leaning into marketing channels yesterday, can you talk about any changes you're seeing to the competitive dynamics within performance marketing? And then question number 2 is With it sounds like nice progress being made on the technology rebuild kind of restacking. Can you help us just more tangibly understand what this unlocks?

Speaker 10

Do you have any examples that you can call out? Thanks so much.

Speaker 2

Yes. You're on my favorite topic there, Andrew, on the second one, which is there are myriad Opportunities, we have massive opportunities on the CRM front. We are not app first adequately and the app is not A seamless product across all our brands, that's a huge opportunity. The ability to sell multi product, which we've been the leader in, in the industry for years, But honestly, it could be so much better at in terms of how our checkout pass work and how we get there. So there's I mean and everything I just said is measured in the billions or tens of billions of GBV opportunity in my opinion.

Speaker 2

So I think They're really all over the place and many of them unlock and enable really big opportunities on the B2B front and our ability to power partners, How are our suppliers, etcetera? So it's really I could give a dissertation for the next 2 hours on it if you want to miss the Airbnb call. But in the meantime, suffice it to say that there are dozens of them around the company and they are big rocks and big opportunities. As far as travel coming back and our friends leaning into marketing, we've kept a pretty consistent model. We've leaned into brand marketing and frankly we've been leaned into brand marketing even when maybe our brand marketing could be better and sharper and that's why We've rebuilt that team.

Speaker 2

We're bringing the creative teams in house now and really going at it in a different way. But we expect to be balanced. We've seen Our competitors move around and gyrate a bit. We've kind of kept to a balance between brand and performance. We feel like there's opportunity to be more aggressive as our performance marketing machine gets sharper and better and all the tools right.

Speaker 2

We're seeing vectors of opportunity That we can lean into. And so we definitely will have opportunities to lean in and I'm really excited about what our brand teams are going to do. Our brand teams are 2nd to none in the industry. We will be the best in the industry. And our performance marketing is phenomenal and finally brought together in a way that will be really So I think what that balance is, we'll have to as I mentioned, the market's got to normalize.

Speaker 2

We don't exactly know yet, But it is a virtuous cycle and the better our brand marketing is, the better our performance marketing will do. And we believe strongly in both and we'll continue to Kind of lean in, in a balanced way. I think our friends have jibrated a little more than us in and out of some of those things.

Speaker 5

Thank you.

Operator

Thank you, Andrew. And our penultimate question comes from Brian Fitzgerald of Wells Fargo. Brian, your line is now open.

Speaker 11

Thanks guys. Very thorough call. We wanted to ask a little more color on the Can I ask of the GBT Egencia deal? We think Egencia traditionally has gone to market with low air fees and Make up for that by making margin on hotels, leveraging the supply footprint. Just wanted to check on the mechanics and see if the margin there Would be comparable to Partner Solutions as a whole or any other color there?

Speaker 11

Thanks.

Speaker 3

Hey, Brian, it's Eric. I'll take this, and thanks for the question. And I don't mean to be flippant my response, but ultimately, I think you got to ask GBT and Agencia going forward what their ultimate strategy is around how they plan to monetize And develop customer solutions. I can say that they can they plan to run Agencia to be a core part of their offering, In fact, they expanded into some of their existing customer base. So we see a great opportunity with that relationship that we have.

Speaker 3

We see a great opportunity in the equity component that we have and we also see it On the EPS side, not only for the existing Gensu volume, but also potentially upside with some of their other volume as well.

Speaker 2

Yes. And I would just add, Brian, that our goal longer term is to continue to export more of our technology to power more of our partners and we think That is our true advantage. And so as a partner, we hope that we find more ways to help Amex GVT Monetize their customers better long term and serve their customers better. So we'll be working

Speaker 3

on them. Very clear. Thanks guys. You bet. Thank you.

Operator

Perfect. Our final question comes from Dan Vazialek of Morningstar, Dan, please proceed.

Speaker 10

Hey, guys. Thanks for taking the question. Just 2. So on the verbal booking strength you talked About for summer 2022, wondering if you have any comments looking at rate and occupancy, the split between that. And then the second one, Just direct mix kind of maybe how that's been trending and how you see that direct mix evolving with the investments you're making in tech structure, Vrbo and Royalty?

Speaker 10

Thank you.

Speaker 2

Yes. So I'll kind of take those in reverse then I think which is Vrbo has consistently had a very strong direct business. I mentioned our continued investment in brand across the globe really on Vrbo or its sister brands. We mentioned, I think, 2 or 3 quarters ago that we got out of performance marketing for Vrbo in the U. S.

Speaker 2

And it benefited from that with more direct traffic and having felt the effects of it. So I think we feel very good about the direct Nature of that business. As far as how the product will continue to improve, how loyalty will add to it, again, that's just other veins of opportunity for us across Our Expedia customer base, our hotels customer base, etcetera. So we want to create that universe of people that want to move Our brands and use them and build value and use that value. So I think we will continue to see that.

Speaker 2

As far as Rate and occupancy goes, rates have been ADRs have been very strong throughout COVID. There's been a lot of competition for the product, And owners and managers know that and they have pushed price where they could. And so we've seen a lot of Price increases and those have helped. There seems to be no abating of those. And likewise, occupancy in those compressed markets, if you want to be on a beach in the Southeast Or on a beach in Hawaii at Christmas, good luck.

Speaker 2

It can't be done. So we're going to keep seeing that. I think that's why you're seeing this The fact of, okay, I want to get out in front of next summer and get the house I want. And that's a great Smart for the consumer and it's great for the business and it gives us a lot of confidence going into next year This use case will continue to be highly top of mind for many consumers, and we are well positioned. So With that, I will thank you.

Speaker 2

Thanks, Dan. Thanks, everybody. I hope you all stay safe. Looking forward to watching travel recover, and feel free to

Operator

Ladies and gentlemen, this concludes today's call. You may now disconnect your lines. Have a nice day.

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Earnings Conference Call
Expedia Group Q3 2021
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