Expedia’s Kern: Focus is now on faster growth fueled by years of tech work

With its tech migration and OneKey launch in the rear view,
Expedia Group CEO Peter Kern said the company is now well positioned to drive even
“faster and more profitable growth” in 2024 – a bold statement coming
in tandem with the announcement of record revenue and profit figures in the third quarter of this
year.

In a call with financial analysts to discuss the company’s Q3
results, Kern repeatedly expressed excitement about the opportunities that the cross-brand
loyalty program and unified technology platform will create in terms of
efficiency and driving growth for the company’s three primary brands – Expedia.com,
Vrbo and Hotels.com.

“Our high level strategy is not going to change – best products,
best loyalty program, best marketplace and best service,” Kern said.

“But instead of spending most of the year doing surgery on
our own business, we’ll be focused on growth, innovation and efficiency.”

Kern acknowledged the effort to get to this point took many
years and the company had to give up “many short- term opportunities,” but he
said it is now in a position to go “back on offense.”

“No one in travel is innovating faster than us, and with so
much important platform work behind us … we will out-innovate in the space for many
years to come.” 

Specifically Kern said he expects to see Vrbo’s share of
bookings in the vacation rental sector to improve, in part due to the “core differentiation”
that OneKey provides.

“It allows all our members across Expedia to have the option
to use OneKey cash on Vrbo … it’s a way to pull a lot more customers into Vrbo,
it’s a way to make Vrbo decidedly better as a value proposition than its competition,”
he said. 

But for Q3, the technology migration process did create a “conversion
drag” for Vrbo. According to Expedia Group CFO Julie Whalen that, along with the
impact of the wildfires in Maui and a shift in demand to more urban rentals, pulled
down the company’s growth in overall lodging bookings. While its hotel business
grew 14% in Q3 compared to the same quarter of 2022, total lodging gross
bookings – which includes Vrbo’s rentals – came in just 8% up year-over-year.
Still, at $18.5 billion it marked the company’s highest gross lodging bookings
for any third quarter.

Record B2B growth

Along with the new tech stack and OneKey program, Expedia
Group has been prioritizing growth in its B2B business, where the focus is on operating
private label and cobranded programs to sell travel through third-party branded
websites.

In October the company announced several new B2B partners,
starting with a
string of travel companies in Asia Pacific and a few weeks later with news
it is working with the Air
Miles rewards program and Afterpay, a buy now, pay later provider in
Australia. 

The focus on B2B with new clients such as those, as well as Mastercard
that came on board in May and Walmart
in July, is paying off.

In the third quarter, Expedia Group’s B2B revenue was $995
million, up 26% year-over-year and a record for the company. 

Kern said the company is continuing to add new partners and
increase “wallet share” with existing ones, particularly in China where Expedia
Group powers some of the offline and online travel agents. Kern said they have
seen 150% jump in demand from those partners, primarily due to a surge in intra-China
and intra-Asia travel. 

“We are still finalizing plans for next year … but in terms
of double digit growth we are confident the B2B business can continue to grow,”
Kern said. 

When asked about Expedia Group’s work with generative AI such
as ChatGPT, Kern said the company has recently begun highlighting the ChatGPT
tool that has been part of the Expedia website and app since April to users
and as a result it is seeing “much more engagement” with it. But, he acknowledged,
it is still “early days” and is not yet having a noticeable impact on
conversions or revenue. 

Beyond that, Kern said the company is still in the midst of
a “lot of discovery” to determine how best to use the technology, but that he
does view “generative AI as a bigger story for us long term.” In September, the
company
announced several new features using generative AI, such as the ability to
answer questions about a property’s amenities and services by using the
technology to pull details from user reviews.

Both revenue and adjusted EBITDA in the quarter were records
for the company. Revenue came in at $3.9 billion in Q3, up 9% compared to the
same period in 2022 while adjusted EBITDA in the quarter was $1.2 billion, up
13% year-over-year. Sales and marketing expenses in the quarter were $1.85 billion,
up 11% compared to Q3 2022. Whalen said this was primarily due to increases in
commissions paid in the B2B business.

The company also announced it has completed a record $1.8
billion in share repurchases year-to-date and now has a new $5 billion share
repurchase authorization from its board.

“We have confidence we are on the right path, and there is a
huge opportunity in front of us,” Whalen said.