The past few months have been a busy time for Expedia Group, what with new technological advances, the launch of a unified rewards program, B2B partnerships with heavyweights like Walmart and Mastercard and a harsh breakup of another with Hopper.
The period also proved lucrative, as the Seattle-based company on Thursday reported lodging gross bookings of $19.2 billion, a 7% increase year-over-year and revenue of $3.4 billion, a 6% increase from the same period last year. Both were company records for the second quarter.
Those records didn’t impress Wall Street, where the stock tumbled more than 16% Thursday after a slower pace of growth left revenues shy of analysts’ average estimate of $3.37 billion.
Yet where investors saw signs — for a day, at least — that travel’s post-pandemic punch bowl may be running dry, CEO Peter Kern had a longer timeline in view. In a wide-ranging call with financial analysts Thursday morning, Kern spoke about One Key, Expedia Group’s new rewards program, the growth of its B2B partnerships, plans for ChatGPT and artificial intelligence — and why’s he’s optimistic about Expedia’ Group’s prospects for the second half of the year.
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Of course, he talked about the numbers first.
“Travel demand has remained robust, and we’re pleased to see our continued execution result in solid performance for the second quarter,” he said, later adding, “Overall, the data shows that travel continues to be a top priority for consumers.”
Besides the record-setting figures, adjusted EBITDA was $747 million, an increase of 15% year-over-year and net income for the quarter was $385 million, compared with a net loss of $185 million for the same period a year ago.
Sales and marketing expenses for the quarter came in at $1.75 billion, up slightly from the $1.7 billion spent in Q2 last year but less than the company had budgeted — which was one source of Kern’s optimism.
“We are particularly pleased we were able to meet our second quarter financial goals while electing to move some of our marketing spend from Q2 to Q3, where we believe it can be better spent in support of the launch of One Key and our accelerating growth in the back half of the year,” he told analysts.
One Key for all Expedia Group's brands
Expedia Group launched the unified rewards program at the start of July. One Key allows members to earn and use rewards on bookings through Expedia, Hotels.com and Vrbo.
“One Key is closest in what it offers to what the brand Expedia was historically,” he said. “You earn points, the points are worth money, you can spend the money.”
Adding Vrbo means those points can be spent on vacation rentals for the first time.
“Now Vrbo will have rewards, which Airbnb doesn’t have,” he said. “You’ll be able to use it for your next Vrbo stay, but you can also use it to go to a hotel or take your family on a flight or whatever.”
He was sensitive to grumbling from Hotels.com super users, who had enjoyed that brand’s old rewards program in which they got a free night every time they booked 10. Expedia Group sought to placate them with more member discounts that increase for frequent travelers who qualify for new, higher tiers. Meanwhile, less-frequent travelers get at least some benefit, even if they aren’t away from home for as many as 10 nights.
“That [Hotels.com program] was a very valuable benefit for a super user,” Kern said. “But a vast majority of users didn’t get a benefit because they never stayed enough nights. We’re trying to make that program much more attractive to all users while still keeping it very attractive to the super user. … Now you can use [accumulated points] on anything. … You can do a lot more with it.”
As Kern described it, a “best-in-class rewards program” is the keystone to Expedia’s larger B2C ambitions of building “a more valuable” customer base — though it’s something that will take time as the company waits to see if One Key succeeds in building stronger loyalty with the customers it attracts.
“It will continue to build,” Kern said. “You’ll start to see it show up in all our marketing for all our brands. We believe that’s a hook that will continue to make intelligent consumers choose us because we’ll be a better value that gives them more back for their other travel.”
On B2B partnerships and ChatGPT
As for B2B, Expedia Group saw a record $861 million in revenues in the second quarter, a year-over-year increase of 32%. That came on the heels of Q1 B2B revenues of $668 million, which represented a 55% increase over the previous year.
The company has stayed busy on that front. On July 25 it announced a deal to create a new travel platform for Walmart shopping club members that gives them cash rewards for each booking. That partnership followed a deal in May with Mastercard that would allow cardholders to redeem loyalty points for travel bookings made through Expedia. And that deal came just after it signed SoFi, the online bank based in San Francisco, allowing its customers to get discounts and rewards while booking on Expedia’s platform through the bank’s travel portal.
“Our B2B business has greater exposure outside the U.S. and has benefited by continued opening of markets around the world,” he said. “The engine for our B2B business is fueled by the same technology, supply and service that serve our own brands. And as we have advanced in all areas over the last several years, this has only added to the velocity of our B2B business. We believe we have the most successful and differentiated B2B business in the travel world.”
Kern was also keen on what he called Expedia Group’s “industry-leading AI capabilities” — though he was less certain of its near-term impact on the numbers that impress Wall Street.
The second quarter saw Expedia Group become one of the first travel brands to provide a plugin for ChatGPT in March. Within weeks, it added a new travel planning tool to the Expedia brand iOS mobile app that uses ChatGPT. One for the Android app came out last month.
“We’ve been learning from consumer interactions and are adding a number of new features to help consumers on their journey of discovery,” he said. “Travelers can now start a new conversation by choosing from suggested prompts and soon they will be able to return to a conversation at any time and even respond throughout a conversation by simply choosing a suggested response. All of which is designed to bring them one step closer to booking their desired trip.”
But the impact, from an investor perspective, is still minimal, he said.
“I think the future lies much more in a better integration, which will come as more large language models come out, and we figure out how to embrace them with our own data,” he said. “… So there’s a lot of work, not just by us, but by the industry around the large language models on prompts and other ways to get customers through it more easily. And I think all those pieces will add up to more impact, but … you wouldn’t see it in the numbers.”