Mark Okerstrom, chief financial officer for Expedia Inc, loves doing deals. The more complex, the better, he says.
In the past two years, the 42-year old lawyer led the company's successful acquisitions of German metasearch site Trivago and the online travel agencies Travelocity in the US and Wotif in Australia.
He also led Expedia's investment today in Decolar, the Latin American online travel agency group with the highest revenues among the regional incumbents.
Today Okerstrom spoke to investors at the Piper Jaffray Technology, Media & Telecommunications Conference. Managing director at the investment bank Mike Olson asked some unusually sharp questions for this type of event.
Okerstrom, who used to do mergers and acquisitions for Bain & Company's private equity arm, is clearly most enthused about the prospect of even more acquisitions and partnerships globally.
But he also talked about what he doesn't like about TripAdvisor's instant booking product.
Questions and answers have been edited and re-arranged for clarity and brevity. Transcript is here, though.
Tell us about the Decolar/Despegar investment.
It’s an investment of $270 million, for less than 20% ownership. We’ll be powering their hotel supply....
We’ve been partners with Despegar/Decolar since 2002. We’re big fans of the management team. We’re very happy to take an equity interest in that part of the world.
First, Despegar, which operates as Decolar in some countries, is really the number one player. They’ve built a very solid position in Brazil, Argentina, and most Latin American countries, where they are the player to be reckoned with.
Were the acquisitions of Travelocity and Orbitz smart? Aren't those brands too focused on air, which has lower margins, and domestic US, which has lower growth rates?
Those acquisitions are a continuation of a strategy we’ve been pursuing since the beginning of Expedia Inc. Our strategy is to own and power the best travel brands in the world….
We’ve built some real competitive advantages in the global scale of our technology platforms and of our hotel supply footprint. It enables us to go in and acquire these iconic brands, like Travelocity and Wotif, ones that have invested hundreds of millions in creating brand loyalty.
We can bring to those sites modern technology platforms and better hotel supply.
But other companies are investing in new verticals like restaurants, tours and attractions, and other categories. Is focusing on the core traditional air/car rental/hotel space a big enough of an opportunity for Expedia?
Listen: restaurants, activities, you name it, that can be a good strategy and there are certainly opportunities for there to be different strategies by different players.
But given the advantages that we have, we think we have a lot of runway ahead of us in air, hotel, and car rental. That’s $1.3 trillion a year, and we only have $50B of it. We’ve got a long way to go in the core business.
We already have a big activities business. We own it, we need to scale it up.
What about the mix of US versus international?
We’re right now about evenly split. About 50% of our revenue comes from US travelers, and about 50% from overseas. We’d like to get the international share up to 60% or 70% eventually.
What geographies are you under-serving and might expand further into?
The world is large. The Middle East. Southeast Asia. Eastern Europe. The rest of Latin America.
Global scale counts in online travel distribution.
What about China, such as your majority ownership investment in eLong?
China has a lot of e-commerce giants with a lot of deep pockets engaged in a deep battle with their pawns.
We did say on our recent earnings call that eLong lost $27 million in the fourth quarter and we expect quarterly losses to continue. But, strategically, we have a business that's in a nice position in China, which is a huge $100 billion travel market that is growing quickly.
Another player, CTrip, has seen its margins go from mid-40s to sub-zero in recent years, a sign of market pressure. Is ELong's strategy similarly about toughing out the short-term for long-term gain?
In our eLong investment, we have great partner with Tencent. They own 15% 10% of eLong and we have good relationship with them. CORRECTION: 6pmET: I originally wrote 10%. Sorry.
ELong is very well capitalized, with more than $300 million in cash.
For our shareholders, we aim to create shareholder value. We'll see what form that takes regarding China in the next year or two.
Expedia Inc., like Priceline Group, refuses to participate in TripAdvisor's new Instant Book product. Would you change your mind if TripAdvisor successfully signed up a majority of the big hotel chains?
It’s question of whether the big hotel chains will go into TripAdvisor and create a third OTA. That’ll be interesting to watch over time.
Even if they got the big hotel chains, we don't expect a change in our view.
For us, it's about the instant book product. It's not an attractive marketing channel.
What we don't like about instant book is that it isn't well branded for us. The consumer doesn't get the message that Expedia is doing the legwork. The traffic we would expect to get wouldn't particularly generate repeat economics.
To change our view, we'd have to see a dramatic shift in the product.
You’ve amped up your partnership with HomeAway, the vacation rental platform, in the past few months. Why?
We’ve been testing vacation rentals, placing them beside hotel offers in some cases to see if it resonates with our consumers. That’s basically it.
Vacation rentals are certainly, thanks to Airbnb, increasing in PR buzz if not in popularity. We wanted to test if vacation rental product would resonate with our consumers. That’s basically it.
Can we drive consumers on a recurring basis to vacation rentals in a way that is incremental to our business, that improves conversion without hurting our unit economics? It’s still pretty early.
As HomeAway drives toward making more of its properties online bookable, how does that affect Expedia?
To the extent they can do that, we'll be thrilled to display them in the test we're doing.
Is your spending on online marketing rising too fast?
We are certainly spending more in online marketing than we have in the past, but it’s a byproduct of being able to spend more. The conversion rates on our technology platforms are getting better.
That means the expected value of a visitor is higher. As a result we can spend more to get more.
Has pressure from Priceline been making things more competitive?
Everyone talks about Priceline, but we also get competition from the hotels and airlines directly, from traditional travel agents. The market has always been competitive, and that dynamic won’t change soon.
Is metasearch a good thing or a bad thing for traditional online travel agencies (OTAs)? Is it a negative because it allows consumers to see hotel’s direct pricing right next to the OTA rates?
Net-net, we think it’s a good thing. Generally everything a consumer likes is a good thing. That’s why we took a majority position in Trivago.
The metasearch site is getting big, with more than $400 million in revenue last year, 68% year-over-year, despite significant foreign exchange headwinds.
For the OTAs that participate, they get very qualified leads. They know what hotel they want and what dates, for instance. So conversion rates are nicely high and its cost efficient.
EARLIER:
Expedia eyes South America, invests $270 million in Decolar online travel agency
Expedia CEO Dara Khosrowshahi on what’s working, what’s not
What TripAdvisor’s instant booking means for hotels
eLong heads into hyper-competitive 2015