Expedia Group’s net income fell 22% year-over-year in the third quarter of 2019, and adjusted EBITDA was flat, due in part to declining search engine results.
The Seattle-based travel giant reports that revenue increased 9% year-over-year to $3.56 billion, narrowly missing analyst expectations of $3.58 billion.
In a call to discuss earnings, CEO Mark Okerstrom says that “the quarter did not play out as planned.”
“We saw incremental weakness in SEO volumes and a related shift to high-cost marketing channels,” says Okerstrom.
Changes in recent years to Google’s algorithm has forced Expedia and other OTAs to lose organic visibility and rely on paid advertising to reach consumers.
CFO Alan Pickerill says the SEO challenges can be felt “across multiple product categories and multiple regions” and moving to paid links presents “a sizable headwind for us.”
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While discussing the need to diversify marketing channels and to be less reliant on Google, Okerstrom says that some progress has been made with digital video, Instagram and social influencers.
However, Okerstrom says that social media is “more difficult to measure” and the company is unable to “get a real read on ROI.”
Okerstrom says that the company will focus on “being more customer-centric” in order to offset organic traffic losses with direct traffic growth.
Vrbo and Trivago
Vrbo’s gross bookings were up 5% year-over-year, as Expedia Group integrated more than 650,000 Vrbo listings by the end of the quarter.
Revenue for Vrbo grew by 14% to $467 million, but less than the 17% revenue increase in the previous quarter.
Okerstrom attributes the decline in Vrbo’s growth to “additional costs related to the payment process migration.”
“Profit was softer than expected at both Trivago and Vrbo.”
On Tuesday, Trivago reported a decline in revenue, net income and qualified referrals in the third quarter.
“Trviago saw volatility in their marketplace related to new advertise features they introduced,” says Okerstrom. “That contributed to lower than expected revenue.”
As a result of the decline in revenue, the company will reduce 2019 profit expectations for Trivago and Vrbo, as well as the 2019 guidance for adjusted EBITDA growth.
Okerstrom says that while the company is “disappointed” with the third-quarter results, it is “actively working to navigate” through the challenges.
“We are encouraged with our progress in many areas and are optimistic that we can further build on those trends as we execute on our key strategic themes.”
Gross bookings increased 9% to $26.9 billion in the third quarter, with the highest growth in the core OTA segment.
Domestic gross bookings grew 10% year-over-year, while international gross bookings climbed 5%.
Total stayed lodging room nights rose 11% in the quarter.
“We are seeing great progress in many areas and we are well-positioned to capitalize on the significant long-term opportunity in the travel market,” says Okerstrom.
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