CEO Dara Khosrowshahi was somewhat on the defensive today in answering investor questions on a call for second quarter 2013 for Expedia, the world's largest online travel agency.
The company saw a broad negative impact as TripAdvisor moved to metasearch, hurting Expedia on all metrics. In response, the company plans to tweak its bidding strategy for gaining position in the top slots of TripAdvisor's metasearch results.
Consumers are no longer clicking on pop-up ads from TripAdvisor, as TripAdvisor replaced pop-up ads with hotel metasearch.
The top-line growth for Expedia Inc's consumer travel brands were hurt worse than expected as a result. Said Khosrowshahi:
The significant headwind came on both revenue and profitability on referrals from TripAdvisor.
Over the past year, we've been working with TripAdvisor to work its click-per-commission CPC buckets. The early results are encouraging.
The click share results are not at the same level we were at same time last year, but results have been improving on a week-on-week basis and we don't see any reason why that improvement wouldn't continue.
Hotwire is spiraling downward
A key problem: The company found that its Hotwire brand had performance was worse than expected in the second quarter.
Hotwire made a mistake in running a big sale in May that cost more incremental spend than it recovered in revenue. That drove its worse-than-expected performance.
As a broader trend, there has been a combination of weakness for both hotels and cars. Khosrowshahi summarized:
Hotwire isn't operating the way we want it to.
The TV war is rough
Repeatedly during the earnings call, executives came back to mentioning challenges in offline marketing of its direct channels. In particular, it appears that Booking.com is getting more aggressive within Kayak, within Google, and within TV advertising.
But executives say that what's new is the higher spending by rival consumer brands on TV.
In June and early July, traffic to direct channels -- the most profitable sources of customers -- have been below expectations, which is something the company is watching closely.
The move to a new commission model is promising
Expedia Traveler Preference (ETP) -- the company's effort to move to a model where customers can pay at check out rather than up front -- had some operational issues that has led to a short-term decline in hotel revenue margins per night.
By the end of the year, the company expects to have a significant share of its overall hotel business in ETP. By 2014, ETP will be an important driver of revenue.
Hotels that have transferred over to ETP are producing more than they did and more than their comp set. We want to make it a higher proportion of our overall revenue market. The large chains, like Marriott, are now converting to ETP.
Trivago may become a cash cow
On the plus side, Trivago performed well (growing 80% year over year) and eLong expanded aggresively in Asia.
Trivago added 11 points of growth to sales and marketing in Expedia Inc's performance, so things would have been worse for Expedia Inc without its acquisition of the European brand last December.
Expedia Inc assumes that Trivago will become net profitable within the second half. Trivago's model relies heavily on TV advertising to build up a brand, so right now it is requiring more incremental investment than it's delivering in net revenue. Trivago is currently in 39 countries and the plan is to make it broadly global.
Expedia shifted marketing dollars away from TripAdvisor toward marketing its new acquisition of Trivago as well as of eLong.
Some odds and ends
Google carousel, which alters the appearance of search results, didn't have any material impact, said Khosrowshahi.
The company said it hasn't noticed a significant compression of the booking window in any markets. But, that given the increase in mobile bookings is ongoing, Expedia Inc's executives are keeping an eye on whether mobile as a platform may cause compression.
Mobile is growing
Noted Khosrowshahi:
We have 50 million apps downloaded across our brands. We're seeing strong app usage. It's in the 20% range for many of our brands in many countries.
Higher than normal credit card fraud was also noted by the company's executives.
Expedia manages 6% of all hotel rooms booked in the US alone, so while it's the world's largest online travel company, it still faces a lot of pressure from a variety of angles.
Closing impression
Overall, investors may feel the following way: