Expedia Inc reported its second quarter earnings today, and it had a rosy picture on many metrics. But one metric stood out to investors for its sluggish pace, namely, the pace of room night growth.
In the second quarter, the dollar volume of room nights booked through Expedia Inc brands (excluding eLong, Orbitz, and HomeAway) grew only 12%, compared with a growth of 35% in the same period a year earlier.
On a related point, Expedia Inc anticipates that another metric, revenue per room night, will decrease year-over-year through 2016.
The company chalked up some of the sluggishness to a falloff in bookings because of the recent terrorism attacks in Europe.
But some investors were concerned about whether some of the slowed pace was due to major hotel chains launching a marketing campaign in favor of direct bookings and cutting out middlemen agencies. This year Hilton and Marriott began offering loyalty rates that underprice the online travel agencies (OTAs).
The level of the discounting is disputed, but one investment analyst, Kevin Kopelman of Cowen and Company, estimates the typical discounts to be 2%-20% off the rates available on the OTAs.
One analyst raised this question on today's earnings call. Chief executive Dara Khosrowshahi responded:
"We haven't seen any real correlation in our performance in chain-heavy markets versus chain-light markets. You would think that in a market that has lots of chains, you would see some commercial or performance degradation to the extent that inventory quality is lessening. But we haven't seen any of that whatsoever....
What we have seen is a shift of our bookings from some of the chains that are discounting to independents and chains that are not discounting. So there has certainly been a share shift, and that may be affecting Marriott average daily rates. The share shift, actually in an interesting way, is giving us a margin upside...."
We attract brand-agnostic travelers, as far as what hotel or chain they're staying at. If you look at Hotels.com on a global basis, the biggest chains in the world get less than .5% of searches... Of all the consumers searching Hotels.com, fewer than 0.5% are searching for specific large brands....
We'll keep looking at it... As far as competitive brand marketing activity, the big chains' campaigns are probably not good for us....We want to have a promising dialogue with them...
Chief financial officer Mark Okerstrom echoed the point, saying that he suspects that the majority of the incremental slowdown in bookings is "is self-inflicted."
The company had some "networking, infrastructure stability issues" in the first half of second quarter due partly to the on-boarding of Orbitz's inventory onto its technology platform. The system is now stable, Okerstrom said.
A second self-inflicted wound was that digesting all of its recent acquisitions has slowed the pace of the company's test-and-learn approach to user interfaces, which has slowed the pace of gains in conversion.
Earlier this year, Expedia argued that publicly available loyalty rates may be bad for hotel owners.
Trivago IPO?
Expedia, Inc., and the founders of Trivago will consider having an initial public offering of Trivago shares. But Expedia doesn't expect to sell its shares in the German hotel metasearch brand.
Trivago grew revenue 41% year-over-year, in the second quarter, to $201 million.
HomeAway growth
Expedia continues to build up online bookable inventory on HomeAway, its vacation rental platform acquisition, beyond the 1 million it has to date.
"HomeAway delivered $172 million of revenue, representing an increase of 36% year-over-year on a standalone basis," the company said. That growth came despite some vocal complaints about HomeAway establishing a traveler service fee in the US and Europe and, as of July 11, a single subscription option globally. (See Tnooz's most-commented-on story of the year, for details.)
Overall HomeAway listings grew more than 20%, year-over-year, and the pace of growth was accelerating, said Khosrowshahi, who described the brand's performance as "better than expected".
He plans a deeper integration of HomeAway's inventory with the other Expedia Inc brands. He said the company will have more to say about distribution of that inventory on Expedia, Hotels.com, and other brands. It seems that vacation rentals will sit side-by-side with hotel inventory, rather than mix into hotel listings links to listings on HomeAway.
Other news
On the homefront, Expedia is reducing the size of planned construction on its 40-acre campus on Seattle’s waterfront, to save hundreds of millions in construction costs. The company will start with only the space it expects to need in the near future, building additional units as needed. The company intends to relocate downtown from a tower in Bellevue.
The company hopes to move in to the new campus in 2019 for close to half the previous estimate. The downtown setting aims to be a more appealing place to work for highly sought after developers.
Meanwhile, across Expedia Inc brands, Facebook is an increasing focus of experimentation. The company's spend on the social media platform is "up significantly."