Google, Barry Diller, annual marketing spend - what to watch in upcoming online travel earnings

Record ad spending, new alliances and the ousting of the CEO of an online travel giant.

After an eventful quarter in online travel from October 2019 to December 2019, what will the earnings reports tell us about the financial performances of these companies?

For most companies, the upcoming earnings reports include details from both the fourth quarter of 2019 and the full year.

Here are six important questions regarding the upcoming earnings for online travel.

1. Who’s feeling the Google squeeze?

If there was one commonality during the previous quarter’s earnings calls, it was the prolific mention of Google and financial disruption caused by SEO changes.

TripAdvisor’s Steve Kaufer (who has a history of being an outspoken critic of Google’s search practices) said that “Google has gotten more aggressive” while blaming the search engine for promoting its own hotel products and extracting quality traffic.

eDreams Odigeo CEO Dana Dunn said that the company achieved growth in bookings “after absorbing the SEO changes introduced by Google.”

Mark Okerstrom, then-CEO of Expedia Group, attributed some of the quarter’s poor performance on declining search declining results.

“We saw incremental weakness in SEO volumes and a related shift to high-cost marketing channels,” said Okerstrom.

Was SEO really the culprit behind Expedia’s third-quarter woes? There could have been other operational issues at play.

“It remains unclear to us how easily solvable the SEO headwinds are given the centrality of Google to OTA search volumes,” analyst Mark Mahaney writes in RBC Capital Markets' Large Cap preview.

Is this the beginning of a new chapter when online travel companies are calling out Google? How often will the G-word get mentioned in the upcoming earnings calls?

2. Who’s leading the Expedia call?

Expedia Group Chairman Barry Diller wasn’t buying the “SEO headwinds” story, so Okerstrom and CFO Alan Pickerill resigned from their positions on December 4 at the request of the company board.

Diller said that “senior management and the board disagreed on strategy” and believes that “the company can accelerate growth in 2020.”

As part of the shakeup, Diller and Vice Chairman Peter Kern have temporarily stepped into the leadership roles until a permanent CEO and CFO are found.

According to Business Insider, Diller reportedly told employees at an all-hands meeting in December that the company was not looking for a replacement CEO.

With no new CEO at the helm at this time, Diller himself could be leading the earnings call in February 2020.

How will the 77-year-old businessman – who has a reputation for being extremely candid and blunt – address the company’s challenges during the call?

And if not Diller, will Kern lead the call?

3. How much did online travel giants spend on advertising and marketing?

Expedia Group and Booking Holdings spent a record $10.6 billion on advertising in 2018 (an 8% annual increase) – and they’re on pace to surpass that record for the fiscal year 2019.

Booking Holdings dropped $4.96 billion last year under the “performance marketing” and “brand marketing” categories.

It already spent $3.97 billion at the end of the third quarter in 2019, compared to the $3.94 billion spent during the same period last year.

Expedia Group’s spending under the “selling and marketing” category in 2018 reached $5.68 billion.

It already has already paid out $4.85 billion at the end of the third quarter in 2019, exceeding the $4.55 billion from the previous year.

The irony is that Google, their competitor, has been the recipient of most of the customer acquisition spend.

“If you want to get people to come to your site, generally you have to market,” Glenn Fogel, CEO at Booking Holdings told PhocusWire’s Kevin May at the PhocusWright Conference in 2019. “Marketing is not free; you have to spend money on it. You want to do it as efficiently as possible to minimize those customer acquisition costs.”

4. Is this a new era for TripAdvisor?

TripAdvisor managed to steer the conversation away from its poor financial performance in the third quarter (a decline in revenue and EBITDA) by announcing its partnership with Trip.com during its earnings call.

It’s been a new era for the online travel giant.

In the third quarter, TripAdvisor introduced a direct-booking feature to its Sponsored Placement products for accommodation providers.

It also launched its first self-serve advertising platform called Media Manager.

TheFork, its restaurant reservation subsidiary, acquired Bookatable from Michelin.

Did these changes improve the financial performance in the fourth quarter? If not, perhaps TripAdvisor can pivot away from its financial performance and discuss its new brand realignment with Viator.

5. Can Sabre overcome headwinds?

With Travelport’s move to the private market last year, there will only be two global distribution systems disclosing its annual results in February. Of those two, Sabre has the most challenges.

Among the headwinds for Sabre include its costly digital transformation and legal issues from the Department of Justice (DOJ).

The antitrust trial with the DOJ pushed the date of Sabre’s earnings call until the end of February.

To make matters worse, Air India announced in January that it is leaving Sabre as its GDS provider and using Amadeus instead.

But it’s not all bad news for the Southlake, Texas-based company.

In the fourth quarter, Sabre – along with Amadeus – agreed to distribute ATPCO’s Routehappy rich content into its shopping interfaces and applications.

It also acquired Radixx, an airline retailing vendor specializing in services for low-cost carriers, for $110 million in October 2019.

Recently, Sabre announced a 10-year partnership with Google that will include the creation of a new marketplace for airline and agency customers.

Still, with Amadeus posting gains in revenue and EBITDA during the previous earnings call, Sabre has its work cut out.

6. How much money did Uber and Lyft burn?

Uber and Lyft failed to live up to the hype of their IPOs in 2019, with both ride-sharing companies losing massive amounts of money.

In the third quarter, Lyft experienced a net loss of $463 million.

Uber lost $1.2 billion during the same period, but its ride segment did achieve a positive EBITDA.

Both companies have pledged to achieve profitability by 2021 and have slashed jobs in order to reach that goal.

There are also numerous headwinds for both companies, most notably California’s AB5 legislation that reclassifies gig workers as employees.

Despite these issues, RBC Capital’s Mark Mahaney is bullish on Uber, citing large market opportunities and a compelling value proposition.