In a regulatory filing following the shakeup with Expedia Group’s leadership, chairman Barry Diller says that the “company can accelerate growth in 2020.”
But will the sudden resignations of CEO Mark Okerstrom and CFO Alan Pickerill save the company?
“While we agree these steps may be a positive for value creation, there are challenges at [Expedia Group] unsolved by relieving management,” says Mark Mahaney, RBC Capital Market’s lead internet analyst. “Expedia needs to wean off of Google SEO as a source of traffic or face getting further squeezed as Google continues to convert more traffic from free to paid.”
Last month, Okerstrom attributed the flat EBITDA performance in the third quarter of 2019 to “incremental weakness” in its organic search engine results as the company becomes more dependent on high cost paid links.
Okerstrom, who became CEO in August 2017, saw sales growth drop from 14.6% in first the quarter of 2018 to 8.6% in the most recent quarterly filings.
Mahaney adds:
“Navigating the Vrbo rebrand and returning this asset to sustainable double-digit percentage growth will take a strong operator. And the outlook for Trivago appears less certain given the declining relevance of metasearch.”
Trivago, which saw its CEO step down in November, posted a 1% year-over-year decrease in revenue for the third quarter of 2019.
Subscribe to our newsletter below
“Expedia has also been losing ground on its home turf to Booking Holdings, while not outperforming in international markets,” says Maggie Rauch, senior director of research and head analyst for Phocuswright.
“Ever since Okerstrom took over, he has diverged from the previous CEO’s approach in that he wants to bring all of the brands closer together, whereas [previous Expedia Group CEO] Dara Khosrowshahi was more inclined to set them up to compete with each other.”
Rauch says that the “forward-looking part” of the company’s statement is important because “it sounds like the board sees opportunity for Expedia to grow a lot faster.”
Lorraine Sileo, senior vice president of research and business at Phocuswright, is “surprised” by the news.
“Expedia is still on an impressive growth trajectory versus other, mature travel businesses, and connecting its services made sense for the company,” says Sileo. “There is still much opportunity ahead in achieving international growth, expanding the Vrbo brand and building out new businesses like tours and activities (these are also challenges).”
Vrbo, which was rebranded in March, faced backlash in October over the testing of unbranded listings. Revenue growth in the third quarter for Vrbo also fell short of the increase from the previous earnings period.
“Obviously, Diller and the board had a different vision (or timetable) from Okerstrom regarding details for achieving these growth objectives,” says Sileo. “OTAs in general are in a phase of reinvention as the market continues to mature.”
With new leadership on the horizon, what does the future hold for Expedia Group?
“Diller is a savvy businessman and may see an opportunity that is not apparent to others, but it is difficult to foresee the path for Expedia to attain dramatic operational improvements due to significant traffic, conversion or margin shifts in the near term,” says Robert Cole, senior research analyst for Phocuswright.
Cole says that Expedia Group’s share price was “excessively battered recently due to Google’s capturing a greater share of hotel bookings through its search properties.
“With a depressed share price, sizable potential share buybacks and a new management team, Diller seems to be supporting Expedia’s share price - and setting the company up nicely for further growth when the next downturn inevitably hits.”