It’s been a turbulent few months for Expedia Group, starting at the end of last year with executive shakeups, shifts in strategy and now the current fallout brought on by the coronavirus pandemic.
Despite this, new Expedia Group CEO Peter Kern, in his first earnings call since assuming leadership of the online travel agency last month, says he sees “great things ahead” for the company as it navigates the future of its business.
For the first quarter of 2020, Expedia Group revenue was down 15% from $2.6 billion in Q1 2019 to $2.2 billion. Gross bookings for the quarter ending March 31 were down 39% year-over-year from $29.4 billion to $17.9 million.
The company says gross booking growth remained positive in January, with bookings declining in February as the virus spread in Europe before impacting North America in March.
For the quarter, adjusted EBITDA was a loss of $76 million.
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Due to COVID-19, Expedia Group experienced "unprecedented cancellation volume" with the percentage of cancellation inquiries for air travel managed without an agent increasing from about 65% in February to over 95% in April.
“We were not perfect,” Kern says of the company’s response to the crisis in a call with industry analysts. “I don’t think any company could have been prepared for this. We learned a lot and will be in much, much better shape for the future.”
He continues: “I’d encourage you not to focus too much on those [Q1] numbers,” adding that the changes the company made at the end of last year – following the abrupt resignation of then-CEO Mark Okerstrom and CFO Alan Pickerill – have better positioned the company for recovery.
In February, Expedia Group began cost-cutting measures by laying off 12% of its employees, part of a wider strategy overhaul overseen by chairman Barry Diller.
Last month the company also announced $3.2 billion in new capital - $2 billion coming as debt financing and $1.2 billion as an equity investment by Apollo Global Management and Silver Lake Partners.
Kern says the virus has created more urgency and focus to streamline operations and has created an opportunity to work through “what had been thorny technology issues.”
Those issues were part of a strategy that persisted under Okerstrom – despite his desire to break down business "silos" through unified technology - and which Diller has referred to as “dumb” and “wasteful.”
Kern says the company has now “taken down those boundaries,” reconfiguring the organization by segment including retail, B2B, platform and corporate.
In the first quarter of 2020, revenue for the retail segment was down 17% year-over-year from $1.9 billion to $1.6 billion, while B2B was down 13% from $556 million to $485 million.
The Google question
Although Expedia Group has been historically dependent on performance marketing channels such as Google – spending $6.03 billion on marketing expenses in 2019 – Kern says the search giant has “tried to disintermediate us and we’ve made some not-terribly-smart choices along the way.”
He says the OTA has been “overly reliant” on performance marketing, chasing “unhealthy growth” over the years, and he believes the coronavirus is its chance to reset and become more disciplined in its marketing efforts.
“While we don’t have the volumes to test [alternative marketing channels] right now, we do have the opportunity for an entire reset because we’ve essentially gone to zero marketing,” Kern says.
“We can watch and learn and grow into it and not just dive back in headfirst and spend at the levels we were at. We have not done our job on a couple of fronts as our own brands competed … we were creating our own dynamics in the marketplace we never fully understood.”
In the first quarter of 2020, Expedia Group spent $1.2 billion on marketing, down 20% from $1.5 billion for the same period in 2019.
Alternative accommodations brand Vrbo has been a “bright spot” for the company, Kern says, as consumers stuck in cities are planning escapes away from the virus.
Kern says Vrbo’s focus on entire homes is an advantage over other brands, referring to Airbnb, which offers many urban dwellings as well as single rooms.
Overall, coming into May, Expedia Group has seen a growth in bookings and fewer cancellations as people begin thinking about summer holidays, though Kern declines to make number predictions.
“We are merely adapting to it as it comes and try to be smart about where the business is and help the business along,” he says.
“We have a global footprint in every line of the travel business that’s significant. We get demand wherever it is. The truth is we have a way to capture wherever demand is out there, wherever it exists in the world, whether it’s international or domestic.”