Expedia Group Q3 “better than expected,” Vrbo up YoY

Expedia Group’s losses from the impact of COVID-19 moderated in the third quarter of 2020, but gross bookings and revenue still were down considerably compared to 2019, dropping 68% and 58%, respectively.

But in a call with analysts to discuss the latest earnings report, CEO and vice chairman Peter Kern and CFO Eric Hart expressed optimism in the stabilizing travel trends and “significant improvement” in the company’s cost structure. 

“Taking into account the impact COVID is having on travel, our financial performance was better than we expected – with over $300 million in adjusted EBITDA and reaching essentially cash flow neutral in September for the first time since February,” Hart says.

That adjusted EBITDA figure is a drop of 67% compared to the same period in 2019 but a dramatic improvement over the second quarter of this year when adjusted EBITDA was negative $436 million.

Lodging revenue decreased 52% in the third quarter of 2020 on a 58% decrease in room nights stayed, while air revenue decreased 87% with a 74% decline in tickets sold. 

Alternative achievement

Similar to Q2, the bright spot for the company remains Vrbo, which saw both bookings and revenue increase compared to the third quarter of 2019, although the company does not release figures specifically about Vrbo.

Kern says the company is taking steps to expand its margins in Vrbo bookings through work in areas such as payments and fees. 

“We definitely think that we did not plan the Vrbo rebranding as strongly as we wanted to. There is opportunity now given that so many people are using it and the use case is so attractive right now ... that we intend to and are already pushing into a much more aggressive plot to broadly push the brand,” he says.

“We’ve turned the brand over in a few more markets in Europe just a few week ago. And we will keep pushing. ... We think that is a place we want to be more bold even in a down market and we will continue to be pushing into that.”

When asked if he thinks COVID-19 could mark a permanent shift in consumers’ accommodation preferences, Kern says: “I don’t think there’s anything that suggests anyone’s winning or losing in a way that will give them long-term benefit.

"For us with Vrbo, we believe it’s really good for the brand, and people are getting a lot of exposure to that use case and people are seeing how nice that vacation can be. I don’t think that means that people never go back to hotels, but I think it helps us relative to Airbnb, so that’s good for us.”

Cost-cutting

Hart says Expedia Group is “keenly focused on driving margin expansion” through three strategies: resetting the fixed cost base, reducing variable costs of revenue and improving marketing efficiency.

At the start of 2020, Hart says the company was targeting $300 to $500 million in annualized reductions in fixed costs and was tracking ahead of that in Q2. Now, due to additional staff reductions and other cost savings, Hart says the company is looking at $700 to $750 million in “annualized run rate savings compared to our 2019 exit rate. And we’ve already actioned over $550 million.”

For variable costs, Hart says the greatest opportunity for savings will come through the development of the company’s conversation platform that enables customer service to be delivered through virtual agents and self-service options and is being rolled out across websites and mobile apps. Hart says that platform, along with cost reductions in its payment platforms and cloud spending, could account for $200 million in savings once travel volumes return to 2019 levels.

In the area of marketing, expenses decreased 68% compared to the third quarter of 2019, with Kern noting the company has “taken our foot off the gas in some areas of performance marketing and unprofitable performance marketing,” which has accounted for a relative increase in direct bookings.

At the same time, the company is working to “retool and recalibrate all the algorithms ... to optimize for multi-brand instead of brand against brand," he says.

“During this period while we do that and while there is so much uncertainty in the market, we clearly have a bias toward profitability ... and a bias toward caution. So we are not chasing share that might be unprofitable,” he says.

“We are trying to be very prudent here while we rebuild everything, on the theory that by the time COVID is over ... once the plumbing is rebuilt and once we are ready for multi-brand, we will be able to not only maintain but grow share at similar or better profitability as we have had before.”