Barry Diller cites “dumb things” and “mistakes” as Expedia still ends 2019 on financial high

Welcome to the Barry Diller era.
 
In his first earnings call since taking over day-to-day operations for Expedia Group, chairman Barry Diller very candidly outlined his 2020 plan to drive "sustained growth.”

In 2019, revenue increased 8% year-over-year to $12.1 billion.

Quarterly revenue reached $2.74 billion, falling short of analyst expectations of $2.78 billion, but representing a 7% year-over-year increase.

In a call to discuss earnings, Diller says the company’s previous management “didn't really have a clear path on how to grow the company” and “lost clarity and discipline.”

CEO Mark Okerstrom and CFO Alan Pickerill abruptly resigned from their positions on December 4 at the request of the board.

Diller says that last year’s “massive reorganization” was a “vastly complicated process that froze us.”

“We're stopping this ‘too large’ complexity,” says Diller. “We're stopping doing dumb things and starting to do what we think are good things.”

Strategy

In the earnings report, Diller and Vice Chairman Peter Kern writes that the Seattle-based company is “targeting $300-500 million of run-rate cost savings” and expects “2020 Adjusted EBITDA growth to be in the double-digits.”

Adjusted EBITDA increased by 8% in 2019, but only grew by 1% in the final three months.

Diller wasn’t shy about calling out the “dumb” things he wants to change.

“The wasteful activities that weren't core to our business, to actually driving sustained growth from every brand working in silos around the world to one strategy on marketing and the geographies across all of our brands, from our reliance on Google and metasearch, to aggressively moving to grow our own direct business and have loyal relationships with our customers,” says Diller.

Marketing costs shot up from $5.68 billion in 2018 to $6.03 billion in 2019.

In the call, Kern says the company is looking to “rationalize” its marketing spend by leveraging “common measurement tools.”

Diller says the new strategy includes building loyalty and getting “back to a pragmatic focus on streamlining our business” instead of “chasing the tail.”

“We were a bloated organization,” says Diller. “But over the years, just chasing the tail of growth and all that we're just adding people and people and complexity and all that stuff until, frankly, very few people figure out what the hell we were supposed to do during the day."

While Diller says the company “has not been as efficient as Booking.com in hotels,” he is confident in the product.

“The benefit of being able to get you hotel, air, cars, experiences, anything you need in travel is in one place - at Expedia,” says Diller.

Google

Although Google was not mentioned by name in Expedia’s earnings report, Diller says the search engine is “an existential issue.”

“Google has certainly monopoly share all over the world, and it does what monopoly shares get you to do, which is extend its business in every direction they can,” says Diller.

Diller called out Google’s search practices for being "unfair."

“When they compete against their advertisers and we are one of their largest advertisers,” says Diller. “They're using their tactics to squeeze these entities that are delivering real service is, among many things, anti-social. I mean, I think it's a bad practice.”

In a conversation with Google’s senior management, Diller says that he told them to “basically stop actually taking away the profits from businesses that are probably one of their main contributors to their advertising revenue.”

The next step, Diller expects, is likely to be government regulation.

“I don't think I’m asking anybody to come and save us from our mistakes,” says Diller. “And by the way, we've made our own mistakes in our SEO practices, which we are fast correcting.”

In its previous earnings call, ex-CEO Okerstrom blamed “incremental weaknesses in SEO volumes” for the company's weaker financial performance.

Kern says that the third quarter SEO situation was “a compounding of a number of tactical things that Google did and we did not respond well to.”

“We were caught up in a rather large undertaking in terms of reorganization and that took people's eyes off the ball and our view. We could have done better,” says Kern.

The company hopes to offset any SEO issues by building more direct traffic with customers.

“SEO is not going to kill us,” says Diller. “SEO is not the future of our business.”

Coronavirus

Acting CFO Eric Hart says that the coronavirus outbreak will be an issue for Expedia in APAC and other areas of the world – with the company potentially losing $30 to $40 million.

“We have a pretty good line of sight on its impact on the first quarter, but in terms of its duration and the depth of its impact, it is hard to predict,” says Kern. 

Diller believes that the coronavirus will be “contained,” and if not, “the entire world is going to shut down.”

“I think people are worried,” says Diller. “In New York City, people are in buses and subways with masks on.”

Diller adds: “Do we have a pandemic? I don't know. I have to believe that now the activism of every country in the world on this is going to contain it quickly.”

Vrbo

Expedia consolidated its alternative accommodations under the Vrbo brand in 2019 but struggled to sustain growth.

Diller says that Vrbo is “a collection of a bunch of disparate businesses, brands all over the world basically, that were brought together, and put under the name of - dumb name called HomeAway, which meant nothing to no one.”

The chairman says that the changes made to Vrbo in 2019 caused the company “to lose a ton of SEO traffic” and “it was not well executed.”

Vrbo’s gross bookings grew by 4% in both the quarter and the full year. Revenue increased by 13% in the quarter and 14% in the full year.

Kern says “the replatforming last year and the rebranding were definitely a distraction” and the company is now “keenly refocused on fundamentals driving core operations.”

New CEO?

Diller says there will be no traditional search for a new CEO.

“I'm not a big believer in searches,” says Diller. “I think they usually turn up the usual and obvious suspects. When you only know somebody from the interviewing and recommendations, I'd say your failure rate is usually certainly above 50%.”

Diller hints that a new CEO will likely emerge in 2020. Until then, the current management will continue to oversee operations.

And the Barry Diller era goes on.