Expedia Group said that it had re-focused the company on core operations after the group “had suffered for much of 2019” and could remove some of its brands in selected territories.
Chairman Barry Diller told analysts: “We’re stopping this complexity. We're simplifying our strategy. We're stopping doing dumb things and starting to do what we think are good things.”
Diller said that this would mean shifting from “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 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.”.
The chairman dismissed claims that the group was losing share to customers booking direct at hotels, commenting: “There are some direct channels that people like to use. But overwhelmingly, people use online agents to book hotels and are going to continue to do so.”
Diller said that the company would focus on its relationship with Expedia Partner Solutions, with the group “bringing together all the data in the company into one place where our best data scientists and AI and machine learning engineers can use that data to learn faster”.
Diller was more exercised about the threat posed by Google, which he described as competing against one of its largest advertisers. Diller said: “I told the senior management of Google what we feel about this and implored them to stop taking away the profits from businesses that are probably one of their main contributors to their advertising revenue.”
He added: “The government is getting engaged in this. When businesses get to this size, they absolutely have to have regulation, sensible regulation. I'm not talking about breakups. I'm not talking about any crazy stuff. But I do believe that will happen.”
The company saw its share price rise by 11% after reporting results ahead of guidance, commenting that it expected to accelerate profit growth this year, believing “strongly” that it would be in double-digit Ebitda territory. For the full year 2019, the group reported adjusted Ebitda up 8% to $2.13bn. Total stayed lodging room nights increased 11% for both the fourth quarter and full year 2019.
Looking at the first quarter, acting CFO Eric Hart said that adjusted Ebitda would be down “substantially”, with Vrbo losses “significantly higher due to the usual seasonal trends as we invest to drive growth that will come later in the year. Cloud costs continue to ramp and will have some carryover effect from the operational headwinds that we experienced late in 2019”.
Commenting on Vrbo, vice chairman Peter Kern said: “We don't need to have Vrbo in every market because alternative accommodations can be provided to the customer base through our other brands.
“We have many brands all over the world, different ones are strong in different markets. We have historically taken a brand-by-brand approach. And now, we are taking a market-by-market approach. And we will push the best brands in every market and we may take some brands out of certain markets.”
Diller said: “Last year, we spent probably nine months of the year on this massive reorganisation. It was a vastly complicated process that froze us. Management didn't really have a clear path how to grow the company. We’d somewhat become a kind of consultant-led and wildly complex business.”
The chairman said that the group was targeting $300m to $500m of run-rate cost savings across the business. He added that the group was not estimating the full effect of Coronavirus, with Kern commenting that it was “a terrible thing for humanity and also a not very good thing for our business”.
Hart said that company expected approximately $30m to $40m impact to adjusted Ebitda in the first quarter from the outbreak, and “some impact” beyond Q1 and 2020.
Commenting on the need to replace former CEO Mark Okerstrom, Diller said: “We’re not doing a CEO search. I don't know that we’ll ever do an actual search. I'm not a big believer in ‘searches’. I think, they usually turn off the usual and obvious suspects. That is not to say that during the calendar year ‘20, a chief executive will emerge from this process.”
He concluded: “If you come to Expedia increasingly, you're going to have a product that is actually going to not only ease the process but can add value to the process. Because we're the only ones who can really package. We're the only ones who can officially put things together and magically offer people a lower price and probably a better experience.”
Insight: No-one in anything approaching a right mind would bet against Barry Diller, a man with a digital media empire who also built his own park in the Hudson off New York. Certainly the market found his bullish call much to their liking and there was a feeling of ‘it’s OK, Daddy’s back’ and snowflakes beware.
But should hotels be afraid? Diller certainly wasn’t afraid of them and their direct booking strategies - he has a strategy of his own, which is not to be dumb and it does have a certain ring to it. The group knows what it has in terms of the customer, which is having successfully sold the message that booking with them is cheaper. It doesn’t look like it’s pulling back from that - why should it - so the message to the independent hotels and small groups is that it can offer them data to help smooth their way to market - the same message that Okerstrom was delivering.
As for the likes of Marriott International? It proved that size was relevant in its recent negotiations with Expedia. Others will need to follow if they want the same advantages.
As for what’s spooking Expedia? Google. Expedia and a group of travel companies recently asked the EU to investigate Google’s search results practices. Diller has gone to Google direct to remind it of where the golden egg-laying geese are. He said that he didn’t expect government to deal with his problems for him (although clearly that would be pleasant). Google has yet to push the button fully on its travel business and go direct. But it remains clear that it will be carnage out there should it do so.