Unfazed Expedia 'can grow through any disruption'

Despite recent upheaval in the travel industry, the financial results and future plans of Expedia seem to be keeping investors sweet. Sally White reports

All is well and rosy at Expedia, if those arch-critics on Wall Street are anything to go by. CFO Mark Okerstrom may talk in terms of ‘self-inflicted wounds’ bringing an incremental slow-down in bookings. He was referring to a reduction in the release of new features because the vast majority of the Brand Expedia sales team was diverted to integrating the Orbitz brands. Yet, since integration was faster than expected, with a benefit to the 2016 Q2 bottom line, the likes of Barclays, UBS, Deutsche Bank and other major investors are staying with their published ‘BUY’ recommendations, despite some share price slippage.

While there is a lot to worry about in travel at the moment, Expedia’s top management team was unfazed as it presented its latest financial results to one of the world’s toughest audiences. It told analysts last week that it expects a gain of 35-45% in the underlying profits in its existing business this year. So, what’s not to like!

CEO Dara Khosrowshahi was sanguine, although suitably cautious, about European business given the string of terrorist attacks: “Historically, after two-three weeks there is a rebound.” But, “clearly people are shifting the places they are travelling to”. Usually, in uncertainty “people stayed closer to home” - which suits Expedia since it did 58% of its business domestically.

Reassuringly, Expedia has not as yet seen any general slowdown. “But if there is, I think companies like ours, companies that are strong on technology and customer and brand sides, can grow through any kind of these disruptions.”  

“…companies like ours, companies that are strong on technology and customer and brand sides, can grow through any kind of these disruptions”

Expedia CEO Dara Khosrowshahi

Average daily rates declined by less than 1% in Q2 and revenue-per-room decreased by about five percentage points, according to Okerstrom. Overall hotel revenue grew 14% in Q2, with Orbitz contributing about 8%. He forecast “modestly improving room night growth in the back half of the year”.

True, Expedia’s Q2 revenue figures slightly undershot some analysts’ forecasts - at $2.19bn against hopes of $2.24bn, the result of room night growth of only 20% compared with a figure of 35% for the same period last year. But Expedia delivered earnings per share of 83 cents against a market consensus of 78 cents.

Khosrowshahi also spoke of the mooted IPO for Trivago, in which Expedia bought a 61% stake in 2012.

“We’ve created a lot of value with Trivago,” he reminded the analysts in his conference call; Trivago’s revenue topped $200 million in Q2. “The business is now five times larger and the growth rates are 40% plus since we bought it. We, and the founders, thought there would be benefits of pursuing an IPO and it is something we’re going to look into.”

So far there is no talk of Expedia selling out - “this is not a spin-off”, he added.

Margin upside, maximising spend and other next steps  

Points picked up on the conference call included the impact of hotel chains’ direct booking campaigns.

“What we have seen is a shift of our bookings from some of the chains that are discounting to independents and chains that are not discounting. So there has certainly been a share shift and that is maybe affecting Marriott average daily rates. The share shift, actually in an interesting way, is giving us a margin upside,” Khosrowshahi commented, and added: “We attract brand-agnostic travellers as far as what hotel or chain they’re staying at. If you look at Hotels.com on a global basis, the biggest chains in the world get less than 0.5% of searches.”

Expedia has increased its ad spend on Facebook and the two companies are looking at the returns. “We look to maximise spend on an affordable basis in any variable channel, which includes Google, includes meta-search and now, more and more, it’s including Facebook as well,” said Khosrowshahi.

Expedia is also looking at introducing more payment methods - PayPal and all kinds of credit cards.

And to the analyst who was worried about Expedia’s pace of hotel supply growth, seeing the 25,000 added in Q2 as “a very big number”? Khosrowshahi’s response was this figure was “nothing unusual...and I think every quarter we are going to add some amount close to that number.”

Expedia continues to build its online inventory at HomeAway, which delivered a 36% climb in revenue at $172 million. Overall, HomeAway listings grew more than 20%, year-on-year, said Khosrowshahi, and the pace of growth is rising. Planned is deeper integration of the inventory with other Expedia brands.

Planned is deeper integration of the [Egencia] inventory with other Expedia brands.

He is not too bothered about cities’ threats, post resident’ lobbying, to impose stricter enforcement of home-share laws. For a start much of the inventory is in mountain and beach destinations and all of it is for the entire home.

And there was already an indication of Expedia’s planned next sphere of growth - corporate travel. Expedia is already growing in the sector organically, with Egencia. 

Investment has been made in the platform, and “we anticipate acceleration in growth for the Egencia brand in the back half of the year and especially going into next year”. As Khosrowshahi said three months ago in his Q1 call, this could come faster, in the time-honoured Expedia way, with more acquisitions.

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