Expedia Group, Inc.

My name is Anne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Expedia Group First Quarter 2021 conference call. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone keypad. Thank you. I would now like to turn the call over to Patrick Thompson, Senior Vice President and DFO of retail. Thank you. Please go ahead.

Good afternoon and welcome to Expedia Group's Financial Results Conference call for the first quarter ended March 30, 2021. I'm pleased to be joined on the call today by our CEO, Peter Kern, and our CFO, Eric Hart. The following discussion, including responses to your questions, reflects management's views as of today, May 6, 2021 only. We do not undertake any obligation to update or revise this information. As always, some of the statements made on today's call are forward-looking, typically preceded by words such as, we plan, we expect, we believe, we anticipate, we are optimistic or confident that, or similar statements. Please refer to today's earnings release and the company's filings with the SEC for information about factors which could cause our actual results to differ materially from these forward-looking statements. You will find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in our earnings release, which is posted on the company's investor relations website at ir.expediagroup.com. And I encourage you to periodically visit our IR website for other important content. Unless otherwise stated, all references to cost of revenue, selling and marketing expense, general and administrative expense, and technology and content expense exclude stock-based compensation. and all comparisons on this call will be against our results for the comparable period of 2019. And with that, let me turn over the call to Peter.

Thank you, Pat. Good afternoon, everybody, and thank you for joining our call. We have some brief remarks. Of course, take questions. I'll start by talking about the Agencia deal, which we announced a few days ago. That proposed deal is extremely exciting to us. And in a few minutes, Eric will share the details. But I'll just say it really highlights three core things we're trying to do. One is find the best opportunity for all our businesses. And in this case, we felt that putting Agencia together with Amex GBT created a great opportunity new combined corporate enterprise that could focus entirely on the corporate customer and really provide a best-in-class suite of services to serve those customers. And our ownership in that company, we're very excited to have. Secondly, we signed a long-term lodging supply and tech contract agreement with the company. And you'll recall we have a big B2B business, Expedia Partner Services. It is core to our strategy long-term, and driving and powering the industry broadly is an important move for us. So this deal enhances significantly and just gives us more throughput to continue to innovate both on the supply and technology side to to provide great services to the entire travel ecosystem. And finally, as we've talked about endlessly over the past year, we are trying to simplify our company so we can focus on the most important and largest opportunities. And with Agencia in a great new home, should this deal proceed, we will be in a great position to focus on our B2C and B2B businesses and our core technology platform. And that's really a great chance for us to get simpler and get agility and speed in the rest of our core business. Moving on to recent trends, I would say, as I've said, travel remains a study in contrast for different geographies. Some are still shut down. Some, like the U.S., are quite open now. And equally, a study in differences between vacation rentals, domestic travel versus international travel. Business travel is more challenged. Conventional lodging, particularly in big cities, is more challenged. So it's really a study in contrast. It depends where you're strongest. We have benefited greatly in our vacation rental business and our domestic U.S. business, but other parts of the business still remain challenged. I would say, and many have reported already, but the summer looks strong, particularly in the U.S. and in other markets where vaccinations are well along the way. We are already seeing booking trends well above 2019 levels for leisure destinations, beach, mountains, et cetera. And that goes for not only vacation rentals, but also for conventional lodging. To give a little more color on bookings themselves, we said on our last call that we were down somewhere in the high 40% in 2019. gross bookings, net of cancellations in the January period, that has moderated to downs around 20% in March and has improved on that in April. So, the trends remain strong, again, driven largely by those strongest markets. But still, the trends are very good and we're excited about that. I would just keep in mind, while summer looks great and we are ambitious and feeling good about the overall recovery, that calendar is still a question mark. We don't know what seasonality will look like as long as COVID is here, and the usual trends that might come in the fall and winter are still unknown. So while we're extremely excited about summer, it's a little too early to predict how those trends with work from home, whether school is in session, et cetera, will change travel behavior. going into the following quarters. On the Vrbo front and vacation rentals in general, we continue to lean into that business. We have grown share in all our strongest markets and invested heavily in marketing and in acquiring hosts. And we feel like that continues to be a great opportunity for us, not just in this moment, but in the future as we capitalize on landing the brand and getting more people to experience Burbo and staying in vacation rentals. We are seeing some compression in the summer. People ask about that frequently. And I'll just say so far we have seen replacement as a pretty good solution. Most people look for something. If they can't find it, they'll find something nearby. And increasingly, as more people are vaccinated, they are willing and happy to stay in resorts and in conventional lodging. And I would say some portion of them would actually prefer it that way. And we're seeing in those leisure destinations for the summer very strong conventional lodging numbers. On the marketing side, I've mentioned in past quarters that we have taken a relatively conservative bias on how we've approached marketing. Rather, we have a little money on the table than get too far out over our skis. But in the course of the first quarter, we have sort of changed that bias and moved more, particularly in the back half of the quarter, towards investing and getting in front of the wave of demand we think is coming. That's taken the form of a number of brand marketing rollouts, including a brand new Expedia brand marketing campaign that started at the Academy Awards. We've relaunched our Orbitz brand with a focus on LGBTQIA+. And that's sort of, again, a push as we try to differentiate brands and really focus each brand on who their market is. And later this month, we have a great new summer ad campaign coming for Vrbo that we think will be really impactful. So, that investment in brand building is really important to us. We've talked before about going up funnel, creating that brand love, pushing for direct interactions, direct consumption. But keep in mind, it's not a quick-twitch tool like performance marketing, so we have to invest over time to build that, though we think it does have returns ultimately for performance marketing as the brands become more well-loved and more highly thought of. We are starting to see wins. I've talked at some length in the past about combining our performance marketing teams. They've been doing yeoman's work and a terrific job. We've actually put in a new leader who came from the outside and is a great new addition to the team. But I've said that before. I wanted to give one stat to give you a sense of the acceleration we're finally starting to get which is that 75% of our SEM spend is now on a new consolidated technical and data platform. And just for point of reference, at the end of last year, that was at 15%. So it is starting to accelerate. We're starting to get the wins we hope to get as we combine these. And as we invest more and get more aggressive and we're getting these wins, we're seeing our click share go back to historic levels or higher in our main products and our key markets. We continue to refine our marketing spend in general, and we will continue to test and learn, and there will be balancing as we learn. But I will say, we mentioned last time on our last call that we went off the Google meta product for vacation rentals. And actually, over this last quarter, we have pulled back from other vacation rental meta players. And so far, the results have been excellent. and as good or better than we could have hoped for in terms of the returns we have seen in getting more direct traffic and traffic other ways more efficiently so that has been a great move and we will continue uh to focus on that but again we will be up funnel more we will be focused you know and leaning into the wave ahead uh but it could be bumpy and we may be a little early but we believe now is the time to lean in and we will be leaning in accordingly On the platform and technical side, I made a promise that I'm not going to get into the business of telling 100 great stories about our technical platform. We are making great strides every day, and it is definitely where we are putting the most energy, time, and money. But I just wanted to point out one area of wins, because it really goes to how this is going to affect not just us as a business, but the customers, and that's in our AI and data products. We recently launched a reinforcement learning algorithm, which allows us to power different shopping journeys on a given page for different customers. And we are using it now, not universally, because, again, all of the tech is coming along, and it will be launched as it can be in more places. But we're using it to adapt and improve the customer experience to the specific customer journey. opportunity for conversion and improving the business, but most of all, it's a great opportunity to improve the experience for the customer and make it easier for them to find what they want. And in a related point, we're also using AI and telemetry data to track customer experience, to track friction points, and again, focus on taking that friction out of the customer experience. and making it great. So these are, you know, first-tier technologies that the best e-commerce companies in the world use, and we are now using it to make our consumer experiences better. And it's really exciting, great for the business, but in many ways even more exciting that we can drive customer love and a better customer experience. And so finally, I'd just say, you know, we are clearly benefiting from our relative strength in some of the best markets, VR, the U.S., et cetera. But it's a bumpy ride, and we're hoping for reopenings. I would say the announcement about New York City, you'll remember we're very strong in big cities and in international travel, neither of which have been doing well. But the announcement about New York opening up, hopefully some international travel between EMEA and the U.S. this summer will start to open even more as we go forward. And I'd just like to say it's nice to report you know that we're making progress but we are mindful of our friends and colleagues and everybody really in india we have a big operation in india we've got many sick colleagues and family members and our thoughts are are with them every day and whatever the world can do to help we are doing everything we can to help but we all should do more um and i would finally say that's a reminder that this is an unpredictable time we still don't know what's happening in many markets anything could happen things could get worse before they get better but we are optimistic we are seeing a lot of improvement across the globe and uh and we are feeling good about the work we're doing at the company so with that i'll just say you know hopefully vaccines continue to roll out hopefully you all have your vaccines and tell everybody you know to get a vaccine uh and we have little doubt that as that continues the world will open up and travel will come roaring back so with that i will pass it off to eric thank you thanks peter