Expedia Group, Inc.

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Good day, everyone, and welcome to the Expedia Group Q4 2021 Financial Results Teleconference. My name is Emily, and I will be the operator for today's call. If you wish to ask a question at the end of the presentation, please press Start followed by 1 on your telephone keypad. If you change your mind, please press Start followed by 2 to cancel your request. For opening remarks, I will turn the call over to IR Director John Schiabano. Please go ahead.

Good afternoon, and welcome to Expedia Group's Financial Results Conference call for the fourth quarter ended. December 31st, 2021. I am pleased to be joined on the call today by our CEO, Peter Kern, and their CFO, Eric Hart. The following discussion, including responses to your questions, reflects management's views as of today, February 10th, 2022 only. We do not undertake any obligation to update or 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 and I encourage you to frequently visit our IR website for other important content. Unless otherwise stated, any references to cost of revenue, selling and marketing expense, general and administrative expense, and technology and content expense exclude stock-based compensation. And with that, let me turn the call over to Peter.

Thank you, John. Good afternoon, everybody, and thank you for joining us. Let me start off with a few broad comments about what we experienced in the fourth quarter, which I would say, even though we had to deal with a meaningful Omicron wave and a bunch of disruption in travel, and of course that was not great for travelers worldwide, it was encouraging in many ways. And I think what we observed most notably is that the issues that evolved were really issues of inconvenience. There were border shutdowns. traveling, and really it was an issue of the inconvenience of the health issues. What we believe will come from this, presuming the next waves continue in an ever-lightening way, is that the world has essentially gotten accustomed to the pandemic. It will enter perhaps an endemic stage, and governments and industry, et cetera, will adapt much more easily as the next waves come, and in turn, this will continue to disrupt travel consumers have remained willing to travel throughout and with the return of staff to the air and the relief of border issues we are seeing a solid return to travel. Eric will take us through the numbers and the trends but suffice it to say that we are pleased to see that bookings have strongly rebounded since anywhere that Omicron has topped out and certainly we're seeing that broadly across our big have to say it continues to be real you know certain areas are doing better than other areas more towns than other parts geos certain geos are more difficult than others but in general we feel good that that big cities have not recovered as much yet and that is a good guy for us international travel is still yet to return as strongly that is another good guy for us so we feel like directionally that the things that are will be coming back as COVID lightens generally benefit us and we're much more on the future of our business and what we're going to deliver instead of how we manage COVID day to day. And I thought it would be useful for us to just reflect on where we've been and where we've taken the company over the last couple of years since we entered COVID. So first of all, the thing you have all observed and clearly have liked is that we've been able to simplify and make the business more efficient. And it's easy to observe and it's important. Obviously, there are more important things to our long-term future, but I'll spend a minute on simplification. We've been able to use our push for new technology solutions, our push to reorganize the company in a more single-goal fashion. We've optimized third-party spending and tools and many things, and we've become a much more efficient enterprise. In fact, today, and I should mention, as you know, we've also shut down or sold off certain businesses that we believed were non-core. As a result of that, we're running the company now with roughly 10,000 fewer people than we were you know, a ton of hard work towards that goal of really running the company in a smarter, more efficient, better way. So that's been the big push there. And I would say that as we, you know, we still face challenges of hiring people. You know, we're like all the tech companies, but we have had a great influx of terrific talent. I think that momentum is increasing, and that mixed with the great talent we have has really new experiences, and improving the traveler experience as our core fundamental goal. But as I say, efficiency is not the story here. Efficiency is a great thing we've been able to achieve, but the real story of our future is about what we're doing to drive the business forward. So just to break that into a few parts, on the demand front, as you know, we've combined our multiple brands working in silos into one unified house of brands with a singular focus on driving travelers to the right product at the right time. This strategy is built on superior creative, making the brands make sense together, buying together in an efficient way, and of course using performance marketing along with brand to really drive a more efficient way of bringing travelers into our universe. We believe we are well on our way to that journey. Hope you enjoy our Super Bowl ads in a few days. I think they're terrific. But it is a unified strategy that's about really delivering end-to-end a great demand generation strategy that is efficient and we believe can drive better outcomes in the future for us. We also believe, as you know, that loyalty will play an important role and we are bringing our loyalty programs together and that will begin to take shape over the course of the year and I think pay dividends for years and years to come and we're excited about that. On the technical front, now this has really been the heart and soul of what we've been working on, which is getting to a singular platform so that we can drive a velocity of innovation for travelers and for our partners and really take travel to the next iteration for the online app-based travel business. We've been on this journey for a while. We've talked about how we're moving multiple stacks into a single stack. That's more than just the efficiency story or anything else. It's really about building it as a set of microservices with APIs that can be externalized and can more easily be used internally to drive these great outcomes for our travelers and our partners. And when I say travelers, I really mean all travelers, because for the first time as we build this out, we will be able to create innovation in our stack that impacts all our travelers, our B2C travelers, our B2B travelers, all in the same moment. So when we make an improvement in the checkout path or we make an improvement in the app, all those benefits will inure to the traveler wherever they come from, and it will be able to drive real impact instead of the siloed way we used to have to work our way through it. So I think it's a really important step for both how we run our business, how much innovation and velocity we can bring to the travelers and partner experience, and frankly, just generally, you know, how we innovate and drive the entire industry forward. We're really excited about what's coming. It's a big year of delivery for us, but there are amazing things coming, we think, for the traveler. from the discovery elements to the service elements and everything in between. And again, that will inure to the benefit of all travelers in our ecosystem. And finally, on the B2B side, which is really now an amalgamation of our B2B partners who drive demand and our partners who bring us supply, and more and more we see that as one universe. We combine those teams into one group. that essentially can have a 360 relationship with any partner. And therefore, any partner can benefit not only from selling into our platform, but also taking services out of our platform. And we think that approach is going to be really powerful. We've kept very close to our partners over the pandemic, obviously. We've had shared challenges and opportunities. And we've renewed a lot of deals across lodging, air, and car. And most of these deals have come with expanded capabilities where we've delivered more for our partners, and we believe helped them drive their own businesses to better outcomes. We're excited about this partnership approach. It's no longer just about supply or just about can we drive them in. It's really about can we make our partners' businesses better, and we're keenly focused on that. So to close, I'll just say, you know, you can never count COVID out. We've dealt with a fair number of body blows over the last couple of years. But the industry has proven resilient. I think demand has proven even more resilient. And we expect a significant rebound. And while we're excited to ride the rebound, the important thing for us is really delivery. We have to deliver on all the promises we've made about how we're going to improve the product, the traveler experience, and how we're going to continue to run an efficient and effective business. And I would just say, Ultimately, we believe in the reigniting of travel. We think we're going to play a central role in it. We're not content to just sit back and ride it. We want to be important in driving the future of the industry. And we believe we can bring benefit not only to travelers, not only to our own business, but to the entire travel ecosystem. And that is what we will be focused on this year. And with that, I'll turn it over to Eric.

Thanks, Peter. And thanks, everyone, for joining the call. I, too, am optimistic around the travel recovery this year, and along with Peter, I'm excited to see us deliver more for travelers and partners. With that, I'd like to start by providing an update on booking trends. While we witnessed a notable pullback due to Omicron in December, which continued into January, I am encouraged by the improvement we have seen in recent weeks. Overall in the fourth quarter, total gross bookings for all products, net of cancels, were down 25% versus Q4 of 2019, a slight sequential improvement versus third quarters. Basically, Vrbo versus Air. Given the continued volatility of the recovery due to Omicron, again this quarter we are providing monthly detail on our total lodging bookings net of cancels, which includes Hotel and Vrbo. For October, it was down 4% versus 2019. It was down 5% in November, 27% down in December, down 11% in January, with trends improving throughout January, and with us up versus 2019 in the most recent weeks. From a geography perspective, this improvement has been driven by the U.S., followed by EMEA, while APAC and LATAM are lagging. Now onto the P&L. Total revenue was down 17% versus Q4 2019, roughly the same level of decline we saw last quarter. As a reminder, we closed the Agencia deal on November 1st. In the quarter, Agencia contributed $29 million in revenue. Note this does not include revenue tied guest business entered into with GBT. Revenue margin for the fourth quarter was 13%, down from 16% last quarter, largely due to typical season health. On sales and marketing, direct spend in Q4 was roughly $875 million, down 12% versus Q4 2019 levels, compared to 19% decline last quarter. As you know, Q1 is a seasonal low point for EBITDA given the timing disconnect between higher marketing expenses Moving on, overhead costs excluding Agencia in both periods was up $23 million versus Q3 2021, primarily driven by the lower ability to capitalize labor in the fourth quarter. Looking ahead to this year, as we compete for great talent, we anticipate higher than normal annual compensation increases, which take effect on April 1st. In total, adjusted EBITDA was $479 million, in a much more efficient business versus prior to the pandemic. On to free cash flow, which totaled roughly $142 million in Q4 on a reported basis. Excluding the change in restricted cash, which is primarily driven by the change in Vrbo's deferred merchant bookings, free cash flow was $35 million. Now shifting to the balance sheet. In 2021, our debt refinancing yielded approximately $80 million in annual interest expense savings, and paying off the full $1.2 billion in preferred stock last year, in payouts. More recently, we informed the holders of our 650 million euro bond last week of our intention to pay off the notes at the beginning of March, which is three months ahead of their maturity date. This allows us to save approximately $5 million in interest expense this year, or $19 million annually, while also improving our leverage ratios. Overall, we are pleased to have maintained our investment grade rating through the pandemic and remain committed to deleveraging while also looking for ways to further reduce our cost of cash. As mentioned, I am optimistic about a travel recovery this year and excited to see how this year unfolds for the company. With that, Emily, we are ready for our first question.

Thank you, Eric. As a reminder, if you would like to ask a question, please do so now by pressing Start followed by 1 on your telephone keypads. If you wish to withdraw your question from the queue, please press Start followed by 2. When preparing to ask your question, please ensure that your device is unmuted locally. Our first question today comes from the line of Kevin Copelman from Cohen and Company. Kevin, your line is open.

Thanks a lot. First, I wanted to ask about the loyalty program. Can you give us more details on when you expect to roll out the consolidated loyalty program, how that might change? And if you can give us a sense of how important your loyalty programs are today and maybe where they could go. Thanks.

Yeah, thanks, Kevin. Well, I'll say a couple things. First, this is an ongoing effort. As recently as this quarter, we just revamped our Expedia loyalty program to create a construct that we think is better for travelers and kind of directionally and where we're headed more broadly for a loyalty program. But there is a lot of migration going on. We're migrating the whole stack, as I talked about. We're migrating the brand front ends onto one set of rails. And we are rebuilding our loyalty platform to accommodate one broad loyalty construct that can serve all the different brands. And so the big difference that's coming is really that the loyalty program will cover all our brands, all our products, and you'll be able to earn and burn across all of them, which is a great innovation. All the research shows that it's We're still being worked out of exactly how that policy and planning will work, although I think the Expedia construct is more or less in line with where we're headed in terms of how points work, et cetera. But it will take the better part of this year to get all those pieces lined up and, of course, a rollout of the loyalty program, including converting loyalty people over from one to another and adding it to programs to really have the product where we want it and be starting to convert everybody over to it. So I think next year will be the big impact year of the whole stickiness and totality of loyalty, but I think it's a big year for us as we build into it, and hopefully we'll be moving some of the program over to that in the course of this year.

Thanks, Peter. And if I could just ask about the latest trends You noted that lodging is now up in the last week versus 2019. Can you talk about how that might play out given cities haven't fully come back yet and international travel is still certainly not fully back given the restrictions are not up yet?

Yeah, sure. Well, I think, look, there's a lot of benefit in that for us in the sense that historically big cities and international have been an area of strength for us relative to some of what we've seen during COVID, like domestic travel into tertiary markets, et cetera, which have been historically weak. On the other hand, we've benefited greatly. Peru has been super strong. It's benefited from the leisure travel and the longer-term travel of vacation rental and people liking that during COVID, where they could isolate with their families, et cetera. So it's a little tricky to predict, but I would say Broadly, the stuff that's left to come in many ways favors our strongest areas. So I think that's positive. But, you know, the mixes have been hard to predict over time. And so I don't want to get too, you know, get too much into prognosticating. But I think we've got some good runway ahead in where the puck is going. Use mixed two metaphors there. But and we feel good about that. You know, you never know what the unintended consequences are. is making us feel pretty good. Great, thanks so much.

Our next question today comes from the line of Naveed Khan from Truist Securities. Naveed, your line is open.

Great, thank you. Two questions, please. Maybe just one on the comeback and travel. As it continues to build, And 22, how do you see the mix of direct versus paid traffic coming to your platform? Can you maybe just touch on the opportunities between the different levers that you have to pull between CRM versus branding versus performance channels? And then maybe just another word on capital allocation. So you continue to deleverage, and also you have kind of gotten preferred out How do we kind of see the scope for M&A opportunities here and maybe other use of capital like share buyback? Just let me talk about that a little bit.

Sure. I'll go first and be able to come back and travel. You know, I think I'm glad you mentioned CRM. You know, we have so much opportunity to improve our direct relationship with consumers. You know, we've historically fished out of the big ponds And candidly, not done a good enough job in retaining those customers and making it sticky and making sure the experience is good. We are keenly focused on bringing travelers in now, making sure they enjoy all the benefits of what we have to provide, member pricing, loyalty, et cetera, and that they get a better app experience, better CRM, which we are rebuilding like everything else. And we really focus on retaining them. and keep them coming back as often as possible directly. It doesn't mean we don't expect to use performance marketing and all the usual channels, but we want to be able to derive much more long-term value from those customers we acquire and then in turn keep. So we hope very greatly that the denominator will be expanding. We'll just be bringing in more travelers and that more and more of them turns faster, but that is our focus, and that is what we hope to derive from this. We're not projecting what percentage will be what, but it is very closely tied to all the work we are doing to drive the traveler experience.

Great, and I'll take the second part of the question around capital allocation. I know we've talked about it in previous quarters, and I think our message remains the same. We are keenly focused on cleaning up our balance sheet, if you will, given the disruption that and you know that has a as we can in achieving that vision. Specifically on two components that you mentioned on M&A, we're always open for business. Even during the heart of COVID, we were open to business to a certain extent, but obviously that wasn't necessarily the right opportunity or the right time as things coming up. But we are looking at different opportunities opportunistically and a few themes that we're thinking about. And then on buybacks, I think you can look at our long history as something that we have done regularly, We're going to observe COVID. We're going to clean up the balance sheet, if you will, and all the components that I talked about. That's where we're focused right now.

Yeah, and I would just add, just to close that one out, that on the M&A front, we're much more focused. It has to fit with our long-term strategy, our platform strategy. It has to integrate. We're not going to be just buying things because they're good deals. We're going to buy things that fit our long-term strategy to drive where we're trying to drive.

Understood. Thank you, Peter. Thank you, Eric.

Our next question today comes from Eric Sheridan from Goldman Sachs. Eric, please go ahead.

Thanks so much for taking the question, and I hope you're both well. Maybe just teasing out more on that capital allocation front, but bringing it back to margins. You know, Peter, Eric, can you help frame for us, you know, I know you've laid out before that you've exited sort of the efficiency program that you laid out from a couple years ago, and there's obviously investments against your ambition you feel you need to make in 22 into 23 to capture some of that growth. But how should investors think about elements of where there is leverage driven by volume that can flow through the model over the next 12 to 24 months versus areas where you want to take incremental margin or incremental leverage and invest it back because you're playing sort of the long game over the next three to five years against the bigger travel opportunity. Just some of the variables that could flex Margin leverage one way or another in the next 24 months.

Thanks Sure, thanks Eric We You know the way I think you should think about it is this we have as I mentioned There's a lot of work still going on into building the platform to get in the platform right when those things are right They will drive further efficiency So when you say we've exited the program wasn't like a program with a goal that we ended Technology aids us, etc. There are lots of places where, for example, I'll give you one service. We continue to build the best service technology, I believe, in the industry and scale it consistently. We are building skills across the enterprise so that customers can service their own issues themselves and easily. has not really been seen because COVID has had this enormously elevated service demand on the industry. So as we normalize out to historical propensities for service calls, etc., etc., there is real benefit down the road in how we do that. Now, you alluded to there are places we are, quote, investing in. I mean, that is really just our way of saying we are pushing to drive this innovation and drive us across and resources to drive some of this innovation, we will do it. But the innovation in and of itself will drive incremental efficiency. So I don't think this is a long-term, like, this is a long-term sideways to down, you know, I should say expanding margin story, we believe. because we think it's the right thing for the traveler and for our partners. But overall, there's still much more opportunity to become more efficient over time for margins to expand, and we believe that's what we will continue to drive towards.

Great. Thank you.

Our next question comes from the line of Lloyd Walmsley from UBS. Lloyd, please go ahead.

Thanks. Two questions, if I can. First, any update on just the marketing integration, consolidating data and ops into a unified group, like any early learnings there? And then secondly, can you kind of help us parse out the strong ADR growth? Like how much of that is a function of HomeAway growing in the mix? And I guess more importantly, what are the puts and takes of how you see ADRs migrating over the course of the year? Is this still a big tailwind because like-for-like channel pricing is going up, or does a shift back to core hotel offset that? How do we think about ADRs over the course of the year? Thanks.

Thanks, Lloyd. I'll take the first part. And by the way, watch the Verbo ad this weekend so you start saying Verbo instead of HomeAway. On the marketing integration, you know, we've made a lot of progress in moving along on the marketing integration and the data and analytics and measurements, et cetera. I'd say we're virtually all the way there, not quite all the way there. And the learnings have been coming. You know, Eric and I see reports weekly about where we're winning, where we're learning things, where we're testing things. There's no silver bullet. They're like, oh, we found this, and it's going to win everything. It's really a game of 1,000 different little tests across 100 geos, across five product groups, et cetera, et cetera. So all of it is incrementally getting there. We're feeling quite positive about a number of things we've been testing and learning. We're pushed heavily into mobile and other areas where we found opportunity. We're pushing into new products. sort of tantamount to performance marketing in certain ways. So there's a lot of interesting learnings going. The reality is until things normalize, it's going to be really hard to measure us on this because you can't see what normal is anymore. And even for us, it's hard to see what normal is. And a lot of these new tests, new algorithms are learning on these very volatile traffic patterns because of COVID, et cetera. So I think we feel good about the technical progress the teams are making. about the way they've plotted out their course of learning and testing. And there's no question it will inure to our benefit. But being able to identify a single thing or a single win or how to quantify it is really hard to do at this moment. So I think you're gonna have to wait for the collective good to roll through our P&L and hopefully you'll see it as things normalize.

And on the ADR side, think about the historical core ADRs, they continue to be strong across both hotel and Vrbo. I think you can see that across some of the other industry companies or metrics. And then our mix in particular has benefited from more waiting to the U.S., more waiting to Vrbo, more waiting to vacation destinations where there typically are higher ADRs. So our high ADR performance, if you will, is a mix of both core ADRs and the mix that we've had quarter and prior to that as well. Moving forward, we do expect board ADRs to remain strong. We think this is going to be a strong rebound travel year. We obviously have lots of bookings already going into the summer period where we can see the ADRs are holding up quite well. But I do think you need to look at, when you take the core into the projection of our business, presuming some of the other areas of our business come back, it's still going to be a mix. We're going to go into some primary markets.

All right, thank you. Thank you.

Our next question comes from Justin Post from Bank of America. Justin, your line is open.

Great, thanks. First question, can you help us at all with summer booking pacings, whether lodging or in total, versus either 2019 or last year? And then second, I don't know if you can help us at all, but I'm just thinking about VRBO as a percent of the total. I imagine it's grown. a lot over the last couple of years. But if you could help us think about where that could be today. Thank you.

Yeah, I'll take that one. Thanks for the question, Justin. So Vrbo continues to perform well. and share, if you will, in this market. Hotel, on the other side, is recovering. It's not quite at the levels that we would have seen in the past. We suspect, if the recovery continues, that there'll be a catch-up somewhere along the line. We don't know exactly.

Great. Thank you.

Our next question comes from Deepak Mathivanan from Wolf Research. Deepak, please go ahead.

Great. Thanks for taking the questions. Just a couple of ones. Can you talk about the hiring plans and headcount levels for 2022? Do you feel like you're in a good position with respect to headcount right now and generally well prepared for demand recovery across various products? Are there also any notable wage inflationary trends that you're seeing currently? And then a second question on variable marketing efficiencies on the direct marketing side. Can you help us maybe in a qualitative way to kind of understand how much efficiencies you're seeing on the direct marketing side because of all the brand rationalization efforts and things you've done in the last couple years? It's kind of easy to see the fixed cost savings, but given the moving pieces of the business, particularly due to geographical mix and product mix, it's a little bit kind of tricky to see the direct marketing efficiencies that you're seeing. So maybe you can qualitatively touch on that. That would be great.

Yeah, thanks, Steve. I'm glad you find it tricky, too. We also do, given everything that's moving around. And as I mentioned, it's one of the challenges in trying to quantify strong and international. We've improved how we're approaching it, as you say, across our brands. We've consolidated spend. We've learned a lot about the multi-brand approach, but it hasn't really paid off yet in, for example, international era because there's just not much of it. So the short answer is we've made a huge amount of progress, as I said, in terms of tools, in terms of data, in terms of insights, in terms of across a much broader swath of our enterprise. But being able to quantify really how much better it is in basis points or something that would give you a projectable marketing efficiency is still very challenging. We believe it's much better. We believe we are in a much better position to capitalize on the future state of normalcy. But we have to pay that off and demonstrate it to the world and ourselves. And it's in process, but it's going. So I think we feel very good, but we acknowledge it's difficult for you all to see it. And we're just going to have to wait for things to normalize so you can see the benefit.

Thanks for the question, Deepak. I'll take that. First off, in Q4, we were a bit lighter on expected people costs. We do have plans to continue hiring around some of our initiatives as we go into next year. That would be one. Two is, do recall that we had one month of agencia in Q4, so that was something that you would want to model out, which I discussed in my remarks. And as we talked about on previous calls, there are some investments that we are making in the business. We are excited about a number of different opportunities to accelerate the growth in a number of different areas. Of course, we're being prudent, very positive ROIs. We're going to track those relentlessly along the way, but that could increase overhead to a certain extent as well. Hopefully that helps you out.

Great. Thank you so much. Thank you.

Our next question today comes from Steven Ju from Credit Suisse. Steven, please go ahead.

Okay, thank you. So I think it's been some time since we've seen these types of metrics, but anything you can share in terms of what percent of the verbal inventory has now been integrated into Brand Expedia and the other outlets? I mean, ultimately, I think you want to present the traveler with more choice and improve the overall shopping experience. I think the last time we talked about this, You guys are still kind of in the experimental phase and trying to see how much of a better shopping experience you could drive. But any sort of perspective on that would be helpful. Thanks.

Yeah, sure. Thanks, Stephen. I would say we are still building to it. It is a core part of our plan. And by the way, it's not simply so that we can provide it to our own travelers. It's also so that we can provide it to our B2B interesting and substantial opportunity, we believe. We do have it integrated. It's not a great integration, but we do have it integrated into Expedia and Hotels.com. The issue has been it only works, among other things, not being a great product experience is the main thing we have to fix, but also it does not have an approach that works for the properties that you have to reserve and then we have to not instant book, the ones where we have to go to the owners and see if they are okay for the booking. That is a construct that is not part of what is currently possible in the Expedia brand or the hotel.com brand, et cetera. So it's kind of a two-part thing. One is we want to improve the product experience for the traveler, make it a better integration, make it easier to book, make the content more usable, easier to understand so the universe of the type of properties that can be available through those pipes. And that is where the big, you know, where another big expansion in the idea comes. Those are both in the works. They will take some time. I would say they're not our highest priority, but they're far from our lowest priority. They're a big important thing. And we have teams working on it and we will, you know, expect to continue to see improvement. You know, we have a lot happening on the front end of the product this year in terms of, you and a lot of opportunity to improve those experiences and roll out a new app construct, et cetera. So all of those things, you know, you have to obviously put an order of operations question, but as those things roll out, this experience will get better and better, and we believe will become a bigger feature of the business. Thank you.

Our next question comes from Mario Liu from Barclays. Mario, please go ahead.

Great. Thanks for taking the question. First one's on cancellation rates. I believe the lodging numbers you provided earlier was . So just curious, was it much higher in 42 and early in 1Q due to Omicron? And if so, do you think those that cancel could potentially be a tailwind to future bookings?

On cancellation rates, as you read more in the newspaper, generally the cancellation rates go up. So, yes, we saw cancellation rates go up, and particularly the December time period in the early part of January, and Omicron was impacting the businesses, so people didn't necessarily feel safe and comfortable traveling, and we certainly saw cancellations increase. If I extend to a longer period of time, rates went up exceedingly. They were coming down over time, still elevated relative to historical levels. Just, again, safety concerns. People come down with COVID individually and can't travel or whatever else. Again, saw it spike up in December and then coming back down again, following a similar path of what I was just mentioning on the tailwind of future bookings. I think you're asking if they cancel. I think that's hard to tell, but I would say just generally speaking, and I think everyone feels in a similar way, which is when people can travel, they are going to travel, and they're going to travel quite consistently throughout the year if they're able to do so, maybe more than they have in the past to rebook, if you will. But only time will tell, but I would say we're certainly optimistic.

Great. And then just a second question in terms of remote work and longer duration stays. the lodging by the business. Have you guys seen that kind of drive bookings already at Vrbo or even the core business? And then how large of an opportunity do you think that is in the long term?

Yeah, this hasn't been a big theme for us. You've probably noticed on our calls. I know some others have a different view of that. It's an interesting thesis and certainly As people have more flexibility to travel, we hope they fill up their flexible time with travel. In terms of Vrbo, we haven't quite seen the distortion. We've heard others talk about in terms of long stays or things like that. It's moved somewhat, but it's not as noticeable for us, and I think it's an time to travel. But, you know, we'll see. We'll see when people get back to work. We'll see, you know, with schools back in, et cetera, how much flexibility everybody gets. We don't think it matters. We think there's tons of demand, as Eric says. And if there's more days to be away, terrific. You know, that will be good for us. And I think that will be selective, but a good general trend on some portion of society. And we're looking forward to it.

Great, thank you.

Our next question comes from James Lee from Mizuho. James, please go ahead.

Great, thanks for taking my questions. So it looks like everybody's expecting normalized travel trends with a mixture to urban and international markets. And Peter, I was hoping you could comment on this. If home accommodation continues to gain traction in urban markets, How do you feel about your supply and wearable? Any plans to increase ahead of demand? And I guess my second question relating to maybe additional levers in improving efficiency. I know you guys may have talked about this in the past. Will you consider consolidating all your hotel brands under Expedia? Thanks.

Thanks, James. Appreciate the question. You know, I think on the first question, which is, you know, supply in major cities for Vrbo, you know, it's never been a great strength of ours. It's never been a huge focus of ours. We do have some in some big international cities. Again, I think much less for the one-night stay kind of thing and much more for the, you know, family vacation, that sort of thing. We think there's opportunity there, and we will As I mentioned, we've been focused on not just sort of buying supply across the universe in everything and really being much more targeted in where the demand is and where we can get return for the homeowner. So, you know, we'll continue to do that. But, you know, Vrbo is not in the same way like some of the other choices focused on being a replacement for hotels in cities. Now, of course, we want to continue to expand Vrbo wherever it makes sense, and then we'll certainly look at cities where it makes sense. As far as the brands, I would say this. It's on the brand team to figure out the best way to consolidate the brands in a construct that makes sense for the traveler. This isn't a construct that makes sense for us or we think is cool. It's about what makes sense to travelers and why and how they need different products to do certain things. We conclude that we need fewer brands. I'm not sure it will be all under one, but we may conclude we need fewer or certainly that we're going to lean into fewer. If that makes sense, we will do that. But that's what the brand team is working on now. We've got new brand propositions for all our major brands rolling out soon. And I think over time, we will figure to decide whether pure makes sense, et cetera, and have everybody still caught up in our web of loyalty and all the good things and good products we bring to the market.

Great, thank you.

Our next question comes from Jed Kelly from Oppenheimer & Co. Jed, your line is open.

Hey, great, great. Thanks for getting me on, and nice work over the last 20 months. Just two questions, if I may. Just how should we view Expedia relative to the Google risk going into 22, which is looking like a nice demand environment, relative to 2019? And then, Peter, you talked about, you know, you really can see nice margin expansion longer term for Expedia. Do you have like a long-term margin target you guys are kind of shooting for above 25%, 30%? Can you help us there as well? Thank you.

Yeah, thanks, Jim. Those numbers sound pretty good, but I would say this. We don't have a number, and that is because, candidly, we are getting smarter about what is possible as we continue to roll out unified technology, unified solutions. We don't get the quantum of benefit that you get in conversion and other things that allow you to be more efficient on the marketing side because the product is working better. There's a lot to learn. I mean, I know you all look at the competition and these pieces add up to benefits that drive more growth and higher margins and that's what we're focused on so as the product improves as the underlying technology platform improves as that serves more partners etc numbers are achievable, and when we get there, we'll get there. So I don't think it's about putting some random number that we're guessing at what's possible out there. I think we're just driving it. As far as the Google risk goes, maybe I'm saying, but I don't consider it a Google risk. Google is Google. We operate in that market. work closely with them to try to figure out better ways to optimize that market. And we have, we think, some interesting ideas percolating at the moment. But ultimately, as I alluded to, when we pull all those people out of the Google market, we have not done a sufficiently good job you know, I believe that each of them multiply on each other and make us collectively stick here, you know, between a better product and better loyalty and broader loyalty and better, you know, better marketing that helps their traveler understand the benefits we provide and getting them to enjoy the benefits we provide more readily, et cetera. So I think, you know, we believe that Google is going to stay Google-ized. keep doing what it does. We operate in their marketplace, and we have to do our part of optimizing their marketplace. We have a lot of room to do better, and that's what we're focused on. And I'm pretty sure they don't want to be in a business taking service calls and dealing with travelers and actually being a customer company. They just want to be a search engine. So I think we're in a pretty good spot.

Thank you.

Our next question comes from Tom Champion from Piper Sandler. Tom, please go ahead.

Hi, Peter and Eric. Good afternoon. I was wondering if I could ask a question around the new customer cohorts. And I'm just curious whether they resemble pre-pandemic behavior or if you're seeing any new or divergent trends out of your newer customers. And then maybe, Eric, for you to ask a the umpteenth question around margins. It looks to me like 4Q margins were up 300 basis points, give or take, over 2019. I'm just wondering if that's a good guidance for thinking about the margin potential for the next couple quarters, kind of the near-term outlook. Any thoughts around there would be really helpful.

In terms of cohorts, again, I think it would be a mistake to draw too much from anything that's going on right now. As I mentioned, patterns are much different. The volatilities and ebb and flow of cancellations and other things are much different. What we're more keenly focused on is looking at cohorts in terms of engagement with the app. we hope to see. We have a lot more to deliver, so it's early days, but our focus is really on that. I don't think we've seen any new patterns that are either alarmingly good or bad in terms of how travelers act, how many of them go to the Google and Meta world versus come direct. Most travel companies benefited from a mix to direct, but that was only because there was less demand in the open I think as demand continues to rise, there's not really any reason to imagine that that will be greatly distorted, except to the extent that we do a good job of, again, getting travelers to the app, getting them locked into our ecosystem, getting them understanding the benefits. So that's what we're focused on. And I think anything else, frankly, it'd be wrong to draw any conclusions. We'll let you know what we see with that.

Great. Tom, thanks for the question on the margin side. I'm not going to go into specifics on the number of bids in one quarter versus another. But of course, we are pleased to see, from a Q4 2021 standpoint, the margins that we did have relative to the volume, where we were down 17% from a revenue standpoint. And then for 2019, even the numbers. Nalini gave some information earlier around overhead and various components that you can model of calls with customers with complex issues to sort through, and our cost savings associated with variable costs really can't be seen yet. We are increasingly using technology to solve customer or traveler problems, more consistently using that technology, and that's being clouded a bit because of those more challenging call volumes. And so I suspect that we'll see some of those savings come in as we get to a more normal period. Hopefully that helps you with the modeling.

Thanks for the comments.

Our final question today comes from Richard Clark from Sanford C. Bernstein. Richard, your line is open.

Thanks very much for taking my question. So just a question running into the summer. I guess coming out of the financial crisis, 2009, Expedia and the other players probably benefited from a prolonged recovery, maybe too much supply relative demand. If this summer is very, very strong, and we have a lot of demand relative to supply, do you see any danger that hotels or your private rentals play the platforms off against each other a little bit or look to other channels? And then second question, a little bit more simple, but in Q3, I think you talked about your marketing costs being quite high because of the Delta variant coming very late in the quarter. You could sort of say the same pattern happened here. Omicron came quite late in the quarter. So has that distorted the marketing spend in the quarter at all with committed spend earlier on?

I'll take the first one, and Eric can cover the marketing costs. Thanks for the question, Richard. I would say... You know, you could have made the same argument during COVID when there was compressed demand in a number of places. We did not see what you're alluding to in terms of suppliers playing off. I think, as I said, we all had a common challenge. We were all working together. You know, for every hotel in Miami, there's another one in New York that was suffering. And many big chains, et cetera, own hundreds of hotels across good and bad markets. And I think we're all in it together. As I said in my beginning remarks, we're in it to try to help them optimize their business as much as optimizing ours. And I think there is definitely a shared sense of we can all build this better together. So, you know, I think there will be a lot of demand. There will be some compressed places. I think there will be enough places to go that the demand will find an outlet. And I think... and provide a great value for our supply partners, including the many things we do for them beyond just allowing them to supply on our platform where we're their partners in demand generation of other products or technology, et cetera. So I think it's my sincere hope that our and riding it together. And, you know, some of our partners will get their direct traffic, we'll get our direct traffic, and everybody will do the best they can with those travelers. So that's what I expect.

And then, Richard, on the second part of your question on marketing costs, we did see a similar dynamic this quarter as well, just given the Omicron impact towards the latter end of the quarter in December, perhaps to a lesser extent, but, again, a similar dynamic. search demands and whether that's across meta channels, Google or wherever else. And so as people stop searching for traffic and or booking traffic, then the number of clicks and associated marketing expense naturally comes down with it. On the brand marketing side, we stayed, of course, in Q4 through all the way through December. And then secondly is we had a hypothesis is that for each variant that comes along, the impact is going to be shorter and it's going to be shallower. And that's ultimately what we have seen with Omicron is that we effectively were impacted for approximately a month, maybe a little bit more than that, where it was more like two, two and a half months with the Delta variant. So we felt that we should continue to invest in performance. If it was there, we would go after the demand and we stayed the course on brand marketing.

Very helpful. Thanks very much.

Thank you.

Those are all the questions we have time for today. I'll now hand back to the management team for any concluding comments.

I guess I'll just say thank you for joining us. I hope you all travel this summer and you know where to find us if you need to travel. And we'll talk to you next quarter. Thank you. Thank you, everyone.

Thank you, everyone, for joining us today. This concludes our call. Please disconnect your lines.