Expedia Group, Inc.

Thank you for your patience. The Expedia Group Q1 2024 Financial Results teleconference will begin shortly. Good day everyone and welcome to the Expedia Group Q1 2024 Financial Results teleconference. My name is Lauren and I'll be the operator for today's call. If you wish to ask a question at the end of the presentation, please press star-planned by one on your telephone keypad. If you change your mind, please press star-planned by two to cancel your request. For opening remarks, I will turn the call over to SVP Corporate Development Strategy and Investor Relations. I'll ship back. Please go ahead.

Good afternoon and welcome to Expedia Group's first quarter 2024 earnings call. I'm pleased to be joined on today's call by our CEO, Peter Kern, our CFO, Julie Whelan, and our incoming CEO, Ariane Gorin. As a reminder, our commentary today will include references to certain non-GAAP measures. Reconciliation of these non-GAAP measures to the most comparable GAAP measures are included in our earnings release. And unless otherwise stated, any reference to expenses excludes stock-based compensation. We will also be making forward-looking statements during the call, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions, which are subject to risks and uncertainties that are difficult to predict. Actual results could materially differ due to factors discussed during this call, and in our most recent forms, 10-K, 10-Q, and other filings with the SEC, except as required by law, we do not undertake any of the responsibility to update these forward-looking statements. Our earnings release, SEC filings, and a replay of today's call can be found on our investor relations website at .XpediaGroup.com. And with that, let me turn the call over to Peter.

Good afternoon, and thank you all for joining us today. As you will know by now, this will be my last earnings call. I'm excited to be handing the reins over to Ariane, and we have reserved time for her to share some thoughts after Julie's, so you can get a sense of her ambition for the company going forward. Ariane and I have been working closely these last few months to make sure she can take over without a hitch, and I just wanna say I am truly excited to see how she and our team bring this company forward and accelerate on top of everything we have built over these last several years. As for the quarter, we saw a healthy but more normalized market environment for travel globally. North America remains the slowest growing geography relative to major international markets, but the gap is closing now that we are largely past the pandemic-driven recovery. Adjusting for geo and product mix, prices held up in general for lodging, but we're under continued pressure in the air and car business. Against this backdrop, our results for the first quarter of 24 met our guidance with a revenue and EBITDA beat, but less robust gross bookings. Julie will get into the details, but revenue and EBITDA performance benefited from our mix of business, a strong performance in our advertising business, and our decision to invest more in pricing actions as opposed to direct marketing. As for gross bookings, our B2B business continued at strong performance, and our B2C business, excluding Verbo, was in line with our expectations. Unfortunately, that only partly made up for a slower than expected ramp-up for Verbo post its technical migration. As we discussed last quarter, we had pulled back on Verbo marketing in the second half of last year while we went through our migration, and while we have been ramping that spend and the product has been improving, we have seen a slower than expected recovery. Based on this and the overall trends in our B2C business so far in Q2, we expect growth to be lower than what we had initially anticipated for 24. We are therefore lowering our full-year guidance to a range of mid- to -single-digit top-line growth with margins relatively in line with last year. We still expect to see broad improvement across 24 in our B2C business, with the best early indicator being the conversion gains we have seen driven by higher test velocity and feature rollouts. Behind that, we will continue to invest in Verbo and our international growth markets to reignite those flywheels to set us up for continued growth in the years to come. All in all, I am pleased to say that while momentum is not yet back consistently in all the business lines, we are improving every day, learning to optimize all of our new capabilities, and I have tremendous faith in our team's ability to extract the full potential of what we have built. With that, I will just close by expressing my profound appreciation to all our teams at Expedia for their dedication throughout our multi-year, often painful, transformation journey. When the returns from this work are fully realized, we will owe this determined bunch of people a great debt of gratitude. I also want to thank all of you, our existing shareholders, the analysts covering us, and the broader investor community who have been with us along this sometimes bumpy journey. There is a reason most companies don't undertake transformation on this scale, and it takes patience and a commitment to understanding to come along for this journey. I'm very appreciative of all the constructive engagement over the years, and it has been a pleasure working with all of you. So with that, over to Julie.

Thank you, Peter, and good afternoon, everyone. Let me start with the key metrics for the first quarter. Total gross bookings of 30.2 billion were up 3% versus last year. Growth was driven primarily by total lodging gross bookings, which grew 4%, led by our hotel business growing 12%. This strong hotel growth was partially offset by the ongoing softness in our verbal business that while improving, is taking longer than expected to fully recover. Revenue of 2.9 billion grew 8% versus last year, led by B2B, Brand Expedia, and our advertising businesses. The revenue strength was driven by higher revenue margins, which increased over 50 basis points from a product and geo mix during the quarter, increased advertising revenue, which contributes to revenue but not gross bookings, and a polon of stays in Q1 driven by the Easter shift. Cost of sales was 356 million for the quarter and 55 million or 13% lower versus last year, which combined with our strong revenue growth drove approximately 310 basis points of leverage as a percentage of revenue year over year. We are pleased to see our ongoing initiatives delivering transactional efficiencies. Direct sales and marketing expense in the first quarter was 1.7 billion, which was up 11% versus last year. Sales and marketing de-leveraged this quarter as a percentage of gross bookings, primarily due to the commissions to our partners as a result of our strong growth in our B2B business, with growth of 25%. As we have stated previously, commissions paid to our B2B partners are in our direct sales and marketing line and are more expensive as a percentage of revenue than our B2C business. However, because they are generally paid on a stayed basis to contractually agreed upon percentages, the returns are more guaranteed and immediate. In our B2C business, we also saw some marketing de-leveraged this quarter as we reinvested back into our Virbo business to drive improving growth and our increased investments to drive our global market expansion, one of our key strategic growth initiatives this year. Overhead expenses were 611 million, an increase of 23 million versus last year, or 4% leveraging 95 basis points. We were able to drive our costs below our revenue growth, particularly in our product and tech operations. And now that we are done with the major boulders of platform migration, we remain committed to driving further efficiencies across our P&L. To that end in February, we announced cost actions that will impact approximately 1,500 employees through this year. We expect that these actions will unlock substantial savings on an annualized basis across capitalized labor, cost of sales, and overhead costs. And as a result of all of these factors, we delivered strong first quarter EBITDA of 255 million, which was up 38% year over year, with an EBITDA margin of 8.8%, expanding over 190 basis points year over year. This was higher than expected, given the higher revenue we delivered and the leverage to the P&L that provides, along with lower cost of sales, both of which more than offset our marketing investments to drive future growth. It is also important to note that EBITDA also benefited from a decision we made to invest more in pricing actions as opposed to additional direct marketing. These pricing actions are reflected in the P&L when the stay occurs. As a result, these investments will instead impact future quarters as contra revenue when the stays come in. Starting this quarter, in addition to EBITDA, we are providing additional disclosure around our EBIT performance, which includes the impact of stock-based compensation, depreciation, and amortization. In the first quarter, EBIT was negative 59 million with a margin of negative 2.1%, an improvement of 51 million or 205 basis points versus last year. The additional approximately 15 basis points of expansion as compared to EBITDA is driven by leverage from stock-based compensation. Our first quarter EBITDA growth enabled us to generate another quarter of robust free cashflow at 2.7 billion. The -over-year decline in free cashflow is associated with timing changes within working capital, which includes lower deferred merchant bookings, primarily driven by the softness in verbal bookings this quarter. Moving on to our balance sheet, we ended the quarter with strong liquidity of 8.2 billion, driven by our unrestricted cash balance of 5.7 billion and our undrawn revolving line of credit of 2.5 billion. Our debt level remains at approximately 6.3 billion, with an average cost at only 3.7%. Our gross leverage ratio at a further reduced 2.3 times continues to make progress towards our target gross leverage ratio of two times, driven by our ongoing strong EBITDA growth. Our strong cash position enabled us to continue repurchasing shares with over 780 million or approximately 5.7 million shares repurchased year to date, and we continue to believe that our stock remains undervalued and does not reflect our expected long-term performance of the business. As such, we will utilize the strong cash-generating power of our business and our remaining 4.1 billion share repurchase authorization to continue to buy back our stock opportunistically. As far as our financial outlook, given the lower than expected growth and gross bookings in the first quarter and the trends we are seeing so far in the second quarter in our B2C business, in particular in Verbo, we are lowering our full-year guidance to reflect the range of possible outcomes on the top line while we continue to invest in marketing to drive growth for Verbo and international markets. As such, we believe our top-line growth will now be in the range of mid to high single-digit growth with EBITDA and EBIT margins relatively in line with last year. In the shorter term, we expect our second quarter to deliver top-line growth in the mid-single digits, which reflects a sequential acceleration in gross bookings from the first quarter as we expect Verbo to continue to improve from our marketing investments. We expect revenue growth to be lower than the first quarter growth rate given the lower gross bookings in the first quarter, the pull forward of Easter stays into the first quarter, and the contra revenue arising from pricing actions. And with this revenue growth, along with our continued investments in marketing to drive growth, we expect some pressure in our second quarter EBITDA and EBIT margins versus last year. However, when combined with our first quarter outperformance, we expect EBITDA and EBIT margins to be relatively in line with last year to slightly above in the first half. In closing, despite the lower guidance, we remain committed to the long-term opportunity that our transformation has given us to deliver profitable growth and shareholder returns. And with that, let me turn the call over to Ariane.

Thanks, Julie. And thank you, Peter, for your leadership over the last four years, and for all I've learned working closely with you. I joined our company 11 years ago and most recently led Expedia for business. This includes our B2B and advertising businesses, both of which have consistently delivered double-digit growth. I also led our global supply teams that source inventory for our whole company, so I know our industry very well. And having lived in Europe for the last 23 years, I've seen firsthand opportunity for us to grow our business in international markets. My immediate priority as CEO is to work with our teams to accelerate our growth and to sharpen the longer-term strategy for our consumer business. Since our leadership announcement in February, I've spent time getting to know our consumer business in more detail. It's undergone extreme transformation over the last few years, from technical migrations and changes in our loyalty program to changes in how our teams operate the business. So we've dealt with a lot of turbulence. While we built new capabilities like our common front end, we had less development capacity to build new features, and this in turn impacted the competitiveness of some of our brands and products. Expedia, which was our least disrupted brand, benefited a lot from our investments and has grown very well, while Hotels.com and Verbo, which were the most impacted by our migrations, aren't where we'd like them to be. To get the acceleration we want from our consumer business, we need to focus on the basics, driving traffic, increasing conversion, and expanding our margins through higher attach, take rates, and more efficient marketing. Ultimately, this is going to come down to having great products and great brand value propositions. Our platform now allows us to innovate at scale, and we're running more tests and seeing the benefits of AI across all of our brands, which is great, but we're still learning to use all of this most effectively. For example, a recommendation algorithm gets smarter faster because of our scale, but it has to be trained on the differences between a travel or shopping on Verbo compared to one on Expedia, and tests that work on one brand may behave differently on another. While we still have some work to fully complete our tech platform, moving forward, we'll dedicate more of our development capacity to building great traveler experiences and making up for lost time. Looking ahead, while it's going to take somewhat longer than we'd anticipated to see the benefits come through in our numbers, the investments we've made rebuilding our consumer business will pay off. Our new tech platform gives us a solid foundation to grow our business, and we also have other real strengths to build on. We're leaders in the B2B segment and just posted another fantastic quarter and there's still a big opportunity to win share. Our advertising business is big, differentiated and growing, and I equally see lots of opportunity ahead here. We have strong relationships with our supply partners and great supply for our travelers, and of course, our consumer business is the market leader in the US with well-recognized and loved brands, and we're starting to get traction as we move back into international markets. As you know, we're also focused on driving efficiencies and will continue to look carefully at every dollar we invest. So in closing, we have great consumer brands, a leading B2B business, a powerful platform, and what I think is the best team in travel. We have lots of work to do to realize our potential, and I couldn't be more excited about the opportunity ahead. And with that, let me open the call for questions.

As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to retract your question, please press star followed by two. Our first question comes from Eric Sheridan from Golden Saks. Please go ahead.

Thanks so much for taking the questions and wishing you the best going forward, Peter, and congrats on the new role, Ariane. Peter, maybe can we come back to Verbo for a minute and just how do you think about that asset compared to where the competitive landscape is across travel and shared accommodation specifically? And when you think about leaning into investments to potentially accelerate Verbo and improve its positioning, what kind of signals are you guys as a team looking for to know it's the moment to sort of lean in behind some of those investments to get it back to more normalized growth? Thank you.

Sure, thanks, Eric, and for everyone's benefit, I've asked Ariane to chip in where she'd like along with these questions in addition to whatever you have specifically for her. But specifically to Verbo, the way we see it is we are very strong in our core business of Verbo, which does not compete with shared accommodations, it does not compete directly with some of our competitors in some geographies and some cities, and we are really focused on just being excellent in our space, which is the whole home space in certain markets where we have the right to win and a strong brand and strong supply, et cetera. So that is our core focus for now. We could always, Ariane may expand that remit at some point, but that's where we focus now. As far as what we're seeing, as we talked about before, our spend down in the back half of last year, the migration we've been through, obviously had a lingering impact on the product and first quarter is an important quarter for Verbo, so it's unfortunate that it wasn't as strong as we wanted there, but we are seeing real improvement in the products and we're leaning into investment to sort of spin up the flywheel to just get it going again. So it's not so much that we see any flaws in it, it's just got to be re-spent into, and because VR is not as performance marketing driven, we don't have that ability to just go into Meta and other places and ramp everything up. We've got to spend on brand and build it and that's taking some time to lean back into. But we feel very good about the progress. We're hopeful that it continues, obviously, and we feel really good about the product improvement. So we will continue to invest behind that, but what we're really looking for is we know the spend is working, we know we're driving improvement, and it's just a question of how far, how fast, and what's the timing and the seasonality differences, et cetera, but that's what we're spending into this year to get it back on a growth trajectory.

And I would just add, again, yes, we have deep belief and conviction in Virbo, and also our other brands of Expedia and hotels.com, we do sell some alternative accommodations on those brands, so we also have an opportunity to go after that market with those brands as well.

Thank you. Thank you.

Thank you. Our next question comes from Lee Horowitz from Deutsche Bank. Lee, please go ahead.

Great, thanks so much for taking the question. I guess previously your guidance for the full year seemingly expected share gains across your largest business lines. Is there any change to that view, given sort of the more cautious outlook for the full year, or is this really all Virbo-centric? And then relatedly, when you think about the acceleration you're seeing in your non-Virbo B2C business, what's ultimately going on there? Is it the market, or is it just the stacking of the things that you're doing? And how do you get comfortable that that acceleration can sustain through the balance of the year? Thanks so much.

Yeah, so let me take a crack, thank you, Lee. And then Ariane and Julie can jump in. But I would say that what we see in Virbo, and sorry, so there were two questions, the non-Virbo piece and the Virbo piece. And the non-Virbo piece, we've been making improvements in the product consistently. H-COM went through a migration a while ago, but still we are making improvements and getting it back to on the best footing we can. So we are seeing continuous improvement in the product. We are seeing big wins across the platform, whether it's coming from machine learning or other areas that we can deploy much faster across the entire slate of apps and products. So we're getting wins, we're getting product wins, we're getting conversion wins. So that's what gives us confidence, and all of that ultimately leads to better conversion, more efficient marketing, and everything else. So we would like everything to go faster, but we are feeling good that we are making progress on the non-Virbo business. On the first question, sorry, Lee, can you repeat the first part about Virbo again? Can you repeat it? Oh, share gains, I'm sorry, I got it. I came back to it. On the share gain front, we're actually, other than Virbo, seeing good share gains in our core hotel business across North America and all our major focus markets, virtually all our major focus markets. So in the hotel business, we're seeing really good product gains, and we feel quite good about that. Virbo is its own thing, so when you look at lodging all up, Virbo has obviously given up share in both Airbnb and booking are both in the VR space, particularly in those city-centric other kinds of accommodations, much of which we don't compete in. But if you just look at hotel lodging, we're making really strong gains there, and in all our other product lines, again, we continue to improve on product. We continue to believe those products will pay off, and we feel good about where they're going.

Thank you. Our next question

comes from Richard Clark from Bernstein Society General Group. Richard, please go ahead.

Thanks very much. Thanks for taking my question. Just as you mentioned, you're deciding now to pivot towards more price investment. Just wondering, is that backing up wonky? Is that going into the loyalty, and maybe overall, what's just leading to that decision to do that rather than more marketing? Thanks.

OK, I'll take a piece, and Ariane can jump in. I would just say we've said it before, but we look at all our marketing, all our things to drive consumer behavior as one big bucket of capital. So that's direct sales and marketing. It's the pricing work we do, merchandising work, and it's our loyalty spend. So what we saw was an opportunity. What we've been seeing is an opportunity to drive more into the pricing vein, where there have been good returns. We've seen good opportunity there, and this is basically just a way to modify prices, taking value out of our margins to drive more velocity, acquire more customers, and do it more efficiently. So it's really just rebalancing a little bit towards pricing, and that's what we've done.

Yeah, and I would just add, as Peter said, we think about those buckets of pricing, of loyalty, and of marketing sort of as all buckets that we can use to invest where we see opportunities, and going forward, we'll continue to do that. So which of those three will drive the most growth, whether it's an international, regardless of what brand it is? I think the teams have a very dialed-in view of where they can invest in order to get the best returns.

Maybe just to follow up on whether this is going into the one key program disproportionately, maybe matching one of your peers, which has a more, I guess, price-oriented loyalty program rather than points loyalty program.

Well, what I would say is part of our one key program does include tiered member discounts. So if you're a silver member or a gold member, you'll get better discounts, and those are actually supplier-funded discounts. Those are when our hotels, for example, want to get access to these more valuable members who travel more, who spend more. So I don't know if that's what you're referring to, but that program is a supplier-funded program, and it's one of the benefits of one key.

Yeah, I think, Richard, just to think about it as clearly as we can give it to you, there's three opportunities. There's what Ariane just described, which is we've been able to get our customers more benefit, more tiered benefits, all of that provided by our suppliers, akin to some of what you've seen from some of our competition. We also have discounting we do specifically that I mentioned to win on price and acquire customers efficiently. And then in one key itself, we have the opportunity now, which is awesome, to allow us to give benefit to one key customers to create activity, create shopping, to give them incentives and other things. So there is a bit of that that goes through that as well, but the big buckets are really the pricing and the core loyalty that are still strong, and those are the largest buckets of spend.

And just to put a pin on it, obviously, we made the decision based on what is the best return. I mean, that's the end of the day. That's what we do. We look at everything and what are we going to get the best return for our spend, and at this moment, we saw that the pricing actions were going to be better than any other options. And so obviously, it creates some noise in the P&L that you're seeing, but because it doesn't get impacted to the P&L until you actually have a stay, so it's a little bit of a timing situation, but at the end of the day, that's what we're focused on is driving the best return.

Makes sense. Thank you.

Thank you. Our next question comes from Trevor Young from Barclays. Please go ahead.

Great. Thank you. Ariane, I think you commented that hotels.com isn't where you'd like it to be. Can you expand on that a little bit and what you hope to achieve with that brand? And then bigger picture, what are the areas or opportunities you get most excited about beyond the next few years? Is it something like experiences and a more holistic interconnected trip? Is it AI driving the better consumer experience or something else altogether? Thank you.

Okay, Trevor, thank you for the question. Look, let me just start by reminding you that we run our consumer business as a whole portfolio, and so we invest behind where we see the best return. And so in some cases, that may mean some brands versus others. And hotels.com was the most impacted by our migrations. And as I said, it's not where we want it to be. It's not growing. And again, it was impacted by a number of things. So the first was the product migration, which when we went through it, obviously had an impact on its performance. The second was we made a big change in the loyalty program. We're very excited about what One Key can and will deliver, but it's true that for hotels.com, it is a bigger change in the loyalty program with less earn. Also hotels.com was the most international of our brands. So over the last few years, as we've leaned less into international, hotels.com has been impacted. And then as I said, when you have the change in the product, we were getting better returns, for example, on Expedia, and we're also leaning in there. The good news is that, you know, one, we're seeing really great conversion gains on the lodging path, which of course benefits hotels.com. Two, as we go back into international, because hotels.com is our lead brand in a number of those countries, we're going to see good growth there. So I think, you know, the ambition is to get hotels.com, obviously benefiting from the platform and the international growth. And just in terms of what I get excited about, you know, look, there are a lot of things, I think probably, you know, AI and the opportunity with AI, and especially now with our platform, given that we have one platform across all of our brands, so we can move faster in the way that we're learning, I think it's going to have a bigger opportunity than ever to deliver personalized experiences for travelers. So of course I can tell you I'm excited about advertising, I'm excited about B2B, there are a lot of parts of our business, but I think fundamentally it's how is technology going to allow us to deliver traveler experiences that are truly personalized. And when we do that and as we're doing that, I think that will really differentiate us.

Great, thank you.

Thank you. Our next question comes from Connor Cunningham from Mellius Research. Please go ahead.

Hi everyone, thank you. Just back to Winkie for a second. Can you just level set with how that's performing today? You know, I realize it's still really early, but you know, with the slower than expected results in Virbo and in hotels.com, is there any implications on a potential slower ramp on international as you look to do that this year, maybe into next year as well? Thank you.

So I'm happy to take you. Look, on one key, as you know, we launched it last summer, and the goal was to get more members, have them repeat more, and see them shopping across our brands. You know, in terms of member growth on our loyalty programs, new membership is up 40% year on year, and we're really pleased with that. And we're seeing good repeat rates, and when it comes to cross shopping, what we've actually seen is that 25% of people who have redeemed their one key cash on Virbo, who had earned that cash on either hotels.com or Expedia, are completely new to Virbo. So I think that really sort of reassures us in this idea of being able to capture more trips from travelers because of the one key program. And we will be, you know, we are looking to roll it out internationally later this year.

Thank you. Our next question

comes from Nabet. Come on from B. Riley. Please go ahead.

Yeah, thanks a lot. So two questions. Maybe just on Virbo, can you maybe talk a little bit about if the issues you are kind of trying to solve for more of a top line, sorry, top of the funnel traffic or is that conversion? What exactly are you kind of trying to refine? And what gives you the confidence that the rebound can ultimately come through on Virbo? And the second question I had is around international markets. So I think you talked about kind of going into some new markets this year, and you've been spending ad dollars on those markets. I'm just wondering when we can start to see sort of the panel contribution from those new markets.

Sure. Let me take that. So first of all, for Virbo it's largely a traffic issue. So as I mentioned, we spent down last year while the product was going through migration that has two effects, which is while it's migrating it's not converting as well, and we're not spending as much to build awareness through that time. As we're now rebuilding awareness, we're seeing benefit. The product itself is actually converting very well and improving very quickly because it is getting the benefits, as Ariane mentioned, of the single stack, right? All the many of those things that have won on our other products are winners for Virbo, and so we're getting more benefit more quickly. So conversion continues to improve and is in good shape. We've got to rebuild back the traffic. And as Ariane said, OneKey is helping with that, but OneKey for itself in Virbo, you know, Virbo customers don't travel 10 times a year typically. They travel once, if once a year, sometimes once every 18 months or two years. So the benefits of the OneKey program, which we think is a key differentiator for Virbo, take even longer to accumulate and create that flywheel over time. So we're building into those things. We're focused on traffic and building just general awareness back and general traffic back, and we're making, you know, solid strides. It's just not as fast as we had expected. On the international side, we've seen quite good returns in all the places we've pushed into. We've tried a number of different ways in now that we have, you know, the product improved, leaning more into performance marketing in some places, leaning more into brand in other places, but we're seeing broadly good response. We think it's contributing. I think it's just that North America is so large that it's hard to see in the numbers, but that's why, as Ariane said, we started building into it this year. We're pushing back into international, and it's meant to drive long-term growth for many years to come. And, you know, as these markets succeed, we will continue to invest in more markets where we think we have the right to win and win back share.

We have seen some short-term wins. And Peter's right, it's going to take a while to really see it in the P&L from your perspective, because there's an investment time period, and then you have to build it up at the end of the term. But in international markets, small ones like Brazil and Scandinavia, where we launched new campaigns, we did see double-digit growth on our brands there. So that's already reflected in our numbers, but those are small to the total. But we are seeing the benefits growth rate.

Great. Thank you.

Thank you. Our next question comes from Kevin Copelman from TD Securities. Please go ahead.

Hi, this is Jake. Thank you for taking my question. For Ariane, on the B2B side, can you comment on customer concentration within B2B, how large are your top few customers, and how many customers do you have? And also, I wanted to know if there's any impact for regulatory changes in Google in providing any positive benefits there? Thank you.

Okay, I think it was a little bit hard to hear, but I think the first question was about the B2B business and customer concentration. So let me take that one first. Look, we don't disclose information, obviously, about sort of the concentration of our customers, but what I will say is the B2B business is quite a mix of some very large partners. Think of banks, think of some airlines, and also a very long tail of travel agencies, for example. So I would say it's a well-balanced business. You know, one of the things that's really nice about the B2B business is it's not only balanced in terms of customers, but it's very balanced geographically and in terms of what types of partners we work with. I think this, what was, oh, the second part was about changes to Google. I would say.

Sorry,

say it again?

Yeah, any progress that you're seeing from

the

regulatory changes on Google?

In terms of our core B2C business, not really, no. Yeah, I think Google is still trying to push back. They've introduced some new things in the hotel funnel with carousels and other things, so as much as we're hoping for help from regulators, we operate within the bounds of what they're doing, and they continue to operate pretty much how they have in terms of looking for new ways to monetize and push SEO traffic down, et cetera. So no real noticeable impact.

One more on direct traffic. How big is it in the mix, and where is it currently? I'm sorry,

it's really hard to hear.

On direct traffic, is there any, providing any commentary on that?

I don't think we can, we provide commentary on that. I'd say about two-thirds of our business remains coming from direct traffic, and we've seen strong improvement in app, which we, as you probably recall, we've been pushing into for several years, I think 600 basis points improvement in how much of our business came through the app. So that continues to be a vein we're pushing into, and obviously something we're hoping to see more and more direct traffic. Obviously one key we expect to help with that over time, so there's a lot of things going into driving that over time, but so far the improvement's been good.

Thank you.

Thank you.

Our next question comes from Ron from Citigroup. Please go ahead.

Hi, guys. This is Robert for Ron. Thanks for taking the question. One question for you on GEN.AI. Can you guys share some of the learnings that we saw in the launch of EZ Lab last year? What are some of the products you guys are most excited about? I guess at what point do you expect these products to come to market and start to change the way users search for travel?

Yeah, thanks, Ron. We've done a lot of experimentation in GEN.AI, obviously user-facing as well as within the company from an efficiency standpoint, from customer service, all kinds of places, and I won't steal any thunder, but Ariane and the team will be announcing a lot of really cool new things at our Explore conference in 10 days or two weeks. But basically, you know, it is early days as far as the search approach goes. It's still pretty modest in terms of how many people use it, certainly in terms of its impact on conversion or anything else. But, you know, early is good in the GEN.AI space because it gives you time to experiment and learn, and we've learned a lot, and that's going to guide a bunch of new things that our customers are going to see in the coming year. So there's a lot of new impact from it. There's also a lot of impact, as we've talked about before, from old-fashioned machine learning, driving all kinds of winds across the product, and as I mentioned, much more at scale because they can be deployed much more readily across all brands and across different lines of business. So we're having really good winds, I would say, from ML and AI, but the coolest, newest things we really think will impact consumer behavior and experience are still coming, and Ariane and the team will get to tell the world about those in a week or so.

Yep, I would just add, as Peter said, we're excited to share some things in a couple of weeks at our partner conference. And again, in addition to what we're doing for travelers, there's a lot of work that we're experimenting with for partners. How do we help partners use Gen.AI to better show their inventory in our apps or in our brands? How do we allow them to use Gen.AI to improve their advertising with us? There's work, as Peter said, with our customer support organization. How do they use it to be more effective? Our development teams, even our commercial teams, are looking at, are there pilots for how we can use those to be more effective as well? So I think it's really going to touch every part of the internal organization as well as how travelers search and book.

Great, that's helpful. Thanks a lot.

Thank you. Our next question comes from Mark Mahaney from Epical ISI. Please go ahead.

Can I ask two questions? First is, any new thoughts on further managing or paring down costs? Where are you in terms of, you know, kind of rethinking, reengineering the cost structure? It may well be that you've finished all that sort of work, but just asking. And then secondly, I think it's been a while since you've talked about what percentage of your products that are sold, unit services that are sold, are bundled. Do you have an update on that? And what I'm particularly interested in is whether things like AI, particularly mobile apps, have really led to a greater ability to cross-sell travel products, to bundle travel products in a way that wasn't the case in the past. Thank you.

Hi, Mark. Thanks for the question. I'll take the cost question. I would say that literally we are just getting started. So, I mean, we did have an announcement back in February where we had impacted about 1,500 associates. We're still on the journey of that. We haven't done all of that yet. You can see some of the savings already coming through in the P&L within cost of sales and within overhead and also within capitalized labor. And there's more of that to come. It should be substantial savings on an annualized basis. Again, hitting all three of those lines, of course, cap labor, you won't see in the capitalized software is amortized over three years, but you'll see it build as we continue to move forward. But I think even as Ariane said, we're looking at every single line to drive efficiencies. And so we have kicked off a few projects to go through and really sort of push on the P&L. So we think there's incredible opportunities to drive cost efficiencies. And obviously as we deprecate more systems, we come out of this other side of the migration side of it, there's going to be a lot of opportunities to bring the cost down going forward.

And I'm happy to take the second part about products that we bundle. Look, we don't disclose what percentage of our business comes from packages or from cross-sell. But what I would tell you is, one, a unique value proposition of the brand Expedia is our package path and this ability to dynamically bundle an air ticket with a hotel and the like. And we're seeing really good results as we continue to lean into the package path. And we think it's a great value proposition. And then when you think about sort of the cross-sell and attach, which again has always been one of our strategies, I mean for as long as I've been at Expedia Group, it has been. It is true that with machine learning, you can get a lot smarter in understanding what is the next best thing to propose to a traveler. What are they most likely to attach given what we know about them, given what we know about what they're doing in that trip plan. So I think we have lots of ambitions around cross-sell and attach and what machine learning can do to help us there. Thank you.

Our next question comes from Ken Gawrowski from Wells Fargo. Please go ahead.

Hey, this is Alec on for Ken. Appreciate the question. You know, B2B has grown faster than the overall corporate growth rate for a while now. A question we get from investors a lot is how to think about the long-term growth rate. You know, it seems like there's been some transient benefits to the business, whether it's been the recovery of corporate travel or exposure to Asia Pacific. And so when we normalize for those factors, I guess, how do you think about B2B growth over the medium to long-term? Thanks.

Ken, thanks for the question. Look, you know, we're not sharing projections of how we see things long-term. I guess I would just, you know, remind everyone that there's a huge market out there for travel. And our B2B business serves a lot of different types of partners, whether they're airlines, whether they're, you know, banks. You know, last year we launched a partnership with Walmart. We work with offline travel agencies. We work all over the world. So I would just say, you know, even if it's certainly been growing at a very fast clip the last few years, you know, we continue to have big ambitions for that business. And, you know, as we think about our investments in technology, in our supply, and, you know, and in our teams and our partner relationships, I think we've got really great assets to continue being leaders in B2B.

Thanks so much. Our next question comes from Jed Kelly

from Oppenheimer. Please go ahead.

Great. Thanks for taking my question. Can you just sort of dive into some of the mechanics around the recent headcount reduction? You know, how much of that is coming out of capitalized software versus how much can be reinvested into marketing? And then in your hotel segment, great to see double-digit growth. Can you talk about how that can be done? And how that's trending in North America relative to international banks?

Sure. I'll take the cost actions question. We have not broken out in detail, you know, how much is impacting each line. As I mentioned, you can see it within, you know, cost of sales improvements. You can see it in the overhead improvements. You can kind of deduce, you know, how much of that is due to that. But you can also see it in our cap labor, in our capital expenditures at least this quarter, how they've come down. A significant portion of that is associated with capital labor. I think the reason why we didn't want to unpack it all, especially this year, there's a lot of moving parts. You know, as I said, hitting across three lines, cost of sales, overhead and capital labor. Most of it, or a significant piece of it, is capital labor. And this is a partial year for the savings. And as you asked, we are going to be taking some of that savings, which is

I think we're going to be taking some of that savings, which is going to be a big part of the capital investment. And I think that's going to be a big part of the capital investment. And I think that's going to be a big part of the capital investment. And I think that's going to be a big part of the capital investment. And I think that's going to be a big part of the capital investment. And I think that's going to be a big part of the capital investment. And I think that's going to be a big part of the capital investment. And I think that's going to be a big part of the capital investment. So the short answer is yes, the hotel segment is growing more outside the U.S. just because of tailwinds. But we are growing it in the U.S. and we are taking share in the U.S. So both are good. We'd obviously love it if the U.S. had tailwinds of 10 percent macro growth. It doesn't. But we are growing and we are growing share in the U.S. And as I mentioned, growing share in most of our focus markets and then B2B benefits from a little more geographical diversity into Asia and Latam and other places that are growing a bit faster.

Thank you.

Our next question comes from Anthony Post from Bank of America. Please go ahead.

Thank you. I just want to dive in a little bit more on Verbo. Obviously, huge customer surge during the pandemic. And then it looked like your app strategy of getting apps distributed was working. So just kind of what's not meeting your expectations? Is it the paid channel or is it reactivating customers to kind of higher repeat rates? And what's the plan to fix that? And then second, can you provide any detail on the mix of Verbo versus Core, how that's trending? I think people are kind of throwing estimates whether it's down or not, but we'd love some commentary to help us with that. Thank you.

Yeah, well, I'll do the bad news first. We can't help you with the splits where we don't break out the business that way. But I'll talk about the beginning part, which is, yes, we saw a huge pandemic surge. That was great for customer acquisition. It was great for the Verbo business. And to be clear, we are still well above 2019 levels, even as we sit today. So the category has seen a boost. It has sustained the boost. I think when you get to what we're not happy with now is just we went through, as we've said many times, we had to go backwards to go forwards. On Verbo, that meant changing the product, going through the migration. And for us, it meant that we didn't think we could spend our money efficiently on Verbo while we were going through that. So we are winning back customer behavior. We're winning back new customers with new marketing as we push in with investment. We have to get customers back who may have gone through the bumpy period of migration. But also, VR is fairly flat in North America right now in terms of demand. So, again, we don't have the tailwinds of just a growth driver that was there. Now, we do believe we have the best product. We do believe OneKey makes it the most valuable. We do believe we have great supply. And so it's really getting the customers back in. And OneKey, on that point, gives us a really good tool to attract not only Verbo customers back, but as Ariane mentioned, customers from Expedia and Hotels.com, where we have a much bigger base of total humans and customers in those pools to bring them into Verbo and see the benefits of staying within our universe of products. So we have a lot of tools to use. We're just really putting them to use now again. Now that we're past the migration, now that we know the product experience is what we want it to be, and we will keep making it better, but it's at a place where we're happy with it and we can invest behind it and we know the returns will come through and the product will be sticky when customers get to us. So that's really, you know, that's the backdrop, and we're just investing into that backdrop, and we've got to keep driving it. We gave up some ground, clearly, and now we have to win it back.

Thank

you. Our last question comes from Tom Champion from Piper Sandler. Please go ahead.

Hi, good afternoon. Thanks for taking the questions. Ariane, the business remains in transition and it seems to be maybe a difficult period. I'm just curious how you think about your priorities over the next quarter or two. Tactically, where are you going to allocate your time and really focus first? And then for Julie, I'm wondering if you could just elaborate a little bit on the margin commentary for full year and your expectations. There's a headcount reduction. The tech stack being migrated would seem to be a cost savings. Where are you going to be investing such that margins will be more similar to last year versus maybe improving? Thank you.

Thanks, Tom. On the next quarter or two, let me say even if I've been in this business for 11 years, stepping into the CEO role is a new perspective. And so I will listen and learn with our teams over the months to come. I think we have set really solid foundations. And as I said in my prepared remarks, one thing is helping the teams get back to the basics of traffic and conversion and delivering the acceleration that's implied in our guidance. So there's going to be a part of it, which is helping the team focus on execution in the short term to deliver our acceleration. And then also sort of listening and learning and figuring out if there are places that we may need to adapt or adjust anything to really deliver on our long term growth. So I would say lots of time with our teams internally, obviously always lots of time with partners and the like. And again, I think I'm fortunate that we have a really great team here that's all motivated to want to win. So I'm looking forward to spending time with them in a couple of months to come.

And then on the margins question, you know, now going to relatively in line with last year as opposed to margin expansion, it's really a function of where we end up in the range of possible outcomes on the top line. Because we're still generating cost of sales leverage. We're still generating overhead leverage. We're still motivated, obviously, to get back to marketing leverage. It's just a function of where we see the ramp up in the back half and what what spot on the top line we end up being at. And so we want to make sure we give ourselves enough room to be able to make the investments that we need to make in Verbo to reinvigorate that brand and in our international markets to obviously support our growth initiative to expand outside the U.S. And so that gives us that opportunity.

Thank

you. Thanks, Tom. Thank you, everybody. I think that's our last call. Appreciate it. Thank you, operator. I think we're finished.

That concludes today's call. You may now disconnect your lines. Have a nice day.