The Expedia Group held a teleconference to discuss their Q2 2023 financial results. They were joined by CEO Peter Kern and CFO Julie Whalan, and the call was moderated by SVP Corporate Development Strategy and Investor Relations, Harshit Vaish. During the call, they discussed their travel demands and progress on their platform transformation journey, which included the launch of one key in the U.S. and the migration to a new platform.

The data shows that travel remains a top priority for consumers. The company's B2C strategy is to attract and retain valuable customers and move them into loyalty membership and app usage to increase their value. This leads to higher profits per transaction, higher repeat rates, higher lifetime value, and a higher return on investment, which drives more profitable and faster growth.

The Expedia brand in the U.S. has seen an increase of 135% in customers with the app versus 2019, and the company has recently launched One Key, the most flexible travel rewards program in the industry. One Key Cash is a simple common currency that can be used across flights, hotels, vacation rentals, car rentals, cruises, and activities. The company expects this program to drive many more customers into the program and substantially increase their base of loyal travelers. The last major tech lift is the verbal migration to the main platform, which is already 100% complete in the U.S.

In the fourth quarter, Expedia is migrating to a single-tech strategy to give all brands access to features like AI and machine learning, such as conversational trip planning. This should lead to better conversion, increased feature velocity, and better performance. The B2B business has grown 32% year-over-year in the second quarter and is fueled by the same technology, supply, and service that serve the Expedia brands. This has enabled Expedia to become the most successful and differentiated B business in the travel world, with a large addressable segment still available to penetrate further.

Peter is pleased with the momentum of the company's product improvements and strategic initiatives, which have resulted in record revenue and EBITDA in the second quarter. The company has partnered with MasterCard and Wal-Mart, expanded its tech delivery, and commercialized its fraud prevention capability. The company is confident in its future growth and profitability due to its industry-leading AI capabilities and single-and-platform strategy.

In the second quarter of 2023, global gross bookings of $27.3 billion were up 5%, driven by a 7% increase in lodging gross bookings, which was the highest second quarter on record. This was primarily due to strength in the B2B business and brand Expedia, partially offset by a shift in consumer demand towards urban markets and shorter lengths of stays, and the impact from Vrbo's tech platform migration. Total revenue of $3.4 billion was up 6%, and was the highest second quarter on record, driven by a 12% increase in lodging revenue. Additionally, this quarter saw approximately $1.2 billion in share repurchases, the largest buyback to date.

In the second quarter of 2021, total revenue margin increased 10 basis points to 12.3%, due to a shift to lodging revenue with higher margins. Cost of sales decreased 3%, with 110 basis points of leverage as a percentage of revenue, due to automation initiatives. Direct sales and marketing expenses increased 2%, mainly due to an increase in B2B commissions to support growth of 32%. This was partially offset by softness in insurance and car, due to changes post-pandemic.

This quarter, B2B direct marketing costs increased, but were offset by B2C marketing efficiencies from loyalty and app members and shifting some of the planned spend to the third quarter. Overhead expenses also increased due to annual compensation increases and investments in technology teams. Despite these increases, the company was able to deliver a record second quarter EBITDA of $747 million with an EBITDA margin of 22.2%, and free cash flow remained strong at $3.8 billion year-to-date.

The company has seen a year-to-year decline in working capital, but is pleased with their ongoing robust cash flow levels and strong liquidity. They have started to make progress towards their target gross leverage ratio of two times, and have been buying back their stock on an accelerated basis. They expect to continue buying back their stock opportunistically throughout the remainder of 2023, and are reiterating their full-year outlook of double-digit top-line growth with margin expansion. For the third quarter, they expect year-to-year gross bookings growth to accelerate to high single digits.

The company is confident in its outlook for the rest of 2023, as they have seen record revenue and EBITDA in the second quarter. They are continuing to transform the business and navigate associated headwinds. They expect to see a more meaningful acceleration in both top line and bottom line growth in the fourth quarter as Vrbo finishes its migration, the One Key impact starts to kick in, and the growing base of app members drives more production. They also expect to see continued cost of sales leverage, but will be investing in marketing to support the One Key launch.

Peter Kern states that generally, booking trends have normalized to pre-pandemic patterns, with Asia and Latin America seeing faster growth due to them opening more recently. He also mentions that the switch from Vrbo to hotels began in the back half of last year and earlier this year, though it is difficult to quantify the effects of this on Vrbo's reacceleration at the end of the year.

Vrbo is introducing One Key, a loyalty program for customers, and is hoping it will drive cross-shopping between products. The product is being migrated across platforms, with the app coming last. This migration is expected to take a few more months. Marketing spend was shifted from the second quarter to the third quarter to support the launch of One Key.

Julie Whalen and Peter Kern discussed the decision to shift marketing spend from the second quarter to the third quarter, with the intent of driving better returns with the launch of One Key. They believe that this decision was the right choice of action, even though it may have impacted second quarter bookings and nights. They also believe that they have been holding share in their core markets and gaining share in outside North American markets, which played into their decision to wait to spend the money until the launch of One Key.

Peter Kern explains that the acceleration in the third quarter will be driven by a combination of factors, including the One Key loyalty program, growth in foreign markets, and normalization of insurance dynamics. He notes that One Key will not have a massive impact in the third quarter, but that they are seeing good acceleration in the market.

Julie Whalen has discussed the increased CapEx expectations for the rest of the year and the drivers behind it, which is mainly due to the transformation initiatives such as the One Key launch and the verbal migration. Mark Mahaney then asked about the travel bot or ChatGPT experience on the site and the engagement with it, to which Julie has not yet commented.

Peter Kern explains that while ChatGPT has potential, it is still too early to see an increase in conversion rates as a result. He believes that the key to better integration lies in combining ChatGPT's capabilities with their own data. As for One Key, Kern believes it will be a gradual build and it may take some time before its impact can be seen.

Peter Kern explains that the company is looking to attract customers with a strong rewards program and make them come back with their One Key program and app. Through performance marketing and out-of-home campaigns, they hope this will give customers more value for their travel and make them choose them over other companies. This should start to have an impact in the back-end of the year, but it will take longer to see results in the numbers. Kern expresses confidence that they are improving the quality of their B2C customers, and they have seen higher repeat rates.

Peter Kern explains that a new feature of the One Key launch is the introduction of blue, silver, and gold level discounts for members. These discounts are funded by the supply partners and are meant to attract higher value travelers. The discounts are more valuable than those offered by competitors, and customers are more likely to be drawn in by the loyalty rewards and other benefits that come with membership.

Peter Kern reported that over 70 million customers have been converted to the One Key program, which includes new members who have joined in the last few weeks. This program allows customers to see the benefits of using other brands, even if they have been a customer of one of the other brands for a long time. Additionally, the program is expected to create more value for the company as customers move more into membership, sign up for the app, and cross shop.

Vrbo has seen a lot of great response with millions of sign-ups and while some of the heaviest users had some concerns about the new program, they have been taken care of and will get more value through flexibility and deeper discounts. The new program offers more benefit than they can get anywhere else in travel.

Peter Kern explains that the loyalty program changes have been made to give customers more value and flexibility, such as discounts and high-end benefits for their heaviest users. He believes that customers will come to understand and appreciate the benefits of the new program, even though it is slightly different than the old one. Kern also mentions that they have been driving back into international markets with greater confidence and have seen nice returns due to their conservative approach during the pandemic.

Peter Kern and Naved Khan are discussing the competition in international markets and Google's new ad format. Kern does not believe there is anything concerning in terms of pricing in the auctions and they are looking for better opportunities to invest their advertising dollars.

Peter Kern has commented on airline industry trends, noting that there has been a slight softening in domestic air travel in North America due to increased supply, but overall consumer demand has been steady and strong. He also discussed the strategy of focusing on the right consumers and getting them into the right state in the app, which is an ongoing journey for the company.

The One Key loyalty program rollout will bring changes to each of the individual brands, and the collective impact on take rate and merchandising is yet to be seen. The acceleration in bookings growth is a combination of both positive and negative aspects.

Peter Kern discusses the changes to the One Key program, which is now the most similar to the Expedia program, with the addition of Vrbo to the pot. He also discusses the changes to the Hotel.com program, which now offers benefits to all users, not just super users, and the points can now be used on anything, making it much more flexible and vast.

Vrbo now has rewards that Airbnb doesn't have, and customers can use them for a variety of purposes, such as hotels, flights, and more. Vrbo is aiming to build a base of loyal customers who use them for all their travel needs, which will lead to higher LTVs, more direct bookings, and more app-direct bookings. Smaller brands are getting smaller, but the larger brands are getting stronger and pulling more weight. Lastly, Vrbo has been improving their product, conversion, sign-in, and app-down, which is helping them stack up on themselves.

Julie Whalen explains that the full year margin expansion should be driven by the fourth quarter, due to the strength of the business in the back half and marketing leverage. Additionally, they are looking to find efficiencies across the P&L to offset any headwind from fixed cost growth.

Peter Kern concluded the call by discussing the opportunity to reduce costs through deprecating redundant systems, repurposing product and tech staff, and leveraging the P&L in the coming year. He thanked the audience for their time and concluded the call.

This summary was generated with AI and may contain some inaccuracies.