Expedia Group held their Q3 2023 financial results teleconference, with SVP Harshit Vaish, CEO Peter Kern, and CFO Julie Whalen in attendance. The call included references to non-GAAP measures and forward-looking statements. Despite challenges such as the Maui fires impacting Vrbo, the company saw record revenue and EBITDA, indicating strong travel demand.

In North America and Europe, demand for travel remained stable, while there was more growth in APAC and Latin America. Hotel and Vrbo prices stayed steady, but there was some pressure on air and car prices. The company has completed its multiyear transformation and is now able to accelerate into the future with increased test and learn capacity and feature release velocity. The B2B business is also performing well, with a 26% increase in revenue in Q3 and strong demand from China.

The company expects continued growth in their B2B business due to expanding into the market and platform improvements. They are also pleased with the growth of their B2C business and the launch of their new loyalty program, One Key. The program has already seen success with a high number of members and growth in new members, and the company plans to expand it to other countries next year. With the Vrbo migration complete, they can now focus on the unique benefits One Key offers in the vacation rental space.

One Key is focusing on attracting higher value customers and increasing the use of loyalty programs and apps. The company has released new features and products to improve the planning and booking process, such as group travel planning and AI-powered tools for destination research. These improvements not only enhance the consumer experience but also expand the company's reach through the use of a traveler's network. Additionally, generative AI is being used to scrape reviews and provide answers to common traveler questions about hotel amenities and property details.

The company has launched EG Labs, a project that allows customers to test AI-powered beta products. They believe they are the fastest innovators in the travel industry and are well-positioned for future growth and profitability. They plan to focus on growth, innovation, and efficiency in 2024 and beyond.

The company's third quarter results show significant growth, with revenue reaching a record $3.9 billion and a 300 basis point increase in year-over-year growth. Earnings also saw a significant increase, with a 31% EBITDA margin and 110 basis point expansion. The company's transformation strategy and growth initiatives are paying off, leading to continued momentum and a new $5 billion share repurchase authorization. Total gross bookings were up 7%, with lodging gross bookings growing 8% and the highest third quarter on record. The company's Vrbo business was impacted by recent events and a demand shift towards urban areas, but the B2C and B2B businesses saw continued strength and outperformance. Total revenue grew 9%, primarily driven by the performance of the lodging segment.

In the third quarter, the company saw a 400 basis points increase in B2C revenue growth compared to the second quarter, partially offset by declines in insurance and car businesses due to industry changes post-pandemic. However, these businesses are expected to have less of a negative impact in the future. Total revenue margin increased by 20 basis points due to higher lodging revenue. Cost of sales decreased by 10% due to ongoing efficiencies. Direct sales and marketing expenses increased by 11% due to commissions paid to B2B partners, but the B2C business saw marketing leverage. The company expects to continue driving efficiencies in the future.

The company has seen increased efficiency in B2C marketing due to investments in loyalty and app members, resulting in higher direct and repeat traffic. Overhead expenses have increased due to investments in talent, but the company expects to see cost efficiencies in the future. Record EBITDA of $1.2 billion was achieved with an EBITDA margin of almost 31%. Free cash flow remains strong at $2.3 billion year-to-date. The company has strong liquidity of $7.6 billion and a debt level of $6.3 billion with an average cost of capital of 3.7%. The gross leverage ratio has decreased to 2.4x.

The company has made progress towards their target gross leverage ratio and plans to continue making progress through EBITDA growth and debt repayment. They have been buying back their stock at record levels and believe it is the best use of their capital to maximize shareholder returns. They have announced a new $5 billion share repurchase authorization and plan to continue buying back stock opportunistically. They are reiterating their full year outlook of double-digit top-line growth with margin expansion and expect modest sequential acceleration in year-over-year revenue and EBITDA growth in the fourth quarter.

The company is confident in their execution and results this year and believes there is a huge opportunity for long-term growth and shareholder returns. They plan to update on their 2024 plans next quarter. They also discuss the recent Vrbo app migration and the potential for growth through One Key. They have also announced a new buyback authorization and plan to deploy the $5 billion in the future.

The company's One Key cash option on Vrbo is a way to attract more customers and improve the value proposition of the platform compared to its competitors. The company also plans to incorporate more multiunit vacation rental properties from its other brands onto Vrbo. The migration process has been challenging but there is optimism for growth opportunities in the future. The company has $5 billion in buyback authorization and will make decisions based on free cash flow levels, stock price, and long-term outlook. They intend to buy back stock opportunistically.

Peter Kern, CEO of Expedia, is confident about the company's business outlook for next year, despite geopolitical concerns and potential macro headwinds in the travel industry. He acknowledges the short-term impact of recent events, but is optimistic about the potential for growth in the long term, especially with the progress of initiatives like Vrbo and One Key. While external factors may affect the company, Kern believes that Expedia is well-positioned to drive faster and more profitable growth in the coming year.

The speaker explains that their ambition is not based on the belief that the world will become perfect, but rather on the belief that they will be in a better position as they continue their journey. They also mention their plans to expand into international markets, which they believe they are well-equipped for, but will approach strategically and selectively.

Peter Kern, speaking on behalf of Kevin, discusses regional performance and cost levers for the tech market ratio. He notes that APAC and Latin America have been faster-growing markets, while North America and EMEA are more stable. Despite this, the company has been able to hold or grow share globally. As they continue to improve their products and have more levers to work with, they believe they will become more competitive. Additionally, the company has completed large tasks and is now able to work more efficiently, with opportunities in cloud and other areas.

The company has experienced significant growth in product and technology, allowing for increased efficiency and a more streamlined business. There has been no noticeable weakening or change in consumer behavior, and the Vrbo website migration has been completed with no significant impact observed. The company's focus remains on the mid to upper market segments.

The speaker discusses the migration of the company's website and app, stating that they are still in the process of testing and improving their features. They also mention that they expect to see growth and improvements in conversion rates. The speaker then talks about marketing efficiencies and the use of One Key to promote all three brands. They also mention their plans to optimize brand and performance marketing spend.

The company is excited about the potential to cross-sell products and keep customers within their universe of brands. This can lead to more direct business and higher margins, allowing for smarter investments in marketing and customer acquisition. While they are still learning how to best promote the brands together, the One Key program has already successfully converted non-members into new members with access to a variety of products. The main goal is to drive more direct business through this strategy.

The company views spending on loyalty, marketing, pricing, and discounts as one pool of capital focused on acquiring and retaining customers. They expect to drive both strong EBITDA dollar growth and margin expansion following the tech migration. However, they may also invest in offensive strategies. There have been questions about the growth of alternative accommodation nights in the industry, but the company has not seen any changes in customer preference for vacation rentals.

The speaker discusses the impact of the COVID era on their business, noting a boom in demand for rental spaces but a recent decrease in pressure. They also mention their focus on whole home and apartment experiences rather than shared accommodations and their expectation for growth in this space. They then address a question about their bookings growth rate and the potential for top-line growth next year. Finally, they mention efforts to increase app users rather than relying on search marketing.

The company has seen some short-term impacts on bookings due to external factors such as the Maui fires and geopolitical uncertainty. However, they are confident that their recent tech migration, One Key launch, and growing base of app and loyalty members will drive bookings up in the long run. The CEO also notes that the effects of these changes will build over time, rather than providing an immediate boost.

The speaker discusses the noise in the numbers due to geopolitical factors and other external influences, but remains enthusiastic about the potential growth of the company next year. They attribute their enthusiasm to the underlying building blocks of the company, rather than current trends or macro factors. The speaker also mentions the success of app members, who have higher return rates and customer lifetime value, and explains their focus on acquiring more app members through marketing and product improvements. They state that the statistics have held up and they will continue to prioritize the app for innovation and customer acquisition. The next question from a different speaker is not provided.

Tom Champion asks Peter Kern about the growth of the company in China, particularly on the B2B side. Kern explains that while the B2B business is doing well, airlift from China is still below pre-Covid levels. He expects a gradual improvement as relations and travel restrictions improve. Julie Whalen is asked about the $5 billion buyback, and she points out that the company has already bought back over 2 times that amount year-to-date.

The company is comfortable with their multiyear plan and expects growing free cash flow. They have little left in the plan and see it as a new and existing launch. Despite some expected dislocation, customer behavior on Hotels.com has been better than anticipated. The company is working to make things right for upset customers and is seeing the beginnings of their goal to encourage customers to use their One Key cash on Expedia for other purchases.

The speaker states that they are pleased with the program and it has exceeded their expectations. They have good visibility into continued double-digit growth in the B2B business due to factors such as adding new partners, maturing performance, and new initiatives. When asked about the cost of the One Key launch, the speaker does not give a specific number but mentions that they are still finalizing plans for next year.

Peter Kern, CEO of Expedia, discusses the company's strategy for growth and the impact of their loyalty programs on revenue. He explains that the company aims for a zero-sum game when it comes to the cost of their loyalty programs, with the benefits being spread among their customer base. While there were some initial costs, they have been able to keep them in line with expectations and have seen positive results in terms of growth. Kern also mentions that there is still more potential for growth and that the company is focused on maximizing the benefits of their loyalty programs. Analyst Mark Mahaney from Evercore ISI asks a question related to this topic.

Peter Kern, CEO of a company, talks about their feature called ChatGPT, which uses generative AI to help customers with planning and other tasks. They were the first to launch this feature and have been learning a lot from it. They have recently highlighted it more and have seen increased engagement. However, it is still early days and not significantly impacting the business. They are using generative AI in other areas as well, such as reviews and customer service. Overall, it is a small but important feature for the company.

The company wants to use AI to make the customer journey easier, whether it's on the homepage or through other areas like search and purchase comparison. They have been focused on centralizing their technology and loyalty program, but they are not planning on getting rid of their smaller brands. They believe customers would be better off using their main brands, but maintaining multiple stacks is no longer a burden.

The company is focused on brand marketing and providing a positive consumer experience, with a focus on their top three brands. However, in different regions, they may have fewer than three brands or use different names. They are working to reduce the impact of their other brands, which have been a drag on their performance, and will continue to prioritize their core brands. The call has ended and the company looks forward to updating investors at the end of the year.

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