When a CEO and chief financial officer get pushed out a couple of months earlier, yes, the next earnings call with financial analysts might be unusual. But the Expedia Group fourth quarter earnings discussion on Thursday was one for the record books.
Expedia Group Chairman Barry Diller and Vice Chairman Peter Kern, who are now running the show and retooling the giant online travel company, laid out the path to the promised land. Actually Kern said that he and Diller over the last couple of months have seen “a fair bit of wasted energy and calories going at things” that may not have delivered Expedia “to the promised land.”
It was that kind of conference call.
But first — before we get into the zingers unleashed during the session — here are a few words about the company’s disappointing fourth quarter results. Expedia Group missed analysts expectation on revenue and earnings per share.
Revenue grew 8 percent to $2.63 billion in the fourth quarter, and adjusted EPS (earnings per share) fell 1 percent to $1.24.
But Diller and Kern vowed to simplify Expedia Group’s far-flung businesses, execute $300 million to $500 million in run rate cost-cutting in 2020, and pledged double-digit adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) growth this year.
Wall Street loved it — Expedia Group’s share price was up more than 10 percent in after-hours trading.
Here are some highlights of the earnings call:
1. Diller Said Expedia’s Work-Life Balance Was the Opposite of Amazon’s
While some people have argued that work-life balance at fellow Seattle company Amazon was “all work and no life,” Diller said, at Expedia it was “all life and no work.” He admitted that’s an “enormous exaggeration” and that there are wonderful employees at Expedia, but added “for several years, we really lost clarity and discipline.”
2. Expedia Was a Bloated Organization
Diller said Expedia can beat the competition for years to come if it can get back to pragmatic focus, cut costs, and simplify operations.
“As I said it before, we were a bloated organization,” Diller said. “I mean not because people were lazy or whatever, but over the years, just chasing the tail of growth and all that, we’re just adding people and people and complexity and all this stuff until, frankly very few people could figure out what the hell they were supposed to do during the day.”
3. Diller Admits He’s Just Really Learning the Nuts and Bolts of Expedia
It’s fairly unusual for a chairman who’s led a company for two decades or so to admit that he really started to understand the intricacies of Expedia Group since the executive departures.
“I got incredibly energized about this because I actually began, other than superficially, as the chairman … I began to really understand the levers of this business and what the opportunities were and what the condition of the company was that I thought relatively quickly we could turn. So we’re at it. And it’s not going to last beyond ’20, but that’s where we are for now.”
4. The Prior Regime’s Strategy Lacked Focus Amidst “Grand Goals”
Former CEO Mark Okerstrom had carried out a massive reorganization of Expedia Group, and he articulated new goals for the company, such as becoming more locally relevant, and making its customer service more like old-school travel agents.
Commenting on Expedia flights business, which saw revenue decline 8 percent in the fourth quarter, Diller said the company took it for granted, and seemed to take a shot at Okerstrom’s overall vision for the company. He disparaged “chasing all these grand goals” versus “focusing on day-to-day execution and making that customer experience great.”
Later in the call Diller said of Okerstrom: The management change was made “not to demean Mark Okerstrom or the CFO (Alan Pickerill).”
5. Half of CEO Searches Fail
Diller said he won’t conduct a search for a new CEO, and that perhaps a candidate will emerge this year, but for now he and Kern are digging in and running the operation.
“We’re not doing a CEO search,” Diller said. “I don’t know that we’ll ever do an actual search. I’m not a big believer in searches. I think they usually turn out the usual and obvious suspects. And when you only know somebody from interviewing and recommendations, I’d say your failure rate is usually — certainly, it’s above 50 percent, in my experience, other peoples’ for sure. Anyway, we’re not doing that.”
6. Revamping Brand Approach
Kern, Expedia Group’s vice chairman, said the company will look at every market it’s in, and withdraw some brands where sister brands, such as Expedia or Hotels.com, might have a higher profile, and will rationalize marketing spend.
“We have historically taken a brand-by-brand approach, and now we are taking a market-by-market approach,” Kern said. “And we will push the best brands in every market, and we may take some brands out of certain markets. And we will do whatever is smart, both on an operational basis and on a marketing basis to advance the greater good.”
7. Vrbo May Withdraw From Some Markets
A majority of Vrbo’s short-term rental content is now also available on Expedia and Hotels.com, officials said.
“And candidly now that we have the capacity to drive their supply through our other brands, we don’t need to have Vrbo in every market in the same way because alternative accommodations can be provided to the customer base through our other brands,” Kern said.
8. Vrbo Has a New Leader and HomeAway Was a ‘Dumb Name’
The rebranding of HomeAway to Vrbo was a disaster in terms of all the search engine optimization acumen that the company lost, and the execution of the change was not done well.
“No, Vrbo is not where it needs to be, but it is a lot different than it was, I’d say, a few months ago,” Diller said. “It has a new leader (Jeff Hurst) who we have confidence in, and he’s also on the ground. And look, what happened to Vrbo is it was, as I think all of you know, a collection of a bunch of disparate businesses, brands all over the world basically, that were brought together and put under the name of — dumb name called HomeAway, and — which meant nothing to no one.”
9. Diller Told Google Senior Management Stop Taking Our Profits
“I told the senior management of Google exactly what we feel about this and have implored upon them to basically stop actually taking away the profits from businesses that are probably one of the main contributors to their advertising revenue,” Diller said.
Diller said businesses of Google’s size need “sensible regulation. I’m not talking about breakups, I’m not talking about any crazy stuff. But I do believe that will happen.”
10. Leaning Away From Google and Metasearch
Diller said Expedia Group will lean away from Google and metasearch, and aggressively build its direct business through app downloads, generating greater consumer loyalty, and pushing its Expedia Partner Services business, which doesn’t rely on Google.
“We’re driving direct relationships with consumers,” Diller said. “Our download apps, we have about 400 million of them. And their growth is actually up 40 percent this year. We’re going to drive more downloads. We’re going to do everything we can to diversify our traffic to more direct arenas.”
11. Online Travel Agencies Have a Future
Diller said online travel agencies have a bright future despite existential issues such as Google. He disparaged the theory that hotels’ direct booking would doom online travel agencies.
“For the business as a whole business, the OTA share of online hotel bookings has basically remained steady at about 38 percent, I don’t know, for many, many years,” Diller said. “But the OTAs continue to gain share in the overall market as this shift goes — continues to go online. For instance from 2015, it’s gone from 17 percent to 19 percent. And at Expedia, our total room nights continued to grow, 11.2 percent in ’19 versus 10.5 percent. So I would say, yes, there are some direct channels that people like to use. But overwhelmingly, people use online agents to book hotels and are going to continue to do so. ”
12. Enough Re-Fishing for Customers
Kern talked about the importance of Expedia Group building its mobile and direct business so it doesn’t have to keep reacquiring — “re-fishing,” as he put it — customers from Google and other search engines.
“I think the biggest sea change is just our push to the company that this has to be our focus, and this has to be where we want to move people,” Kern said. “We need to get them out of re-fishing for them in the performance channels and into having real relationships with us. So it’s a holistic kind of approach, but it’s taking place on the marketing side, on the product side, on the innovation side and everything else. And so I think we’re going to push across all those things.”
13. Coronavirus Clouds Guidance
Chief Financial Officer Eric Hart said Expedia group expects a $30 million to $40 million adverse impact on adjusted earnings in the first quarter from Coronavirus. The volatility of that impact, and the lack of certainty about the timing of run rate cost cuttings were two of the factors the company cited for not issuing specific 2020 guidance.
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