In leading her first earnings call since taking over as Expedia Group CEO in May, Ariane Gorin bragged about a few numbers, shared something of a comeback story for VRBO — and issued a warning the rest of the travel industry might heed.
First, the good news. The company’s gross bookings and revenue for the second quarter both grew by 6% year over year — at the high end of the company’s expectations and eclipsing the increases for the first three months of the year.
“The travel environment was healthy in the second quarter,” Gorin said Thursday during a call with analysts, noting growth in nights books in the mid-single digits in the United States, low double digits in Europe and in the high teens for the rest of the world.
Then came the “but,” as Gorin described a “softening in travel demand” that prompted the company to slightly lower its expectations for the rest of the year.
Subscribe to our newsletter below
Chief financial officer Julie Whalen went into more detail. “While we've accelerated our gross bookings throughout Q2,” she said, “entering the third quarter we have seen a more challenging macro environment and a slowdown in travel demand consistent with recent commentary from others in the travel industry.”
Specifically, she cited more instances of consumers trading down to lower-priced properties and “continued softness” in air ticket prices, among other factors that drove weaker than expected growth across both consumer and B2B businesses in July. Because of that, she said the company expected gross bookings and revenue growth to fall between 3-5% for the third quarter.
“We know the environment is becoming more volatile,” Gorin said during her closing remarks. “But regardless, we believe we have a lot of opportunity ahead. We have great consumer brands that travelers love, a differentiated B2B business, diverse supply – the strongest it's ever been – and a really powerful tech platform. So as we look to the future, we're going to use these assets to drive optimal growth.”
More marketing helps boost VRBO’s performance
A common point of discussion during the call was VRBO. During the first quarter earnings call in May, former CEO Peter Kern singled out the company’s vacation rentals marketplace when he spoke of a “VRBO drag” on earnings.
The talk wasn’t so bad this quarter. While the company didn’t offer specifics, Gorin said “VRBO improved meaningfully from its Q1 low point and exited the quarter back to modest growth.”
Part of VRBO’s difficulties were attributed to Expedia Group’s strategy for the last several years to focus on retooling and realigning its internal systems, centralizing capabilities to simplify operations and reduce duplication among the company’s multiple brands.
In 2023, the company completed the migration and consolidation of its tech stack and along with that launched the One Key loyalty program that links its three primary brands – Expedia, Hotels.com and VRBO.
While focused on those priorities, company officials said they reduced marketing costs, which they said hit VRBO particularly hard, leading to what Whalen called a “planned ramp in marketing spend on VRBO.”
The companywide second quarter numbers bear that out. Sales and marketing costs between April and June were $1.793 billion, a 13.6% increase over the same period last year. More telling, the costs represented 50.4% of the company’s Q2 revenue of $3.558 billion, while last year’s costs for the quarter came in at 47% of revenues.
“Certainly, we learned from last year that you don't want to pull back too much on the marketing spend,” Whalen said. “That's part of the reason ... we want to continue investing in VRBO, because we’re investing for the longer term.”
Those behind-the-scenes efforts will be good in the long run for VRBO and Hotels.com, Gorin vowed. She noted that 30% of travelers who earned credits in One Key for purchases on Expedia or Hotels.com later redeemed them on VRBO.
“As I think about sort of the months and the quarters ahead, it's how do we take all the capabilities that we've built in the platform across the board … and sort of figure out what needs to be configured or built differently for VRBO and Hotels.com,” Gorin said. “Overall, I feel good about it. It’s just going to take some time to get there.”
B2B segment sees big gains
Some highlights from the second quarter numbers:
- Totals gross bookings were $28.8 billion, 6% higher year over year;
- Revenue reached $3.6 billion, growing 6% over 2023.
- Net income was $386 million and adjusted net income was $469 million. Adjusted EBITDA was $786 million, an increase of 5% from 2023.
- Lodging gross bookings were $20.7 billion, an increase of 8%. Hotels led the way again, coming in at 11%.
- Room nights booked increased by 10%, with the Expedia brand reaching 20% growth.
Another standout number came in revenue for the company’s B2B segment that Gorin headed up before being named CEO. B2B revenue was up for the quarter by $1 billion, a 22% increase year over year.
Asked about transitioning from B2B and what’s misunderstood about it, Gorin said it’s important to have a combination of strengths to excel in the sector. From her answer, it was clear she still believes that what’s good for Expedia can be good for travel as a whole.
“You have to have great technology, an excellent sales team, super partner relationships and be very hungry and aggressive and be open to a lot of partnerships,” she said. “So I guess the way I think of it is there is a massive travel industry. What is it – $2.3 trillion [in the tourism sector]? Our own brand has a small part of it. And so ... we can really look to what at all the innovation we have in our company that can help power all of the other travel players out there.”