Expedia Group saw its attempts to expand away from its core lodging product falter, as its alternative accommodations reported slowing booking growth.
The company, which recently re-signed with Marriott International, added that its relationship with hotel operators had become “more constructive” in recent years.
Expedia announced that it had renamed the HomeAway reporting segment as Vrbo, pronounced ‘Ver-bo’. The group was not planning to shut down HomeAway, but instead focus its marketing efforts on Vrbo. At the end of the first quarter, Vrbo offered over 1.2 million instantly bookable listings, growing stayed property nights by 8% during the period.
Mark Okerstrom, Expedia Group’s CEO & president, said: “With high consumer awareness and brand loyalty, Vrbo is our strongest alternative accommodation brand and accounts for a majority of our US business in the space. Vrbo will now be Expedia Group’s primary global alternative accommodation brand and we intend to expand Vrbo to international markets in phases.”
Vrbo gross bookings totalled USD4.16bn, up 5% on the year, against 46% growth in the same period in 2018, with the company commenting that it expected this trend to persist.
Okerstrom said: “Although we are confident in our direction, our streamlining of brands and platforms has put increased near-term pressure on SEO trends, which has contributed to the deceleration we have seen in Vrbo’s gross bookings growth. We are optimistic that we can deliver healthy growth and remain a global leader in alternative accommodations for many years to come.”
The CEO added that in the US, where the brand was strongest, it was “up nicely double digits and growing healthily”.
Susquehanna analyst Shyam Patil said: “Expedia is facing some challenges in one of its key growth drivers – Vrbo – as the brand transition and SEO headwinds appear to be weighing on bookings growth; we believe it could take several quarters to resolve these issues. Looking ahead, Expedia appears constructive on the core lodging nights growth trajectory, but headwinds from the HomeAway to Vrbo transition are likely to remain for the next couple quarters.”
The company as a whole saw Ebitda grow by 42% year-on-year to USD176m, with total stayed lodging room nights increasing 9% year-over-year, against 15% in the same quarter in 2018. As a percentage of total worldwide revenue in the first quarter of 2019, lodging accounted for 66%. Lodging revenue increased 7%, driven by growth at Expedia Partner Solutions, Hotels.com and Brand Expedia, partly offset by a 2% decrease in revenue per room night, due to the negative impact of foreign exchange.
Looking ahead, the group expected adjusted Ebitda growth of 10% to 15% for the full year.
Commenting on the OTA’s relationship with the hotel sector, Okerstrom said that it had become “significantly more constructive over the course of the last couple of years. I think that we have all recognised that we all play a unique role in this ecosystem. It turns out this Internet thing is here to stay. We have a lot of value to create, but our partners have a lot of value to bring, too.
“The dialogue has shifted away from us versus you and how do we redivide this pie toward how do we actually expand the pie? How do we actually create new sources of value and both participate in that in a way that is accretive to both of us? We’re super pleased with the way that that has gone with virtually all of our global chains. We’re very pleased with the Marriott arrangement that we made. And I’m hopeful that this is a sign of things to come across all of our global partnerships across all of our product categories.”
Analysts were told not to expect changes to the rates with Expedia’s chain partners.
Okerstrom said that the company was seeing interest in its Accelerator product, which has been one of the most controversial of its product offerings, with hotels paying “compensation” for prime ranking positions. The company told Hotel Analyst that hoteliers “cannot buy their way to the top, but compensation can make a difference among hotels with similar offer strengths and quality scores”.
HA Perspective [by Katherine Doggrell]: Okerstrom’s right you know, the internet is here to stay and his shareholders must be relieved that he’s willing to nail that particular flag to the mast. What the sector is currently waiting on is further detail of the Marriott deal (further or any) which will illustrate how this new relationship plays out in practice, with Expedia giving hotels what they need.
In the meantime, the growth of interest in Accelerator suggests that hotels still very much need to be at the top of the rankings on the core Expedia brands, somewhere the OTA was also planning on putting Vrbo inventory. It could get crowded out there. It could also provide both parties with a happy solution to the ‘our customers want homesharing but we don’t want to provide it’ conundrum which some – not all, Hilton be noted – of the operators are going through, possibly with a white label solution.
The other drum which Expedia continues to beat in its relationship with hotels is the back-of-house support it can offer. For those operators which are never going to have the scale of Marriott, having access to the kind of data which the OTA hoards is a valuable tool. Some have speculated that Airbnb will become more valuable for its data than its room-selling antics and Expedia too can offer a valuable trove. Hotels just need to work out what to do with it.
Additional comment [by Andrew Sangster]: There was an interesting exchange on the conference call about Expedia’s relationship with airlines. And it looked eerily familiar to any observer of the relationship between Expedia and hotels.
The current tiff in the airline space is with United which believes it can sell its lowest fares just as well as Expedia. It intends to do so by delisting its inventory from Expedia from September 30. And it has already stopped selling flights for October 1 and later.
Mark Okerstrom admitted that United’s action would damage Expedia saying: “it would be value-disruptive to both of us”. He hoped United has a change of heart but “I think United’s competitors will be very happy with that outcome [of United being delisted]”.
The main point he made was: “But when I look at the value that can be created by expanding the pie as opposed to dividing it, I think for both strategic and economic reasons, I would find it completely bewildering if United decided not to engage in that discussion [of renewing the contract].”
Expedia sees itself as a platform with market level economics. Individual suppliers can leave the platform but ultimately everyone suffers by the absence. It seems that the relationship with supplier and retailer is fraught in all sectors.