For someone who excused himself in advance for being “raggy” (informal) because “I haven’t done this in a while”, Expedia Group chairman Barry Diller certainly knew how to capture attention with his comments in the company’s earning calls yesterday.
Most of what he and his handpicked right hand man, vice chairman Peter Kern, had to say was not that unexpected – things had to be fixed at the company from marketing spend to customer acquisition and cost cutting – but it was Diller’s candid and colourful delivery which provided the sound bites.
Setting the stage, he said that since December 4 – that fateful day which saw the ouster of both CEO Mark Okerstrom and CFO Alan Pickerill – not a day has gone by that he and Kern have not been engaged in Expedia’s business. “Having been chairman for 20 years, I thought I knew a lot about the company but there’s nothing like being on the ground and we have been on the ground.”
Saying he was “definitely impressed with the leaders” and that “I believe in the future of Expedia emphatically”, he couldn’t help but compare Amazon’s culture with Expedia’s – “all work, no life” versus “all life, no work” respectively. Admitting it was an enormous exaggeration and this “is not damning our employees”, he said Expedia had become a “consultant-led” and “bloated” organization.
So what are he and Kern doing about it? Well, last year, they bought $634m of its stock – “more than any other year and we will not end the process” – and they are taking “immediate steps to refocus on the day to day”.
He spoke of last year’s massive reorganization as a “vastly complicated process that froze us” and “management didn’t have a clear path on how to grow the company”.
Likening it to a “top down commandment”, he said it was a “top down pressure without people actually understanding how to execute and simplify the business”.
“We really lost clarity and discipline.”
And so it was moving from doing “dumb” to “smart” things and that means not spending on wasteful activities not core to driving sustained growth.
Smart things mean:
• One strategy, no silos – cost savings
Kern said the new platform – “in part to blame for the reorganization” – will prove to be its greatest opportunity. This means shared tech across businesses and data and AI coming together for the first time so that “we can learn faster and build solutions across the company and improve customer experience and monetization”.
He pointed to the rationalization of cloud spend “which has been a bumpy and expensive road” and “we are getting to a point where we have to optimize cloud spend”.
Marketing spend will also be rationalized, by using common measurements and tools. “Silos didn’t look at marketing the same way, we will be unifying it for the greatest return,” said Kern, who spoke about simplification, precision and putting an efficient operating mind to everything it does, and “we will be aggressive about that”.
This means going after $300-$500m of incremental savings in every part of the business – a number that analysts clearly liked because shares rose 11% after the call.
• Reducing reliance on Google and meta
Diller said the goal was to grow direct business and have loyal relationships with customers. In the Q&A session following, he spoke of the “existential threat” of Google and called it “anti-social” for “using their tactics to squeeze entities that are really delivering real service”.
He said that he had told senior management of Google “what we think about it and have implored upon them not to take away profits from businesses that are one of the main contributors to their revenue model”.
In any case, the future will be about driving direct consumer relationships. Expedia has 400m app downloads, growing at 40%. “We will drive more downloads, and we will do everything we can to diversify traffic to more direct arenas.”
• Ramping up EPS and B2B services
In this context, Expedia Partner Services (EPS) came out as the poster child. It does not depend on Google and will greatly benefit from the core tech platform which Kern said will give it greater configurability and greater experience for its business partners.
Bringing together Egencia with EPS in a new division called Expedia Business Services means further simplification and bring common practices together in terms of sales and customer management and B2B techniques, said Kern.
• Pushing markets, not brands
Kern said that “bringing our brands together and out of silos” was super important. Its previous strategy of having many brands all over the world and pushing brand by brand would change to pushing market by market where it will “push the best brands in every market” to “advance the greater good”.
• Saying no to grand goals, and saying yes to day to day execution
Refocusing from grand goals to the day-to-day to create true differentiation and making the customer experience great is key. “From now on, you will see the effect of that and the excellent people we have, and we can accomplish that together,” said Diller.
No more “wasted energies and calories on things” that may go to the promised land, he added on a raggy note.
Kern said 2020 will be “noisy” and it was hard to predict the exact impact of the coronavirus on results. However, he said, “generally we believe we will get into the double digit”.
However the future is bright for online travel, said Diller. “It started more than 20 years ago, it was the easiest area to colonise when the Internet came along and there’s no indication that it will not continue. There is nothing in its path.”
Other than the threat of Google, he said one other “existential” threat that had been pointed out was about losing share to hotels. Yet he said the OTA share of online hotel business has been steady at 38% for “many, many years” and it continues to grow. Total room nights at Expedia grew by 11.2% and 10.5% the last two years.
There are some direct channels but “overwhelmingly, people use online agents to book hotels and will continue to do so”, he said.
Key Highlights:
•
Gross bookings and revenue each increased 8%, to $107.9 billion and $12.1 billion, respectively for the full year 2019.
• Total stayed lodging room nights increased 11% for both the fourth quarter
and full year 2019.
• For full year 2019, Net income and Adjusted EBITDA grew 39% and 8%,
respectively.
• Net cash provided by operating activities and free cash flow grew 40% and
46%, respectively for the full year 2019 to $2.8 billion and $1.6 billion,
respectively.
• From early December through early February, Expedia Group repurchased 5.8
million shares for $634 million. For full year 2019, Expedia Group repurchased
5.6 million shares for $683 million