Q3 2020 Expedia Group Inc Earnings Call
[music].
Good afternoon, My name is Christine and I'll be your conference operator today at this time.
I would like to welcome everyone to the Expedia Group third quarter 2020 conference call.
All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session. If you would like to ask the question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question press the pound. Thank.
Thank you I'll now turn the call over to Michael Senno, Vice President Investor Relations and Treasurer.
Thanks Christine.
Good afternoon, and welcome to Expedia group's financial results Conference call.
Third quarter ended September Thirtyth 2022.
It can be joined on the call today by our CEO, Peter Kern and CFO or apart.
The following discussion including responses to your questions before management's views as of today November four 2020 home and you do not undertake any obligation to update or revise this information.
As always some of the statements made on today's call are forward looking typically preceded by words such as we expect we believe we anticipate we are optimistic were confident that were similar statements. Please refer to today's earnings release and the company's filings with the FCC for information about factors, which could cause actual.
<unk> results to differ materially from these forward looking statements.
You will find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in our earnings release, which is posted on the company's Investor Relations website at IR Dot Expedia group Dot Com and I encourage you to periodically visit our IR website for other important content.
Unless otherwise stated all references to cost of revenue selling and marketing expense general and administrative expense and technology and content expense exclude stock based compensation and all comparisons on this call will be against our results for the comparable period of 2019.
Please note that depreciation expense is now reported in a separate line item and prior periods have been restated to reflect this change.
I'll turn the call over to Peter.
Thank you Michael and good afternoon everybody.
Sure well, we appreciate it we are not the most newsworthy thing going on around the country, but thank you for spending.
Starting with us and hopefully we can.
Oh help give us some more color on our quarter.
I'll start by saying as I said before the travel generally performs in this period as everyone has expected and in general.
Closings openings worries over the pandemic healthy there.
Influence you expect but.
But we were pleased to see in the third quarter that was.
Stabilizing travel trends and significant improvements on our cost structure.
We were able to post markedly improved performance I'm going to get into some of the internal workings, including margin expansion on that which actually Eric will cover in his remarks, but first I just want to make two comments on the recent trends and travel what we saw over the third quarter with basically a stabilization I've said.
July was down and lodging gross bookings net of cancellations. This was.
The function of two things one you may recall, there was a slight increase.
In in Covance cases, being reported then that had some impact on travel along with Burberry for us which had a very very strong.
And that strength.
Subsided a bit it's still strong.
In July so July.
Again logical gross bookings net of cancellations was off about 65% in the months that ensued that.
That got to the low to mid 50% range down so a reasonable improvement a steady improvement and.
And that obviously helps with our third quarter results.
Verbose tend to be quite strong as I said coming off the June high which was at a lot of pent up demand.
But the third quarter was strong we were up year over year, which spread the travel business of courses is terrific and the world we're living in.
And we think it bodes well both for because we brought in a lot of new customers and we believe those customers will have long term value for us and where it's helping for land the verbal brand.
And making people more familiar with it.
On the hotel side, North America actually has been pretty steady and improving since July but Europe for us and in general has been a little rockier.
Paces were rising and super months, and and of course in the last week or two we're seeing lots of changes and I'll get into that in a minute, but so north America was generally positive through the period.
In conventional lodging and Europe was slightly subsiding over that period.
Air continues to lag Rajan, obviously international Air is it's Barry.
Injured at the moment, but I think generally has been improving we've seen that across.
Domestic air and and we check the people getting more comfortable with the safety protocols and understanding the safety upon when we think that that's good news and obviously the airlines all reported and I know have higher hopes subject to this third wave of course for the holiday season.
Over the last couple of weeks, which were all acutely watching.
Again has had the impact I would suggest that pretty much most of US would expect which is to say Europe has been a cheaply hurt by it.
But north America has remained pretty strong it's down, but still showing relative strength compared to Europe, obviously, largely separate little beneficial given our mix of business towards North America.
But nothing.
Can be known yet about how these trends will continue and of course, if there are more closures.
There are closer to us.
In any way or if there are other lockdowns in Europe that will have an impact on the overall business.
I want to talk a minute about market share because you may have observed that in some cases market share has been shifting around and weird ways during program and for US certainly that is true. There's a few things to note here. One is obviously alternative accommodations have been quite strong not just for us but for others.
Obviously, that's been great news for verbal.
We've been a big beneficiary area of that but that has shifted.
I'll just share significantly across geographies.
Yes.
We've also seen that there's a lot of unique use cases during the pandemic much more not only domestic and not only in secondary and tertiary market travel very purpose driven travel going to visit family made and to be specific work meeting to go to one of the small markets is much less discovery going on and price shopping and this seems to be more direct.
Bookings in smaller market independent hotels as people are calling you make sure they're open.
Make sure that.
Safety protocols et cetera.
Our happiness and Conversely, the places where we typically have the most share experience like bigger urban markets International travel International package travel et cetera have obviously been among the most impacted so we have seen some share shift in that and I want to reiterate and I've said it before that we have recombine own.
Combined our performance marketing teams during this period and we are doing a lot of plumbing work to retool.
And recalibrate all the algorithms and everything we do so that we can optimize for multi brand instead of brand against brand.
There's a lot of work going on it is.
Significant effort.
But during this period, while we do that and while there is so much uncertainty in the market, we clearly have a bias towards profitability, which you've probably seen in our numbers.
And the biased towards caution given that cancellation rates and other things are very volatile and very hard to predict. So we are not chasing share that might be unprofitable or the brick wall, we might run into with closures and covert cancellations, you're trying to be very prudent here, while we rebuild everything.
On the theory that we will be at our end state by the time code that is over or.
More precisely.
Total trends come back to more normal levels, and we believe as I said before that.
Once that farming is rebuilt and once we're ready for multi brand that we will be able to not only maintain but grow share at similar or better profitability as we have had before.
Moving on to what we are doing internally.
Again, I won't belabor this but were focused on several areas one of which I talked about before but that is our brands and how we will join those groups together, we're focused on brand differentiation.
Clearly.
Showing and demonstrating what those value propositions are to the market and how they differ from one another making choices about which brands, we market, where geographically and how we lean into all the marketing channels for different brands and there's a lot of work going on for their coming out of coal that ran through covert brand marketing side.
Obviously leaning heavily answer per BOE, we think it's having a moment all the research shows that.
And has gained share and that has gained awareness and there's some very positive things going on with that brand, but we are also looking out and we'll start to rise again, we're obviously being cautious given the last couple of weeks news, but we will lag into our other brand marketing including hotels.
Hotel Dotcom brand Expedia, just signed a long term sponsorship with Liverpool.
Soccer team and in the UK that.
That we think will be important for land in that brand and pushing it in the UK and EMEA, particularly.
There is a brand new raptor creative coming out on the back end of the prior so a lot of work going in there to be really clear on what we're doing we're doing it and how we're investing behind each brand were also heavily interested and excited about the opportunity in the b to b side and in helping our supply partners we've talked before.
We're about to our Expedia partner services business.
We are a leader in this space and we feel very good about our opportunity here. In fact, we believe we can we can grow share here during covert as we help our need to be partners now faster and and help more partners over time.
We have expanded our partnership on the on the supply side, which Marriott in terms of their wholesale distribution partnership and we are extending that partnerships similar partnerships for optimize distribution with other chain partners and we think thats going to be a great opportunity to help our spark partners and also build.
Our b to B business, so a lot of exciting things going on there, including extending a lot of the technological advances we have made on our platform things we've talked about before like our voice a conversation platform, which we had externalize to some of our B to B partners and now we've done that with our advertising platform.
Media services me, so we call. It so there's a number of places we've been able to.
We'll take advantage of the improvements technologically.
The business, though lots more to go there and finally and perhaps most importantly.
The underpinning technical platform architecture that we have talked about that work continues it is big structural foundational work.
But it is part of what helps us on the efficiency side Weve had great wins on the cloud and licensing areas, which we've talked about before but there is a thousand small wins across the across the business.
Getting out of the business that talking about little ones here and there and so they are really noticeable and impactful, but the whole idea of.
Putting that platform together re architecting it for the future was so that we could be agile make these improvements that were wins across much more of the business not just the brands, but the b to b businesses, and we're starting to unlock those things and obviously a lot more work to do here, but we are doing as much as we can as fast as we can while we what we saw.
So through coping.
And with that I will turn it over to Eric except to say that.
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We obviously can't control, what's going on there out there in the travel market or in the scientific community. We are hoping for all the same things you are in terms of.
Vaccine and other treatments that will help us get through this we do believe that people have been up until this recent wave getting increasingly comfortable with the idea of traveling.
This will obviously have an impact this recently, but.
It will remain bumpy and unpredictable and we can't control that in the meantime, our teams are highly focused internally and I'll just say I want to thank our teams that have done tremendous work.
Very unpleasant environment.
And really done a lot to help our customers help our suppliers.
Help the company do better and also importantly done some very hard work.
Around how we manage our our human resources and how we structure our organization and Unfortunately, we had to make some significant.
Moves on people, which is of course, the worst work we do.
But the teams have done a terrific job and.
Very optimistic about the work, they're doing for the future and with that I will turn it over there.
Thanks, Peter and thanks, everyone for joining as well, while we continue to see significant year over year decline, but our business in the third quarter take.
Taking into account the impact of covered is having on travel our financial performance was better than we expected with over 300 million and adjusted EBITDA and reach an essentially cash flow neutral in September for the first time since February.
As you know and as discussed in previous quarters. We are keenly focused on driving margin expansion, which largely falls within three buckets resetting the fixed cost base, reducing variable cost of revenue and increasing marketing efficiency.
Touch on excuse me each of those individually so.
So first on fixed cost basis as you'll recall, we started the year targeting 300 to 500 million in annualized savings and we were tracking ahead of that amount as of our last call. Since then weve identified additional head count reductions and sprint areas, an incremental opportunities across obtain I'll drive efficiency in areas like real estate and software and licensing.
We are now targeting 700 to 750 million, an annualized run rate savings compared to our 2019 exit rate and we've already actioned over $550 million.
As you project. This fourq. Please keep in mind will have annual increases in the remaining cost base and also make targeted investments in some areas, but overall, we've made great progress on fixed cost and longer term our platform operating model will position us to scale the business far more efficiently going forward.
On variable cost of revenue there are three primary areas we're targeting.
Yes, it's on our payments platform, we're lowering our transaction fees and improving economics on our virtual cards that we use for Marshall merchant payments.
Second is we're extending the conversations platform to handle more customer calls for self service and virtual agents to lower customer service costs.
And we are reducing our variable portion of cloud spend with the optimization efforts, we've already executed and will continue to do so.
Given the variable costs are volume based these savings will not be fully evident until we return to normalized operating levels. We still have work to do on these areas, but but I wanted to get some context, but if we overlay what we believe we can achieve on these initiatives on our 2019 business label level.
Would collectively deliver savings of over $200 million, which is incremental to the 700 to 750 million fixed cost savings that I mentioned previously.
The third area of margin improvement as around marketing efficiency as we've discussed we expect the combination of operating at higher ROI.
The benefits of lower variable cost and optimization across our brands to result in lower direct marketing expense as a percent of revenue over time.
Turning to our Q3 results the impact from COVID-19 continued to distort some areas of our PML, but the bookings improvement that started in the middle of Q2 led particularly by variable and the progress on cost initiatives led to the improved profitability in the quarter.
80 hours in our lodging business increased 8% due to solid 80, our growth at Bravo and the mix shift a verbal which carry significantly higher 80 hours than hotels hotel.
Hotel 80 hours declined double digits, but improved sequentially from Q2.
Revenue per room night grew 14% in the quarter also boosted by the mix shift of Ergo. In addition, with verbal shifted merchant of record over the past year, we now recognize transaction fees as revenue, which added to the growth in revenue per room night do keep in mind that the fees recognized as revenue were largely offset by March.
On expenses and cost of revenue.
And lastly on take rate, but the product mix shift from air to lodging as well as the incremental merchant related revenue adverb contributed to the elevated 17% revenue take rate in the quarter.
Moving on to cost the progress we've made on the margin expansion initiatives I mentioned are becoming evident in Rps now.
On the overhead costs, which include Invisalign and marketing tech and content and DNA collectively declined 29%.
Excluding trivago about two thirds of the overhead savings stem from our fixed cost savings initiatives that the balance from temporary cost savings related to the current environment.
On cost of revenue they declined 32%.
Two items impacted the year over year comparison.
This is incremental transaction costs related to verbose ship to merchant of record, which are highest in Q3 due to verbalize seasonality and then second if they were offset partially by a benefit from the disposal of bodybuilding Dot com.
Excluding these two factors cost of revenue was down 40% year over year and as we noted we expect to de leverage on cost of revenue until booking volumes return closer to normalized levels.
On direct marketing, we continue to see leverage on direct marketing expenses, we are prudently increasing activity and brand marketing campaign and in performance marketing options, where we see demand, but intend to remain disciplined and lean toward profitability.
On our segment results, our retail segment performed significantly better than B to B retail benefited from growth at very low in the quarter and the higher mix of business in North America, which has seen stronger recovery than Europe. Meanwhile, the slow recovery in corporate travel impacting gensia as a drag on the B to B segment.
On cash on balance sheet reported free cash flow with nearly negative one billing us dollars and Q3.
Third quarter with approximately 670 million working capital impact from Bourbons merchant bookings, mainly due to a seasonal decline in Bourbon deferred merchant bookings given the increased stays over the summer, but as we've noted Burgos merchant bookings bookings largely flows through restricted cash.
If you exclude the working capital impact from Burgo merchant bookings free cash flow was approximately negative $325 million as the seasonal working capital impact from the decline in deferred merchant bookings plus other cash items, such as Capex and interest more than offset our adjusted EBITDA in Q3.
On deferred merchant bookings are they declined a total of 1.4 billion in Q3 to 3.2 billion or $2.5 billion, excluding deferred loyalty.
Verbal was the biggest contributor to that to the decline as it ended Q2 with a relatively higher balance and the seasonality of that state room nights is even more weighted to Q3 than the rest of our business.
In addition, booking windows have been significantly shorter than usual, which reduces our outstanding deferred booking balance.
On our capital structure as we noted last quarter in July we opportunistically raised $1.25 billion in debt.
Subsequently, we repaid the $750 million notes that matured in August and use the funds raised in July to repay $1.25 billion of our outstanding revolver draw to reduce interest expense. We currently have 650 million drawn on our revolver.
And we ended the third at the end of that team ended the third quarter unrestricted cash and short term investments totaled $4.4 billion, excluding the capital markets activity I, just mentioned cash declined roughly $325 million similar to our free cash flow, excluding the verbal merchant activity and total cash was essentially.
Flat in September for the first time in February.
In addition amounts held in restricted cash and other non cash balance sheet assets covered nearly 60% of our deferred merchant bucking balance excluding deferred loyalty.
Looking ahead to Q4 adjusted EBITDA as you can imagine, it's a very difficult environment in which to forecast or predict the business and also will result in a wider wider range of outcomes.
With our current trading volumes and what we're seeing in the business. We do expect Q4 adjusted EBITDA to be negative.
There are two primary factors that are contributing to it. One is Q4 is seasonally a quarter with lower revenue and profit socialist lower relative to our our cost basis, and then number two given the recovery in lodging bookings has essentially plateaued relative to the recovery over the summer months. We currently expect the revenue decline to be in.
Similar range as it was in Q3.
In closing this remains a tough environment for our business.
And we're going to be dealing with the cove it impact for the foreseeable future that Peter mentioned, we have clear priorities at our teams are making great progress on and we're confident the actions. We're taking now will benefit us to recovery over the long term.
Operator were ready to take our first question.
At this time I would like to remind everyone is in order to ask a question. Please press Star then the number one on your telephone keypad.
So first of all net income Hynek M&A roster.
Your first question comes from the line of slight quasi branch Bank. Your line is open.
Hi, Thanks, two if I can first just wanted to make sure I understood you correctly earlier.
When you said I think you said the core fixed cost savings target is now seven to 750, but then you said you have been able to reduce variable costs.
Hi, if I heard you right, which overlaid on 2019 for example would be an additional 200 and savings.
So approaching approaching a billion dollars on kind of a normalized basis. So the question is just did I did I catch that right.
And does that does it feel like youre getting to that kind of edges of of the scope of savings there given the magnitude that we're talking about and then the second one would just be.
As you as you work to bring all the marketing data from separate brands into kind of a consolidated.
The consolidated.
New data storage for marketing.
Any is it early enough that you.
In enough that you can see some early learnings.
Or is it too soon to say in any sense for the timing on when you guys will be in a place.
You feel good about that that transition thanks.
Yes, Peter do you want to take that.
I'll take the first you take the second so on the first yes, you did hear correctly said 700 750 is on the fixed cost basis.
It's in relation to the $3 million to $500 million that we spoke of earlier on the year of the seven to 750, we've actually $550 million on that so we are.
And like we are making good progress against that.
We of course continue to.
Leaves no stern no stone unturned.
And just as we continue to work through as we get more cost that we've identified we get confidence and those that we get better line of sight and and then also obviously, we've actually a fairly large percentage of it.
Yes, it's the 700 750 on a fixed cost basis, and then the incremental 200 and the variable cost of sales, which span approaches to your math approximately $1 billion and savings now you mentioned that but I just want to reiterate it as well that is on.
2019 exit rate if you will so that those numbers presumed that were back in a range.
That is proxy.
Approximately 2019 levels and then lastly, there will be some offsets to that over time, you can imagine inflation on contracts or increases and head count costs et cetera.
So there will be some offset but we feel pretty confident in the numbers that we're going after and then continue the teams are doing a great job and.
I guess there was the last part of your question Thats around are we reaching the end of it and I would say.
We're still flipping over rocks, but diminishing returns to a certain extent so I would say the range that we shared with you as.
The probability adjust where we think that we'll get.
Lloyd I'll just jump in on the other question I would say.
The answer is no we havent.
It's not wired together, yet in a way that we can see the early wins I think we are.
Getting closer, but it's not simply a matter of taking three different groups and putting them together I've mentioned on previous calls that we've done also consolidating all our data.
And you know doesn't 17 data lakes into into hopefully one soon and all these things are kind of linked together. So there's a lot of great work.
Going on.
I think we are getting closer and I'm excited about what we're going to be able to see when we can see the granular level of detail on profitability by.
But customers by by Geo.
She goes by everything, which we Havent had the granularity we like and that has made us.
Say blunter instrument than we'd like to be and we believe there is significant.
No.
Good guys scrum.
Getting this all wired together and that again is why were wrong to make short term trade offs to do that important work to get to get that done, but we havent seen any early returns yet.
It will be a little while still.
Okay. Thanks impressive impressive job on the cost side guys. Thanks, Yes, Thanks, and just one other quick add to that and thanks for the question again as we are still taking the actions to achieve those numbers. So just want to make and make sure. As you are building those and there is the land we need for volume to come back to see particularly on the variable cost side and we.
Our still actually as I mentioned, the 550 on the fixed cost side, it's going to take us still some time to get to that.
The gap of that in the seven to 750 and the same thing on the cost of revenues as while it will take us a bit of time to get there, but that's that's what we're shooting for and what we think we'll get.
All right, yes thats helpful. Thank you.
Thanks.
Your next question comes from the line of Naveed Khan from trading Securities. Your line is open.
Yes, Thanks, a lot I missed a couple.
One on the cost side.
You called out the incremental 200 million.
And then it would cost savings and you named see areas you try to think about the related magnitude.
Wow savings in each of these areas, how would you stack them up or.
Number of them and then.
I had a question on Undrawn on the gross margin side.
So you talked about.
Clean and October.
As to be.
Is that we're on.
Yes, you asked how should we think about that and is that that's weighing on gross bookings or on a net basis, how should we think about that.
Yes, I'll take the first one and Peter perhaps how you can take this offline if I'm happy to take it as well, but on the cost of revenue.
There are three components there is the.
Our conversation platform and the cost out savings that credit card and the variable and I wouldn't I would effectively put them in that order to a certain extent, but I think the one that has the largest opportunity for us is on the conversation platform, where historically, primarily a phone based comp.
Contact center type of conversations with customers and with our supply partners as well and with the technology that Weve developed we have the ability to move a lot of those either to self service or virtual agency and on the virtual agency side, you're able to get more.
Service more customers, if you will per agent and so both of those add leverage to the system and we've really started the rollout is that we've gotten good.
NPS scores and good returns if you will from doing that and it's really a process of rolling that out making sure that we have more and more use cases, we get embedded into the REIT flows into the site and to the mobile apps as well and I think that it is likely that the largest opportunity and then credit card costs.
And.
And variable cloud as well are meaningful, but I would say that those two are a distant second if you will after that the conversation platform opportunity.
Yeah, and then I guess.
Or you can do so long enough.
Corporate commentary.
Yes on the volume side later.
This recovery is going to be a series of many stories and.
And so if you take hotel for instance.
And I could say that thats been flat for.
The last couple of months, but you asked if you de average that number what you actually end up seeing is that there are areas that are.
Flat to declining and there are areas that are gradually improving and so using the hotel is the example, Europe has been more challenged Peter already mentioned that.
And they've got even more challenge over the last week or two just given the increasing locked out that are re occurring whereas the U.S. has had a more step.
Steady increase over time on the hotel side.
We will see what happens.
The wave three thats occurring right now and something that we're looking at very closely but as we say it's plateaued, it's actually many stories underneath and I think we're going to see the same thing we've got international versus domestic and we wait in some regions of the world and one versus the other and.
Thats the series of many stories that will make up the how we how we see overall the business is performing.
And the only color I'd add to that as you know our numbers also include.
Bookings from our B to B partners and people in other parts of the areas. So it makes the many stories we've been more vast in terms of.
Our exposure to different geographies, our exposure to different types of so.
I would say thinking of it as a whole is probably the simplest way.
But all things being equal with the trends the way they are in the last two weeks.
The good news that were weighted towards North America, but there have been times when it's been something else.
We wish we had more China business since domestic China.
Quite well relative to the rest of the world.
Got it. Thank you Peter Thank you Alex.
Okay.
Your next question comes from the line of Mark Mahaney Happy seeing your line is open.
Two questions. Please you mentioned market share but.
In North America do you see any evidence of material market share shifts amongst the different providers air Bnb booking Expedia secondly.
You mentioned the three areas of cost efficiency is a fixed to variable and then you talked about performance marketing could you just drill down a little bit more on performance marketing I know you've had some pretty bold robust plans for bringing performance marketing efficiencies and then all of a sudden we had cold. It is it is it clear to use that youve got enough evidence that you can really.
That there are new found efficiencies in performance marketing is that still TBD to when we get real robust recovery in travel conditions, just spend a little bit more time. Please on performance marketing efficiencies. Thanks a lot.
Sorry to be Peter are you there do we but oh, sorry, sorry, sorry, yes, yes.
Hi, Mark.
Okay I'll jump in I was saying I'll take the second one first.
And then you can remind that the first one.
I would say on the performance marketing side. You are you are correct, we've talked historically about.
Removing more efficiency out of that mill getting our return on our marketing better more precise et cetera. The problem was I think.
That was to have some to some extent wishful thinking because we did not have.
All the data all the tooling and all the approaches synchronized if you will we let our brands compete.
That has some.
Dis synergies that you know.
Never were quantified, but but certainly lifted.
We did not have the benefit of all the data because each brand has its own data and on and on and on so.
So I am positively optimistic that when we have all the data flows right and we have all the outdoor.
Algorithms rewritten for that and when we have the tooling right there.
There should be significant upside for us in actually getting wringing out that return that you've heard about load. These many years.
I think that is what is required.
And it is real and we will get to it we have to do it obviously, we haven't done it yet.
But to otherwise.
Sort of mess around with the idea of taking one brand higher lower doing this year was a barry bonds set of instruments and I'd say candidly.
Candidly.
It was optimistic to think we could do a lot better we certainly could have run more profit at the expense of share. There. We certainly made some trades for sure well run process, historically, and we certainly might make trades like that.
Certainly opens for certain reasons over time, but I think more broadly the opportunity to just performed better is really unlocked by sharing all of this work together and really making a powerful so.
On the total believer and I think it will happen, but we haven't gone. So you have to do it.
And then sorry, Mark your first question.
Yes.
Yes, you do you think that there's clear signs of mining market new product market share at the end there would be any signs of market share shifts in North America.
Yeah, I think well definitely you've seen alternative.
[music].
You had an outsize share.
Relative to where it was and.
We have been beneficiary, but some of that.
Being be beneficiaries of some of that.
So the more concentrated you are towards securing the use cases that are working well.
I think you're going to get share benefits.
The more broadly I think you know.
Share has moved around for a lot of little reasons and are you dealing with low volumes. So I.
All of your markets, where we.
Where share points move around and then you look at the dollar is related to it and they're tiny and you say, okay. It doesn't really matter could just be a bad weekend or a good weekend.
But I think.
I think nothing we're seeing.
He is.
Portends anything for the future for like the long term effect I don't think there is anything that suggests anyone's winning or losing in a way that will give them long term benefit.
And for US with verbal we believe it's really good for the brand and people are getting a lot of exposure that use case and people are seeing how nice that vacation can be.
I don't think that means that people will never go back to hotels.
But I think it helps us relative to air Bnb, So thats good for us.
I mean, I think beyond that.
We don't expect anything going on in any single Geo or overall is really a long term effect, which is partly why we're not overly exercise that we're not perfect. We tune the machine too.
Performance marketing side, because none of this would.
With levels down 50, 60, whatever plus percent in certain markets. It's it's hard to think of any of that is sustainable.
Or meaningful for the long term so thats been our approach.
Okay. Thank you very much.
Yes.
Your next question comes from line of Eric Sheridan from you'd be asking your line is open.
Thanks for taking the question maybe to refine and following up on Smith topics talked about so far on on for though with the success you see in terms of the demand and the new customers that are coming into a platform is there anything to call out in terms of your go to market strategy. Your marketing strategy, but you might import trend from sort of longer term better returns on market.
Instead or margin structure in bareboat as a business and then on the brand strategy and you answered the re alignment.
Alignment of the marketing platform are you also at the same time thinking through them to be in the same number of brands will have the same scope for brands on a multi year view.
The towards and I would like managing our mix sort of growth versus profitability. Thanks, guys.
Sure.
So on to do verbal first.
Yes, well a few things one there's a lot of good work that's been going on over the last several months on borough and its margins.
In terms of Eric mentioned, what we've mentioned in the past bringing onto our payments platform.
Thats been good for us saves us money with a third party provider.
Allowed us to use the power of studios payment platform, which itself is getting stronger every day and more efficient so.
So those kinds of benefits are there there's work being done on.
On the consumer process on the field.
Fees and other things that.
Where we think we are under market. So I think we've had opportunity and we found opportunity to expand our margins that verbose, but but to your bigger question we.
We definitely think.
You know that we did not plan the verbal rebranding as strongly as we want it to.
But there is the opportunity now given that so many people are using it and use cases, so attractive right now and that we are concentrated in whole home, which is like the most attractive part of the alternative market right now.
We intend to run our already pushing into a much more aggressive plot to broadly push the brand Weve turned the brand over in a few more markets in Europe, just a few weeks ago.
And we will keep pushing but.
But.
But yes, there is an opportunity there and we think that is a place we want to be more bold even in a down market and we will we will continue to be pushing into that.
To your second question.
About how many brands we have yes, we have a lot.
We certainly won't Ki bin we don't think makes sense, but right now we think.
The number of brands creates opportunity as long as we have segmented them and thought about them geographically et cetera to their greatest effect. So my big push has been.
We have a brand frankly that maybe none of you have heard us right.
Like what if in Australia that is our strongest.
Brand for the moment in Australia than we need to concentrate on building that brand and not worry about whether its expedia or hotels dot com or anything else.
Likewise verbal has a different brand a different company had acquired in Australia that we're not going to change that brand because it's a strong local brands and we should push into that we have historically had this record of okay. We have an existing brand or we bought a brand. We're also going to push expedia into that market. We're also going to push hotels.
And that kind of.
I would say took away the value of multi brand.
Didn't allow us to optimize for each one so.
That's why we're doing the segmentation work, that's where we're trying to figure out what the proposition is for each brand.
Some brands admittedly.
We have historically run for more profit, whereas others. We of course, we're looking at that whole panoply of options.
And and driving the best result by country by brand that we can and that May mean.
We closed some brands in some countries that many.
Potentially we closed one branch will stop but we have no intention right now to do that but we are looking at the whole thing and trying to optimize for at all but we think in general having more gives us the opportunity to do more if we do it if we do it smartly.
Your next question comes from line of Deepak mathematically from Barclays. Your line is open.
Great Hi, guys. Thanks for taking the question just a couple ones on global So first can you talk about where you are currently in terms of merchandising levels agneta accommodations inventory on Expedia and hotels Dot com is that something that you're seeing benefit from currently into my call. This is a perfect time to.
Kind of channel mobile inventory at a higher level or other strong brands and consumers are looking for that type of inventory and then second question related to it how do you feel about the inventory levels on bubble in a particularly given the strong demand that Tom.
Thats that staff broadband to accommodations are there any markets, whether it's in mentoring pressure on mobile at this time. Thanks.
Sure.
So a couple of things there.
I would say on the latter part.
No there's.
We've seen some pressure over the summer a little bit in a few markets, but we havent generally seen.
Literally not no inventory as few spots, but in summer recall was you know everybody.
Everybody heading headlong into the only alternative they were comfortable doing so there wasn't really acute demand spike there.
We do think there's more opportunity, there's certainly more opportunity and I think we will.
I think we will continue to try to grow our inventory.
The question is.
And obviously anywhere we see demand, we what we will want to drive inventory.
The question longer term as we have historically had a deficit in particular in cities and those kinds of use cases.
And that you know is a bigger strategic question for us.
It's a place where they would be obviously has has made great hey, although it hasn't helped them.
During cobot likewise.
Likewise bookings has done a nice job with Sydney based inventory.
And to your point, a more integrated experience and so.
Sort of moving on to that question.
Well the product is not great when it comes to.
Surfacing big.
Big fish and rental opportunities or alternative accommodations through our main OTA brands, we've been slow to get there and and if not where we want it to be it's definitely an opportunity, but we have found that there is a a little bit of a conflict from the standpoint of people don't.
Generally go to our alternative go to RLJ brands for alternative accommodations now what they think of so even though they're in president.
It Hasnt performed perhaps the way you were I might take it would so I think we've got a combination of work we need to do on that front, which is we can definitely make significant improvements in the product and how the how the content will surface help people see.
Alternative accommodations, and where they see it and and and et cetera.
But also we need to lean into it and we need to market, particularly in places where our our video t. as our have good reach and brand recognition and bourbeau does not I mean.
They will be more sensible for us to lean into you know get a vacation home on on Expedia as opposed to trying to introduce cold. The verbal brand. So we are looking at all that.
I would say no dual workstreams, where we're trying to material.
Materially improved the product experience with alternative accommodations on.
On the many key areas and then how do we market that and how do we test.
And then could those markets and I'd, just say that while that seems like that would be job one and.
And we'd be all after it because.
The appeal of alternative right now.
Keep in mind that we are re architecting literally our entire technical infrastructure and platform and.
Some of these things have to sort of get get prioritized and it's in the works, but it's not the only thing we're working on.
No that's helpful. Thank so much.
Thank you.
Your next question comes from the line of question comes from Bank of America. Your line is nothing.
Great. Thank you.
First question on hotel supply are you seeing any inroads there or or.
Good deals running speed in that you might not otherwise get any reason for consumers to come directly to expedia versus other other sites and then secondly.
Thanks for that vertical update I know you said you'd be grew in threeq two I'm, assuming that that's bookings and revenues can you give us a year to date update on unbearable. Thank you.
Eric you want to.
So I'd answer this I am not sure.
I don't think we have not we've not shared.
Or disclosed on the Virgo.
The year I would say we are healthily up for the year, we clearly had.
The Spike in June just given that the summer compression where people felt comfortable traveling out we continue to be a year on year and Q3, let's call. It at more reasonable level since June.
Revenue and gross bookings were up year on year and I think you can then extrapolate back to the start of the year as well.
Got it.
And then finally on hotel supply.
Yes on the hotel supply side, we have obviously.
Among the most competitive hotel supply in the world.
There's not a lot of.
Discounting that is unique to the moment for our hotels are discounting, but I don't think the discount and unique to us.
And I think what we provide what expedia provides obviously beyond just very good value is a bunch of ways to find what you want a bunch of ways, both multi product a way to do everything in one place. So you know there are a lot of offerings with HK Delta.
Deltacom you get you get very robust rewards. So there's other offerings that are differentiating for us on the brand side, including where we're trying to go with the product to get that much better personalization and helping make good value choices et cetera. So.
I would say that that is where we have to push our business.
The differentiated.
Hotel supply, even when we can get it usually not sustainable it's not like something that is consistent with what we do on our hotels to be in a better position to optimize our platform. So we are doing inverse which is trying to give them.
Better data.
So that they can be much more effective pricing and moving the inventory they want to move on our platform so that sweeps or.
Or certain kinds of rooms, or whatever we want to be feeding them. The inbound information. So they can understand the market understand where there is opportunity to price up or down to game the.
The game.
Both rooms et cetera, So that's where we're pushing and we think thats going to make us a much more valuable partner.
Buyers, but I don't think its going to be about did you get $5 better deal than the next person I think it's really going to be about how you can help them build their book.
Great. Thank you.
Yes.
Your next question comes from the line of Kevin Kopelman from Cowen Your line is helpful.
Thanks, a lot I just had a quick follow up on.
Unbearable.
If you can comment on.
The seasonality patterns that you're seeing into Q4 and the current environment are you seeing.
Any change there any of that.
Kind of continued shift into verbally or even as you get outside of what is typically the peak season. Thanks.
Okay.
Yes, Alan Peter Go ahead, sorry go ahead, none of those if they are not.
Thanks for the question.
Verbal as I mentioned earlier is much more seasonal than than the rest of our business. So it's concentrated in the.
The summer month, even more so given north America, given given summer.
So we would naturally expect it come down.
Added to Q3 and into Q4 and that is what we're saying it continues to be at healthy rates and continues to be a product that I think consumers and the environment that we're in in particular buying compelling to be able to.
To continue to travel so.
You can think about our but the normal travel seasonality.
Looking in the early part of the year to stay in the middle part of the year and then less activity in the latter part of the year just magnified in verbal relative to the rest of travel.
Right and that's what I like.
Okay.
Just going to add that that is an area. We believe there's opportunity and a lot of the advertising and marketing we've been doing with verbal could do it.
Sort of Staycations. If you will you know in North America, where kids may not be on the school people may not be going to work take your life somewhere else.
There is opportunity to.
Two.
Break some patterns, while this was going on but that is just the cobot centric issue.
Got it and then longer term.
I think he on a like for like basis.
Verbose take rate has been a little bit lower than that traditionally you would get with hotel, how do you see that playing out longer term.
Okay in terms of revenue take rate.
Yes, there is I am happy to take that one thanks for the question again.
Hey, there's a gap between us and and air maybe in particular.
And it's something that we do feel that it.
It gives us a bit of an advantage with consumers, but it is something that that we are looking at something that we task. We do think there are opportunities to increase monetization over time.
But I would say there continues to be a gap.
We are we are actively looking at that we are actively testing that and I do think that there is upside in our our our monetization over time.
Thank you.
Your next question comes from line of Kelly from Oppenheimer. Your line is open.
Hey, Joe.
Just on Turbo just circling back I think can you talk about you know that the supply into the into the winter.
Travel season, it seems like that's going to be premium supply and how you think you are there and then.
Just a follow up on virtual agent I mean, what's your confidence level in virtual agent as travel volumes start to normalize I can match you know just around handling a normalized volumes.
Yeah. So.
Just on the verbose supply chain I think we are well equipped well acquitted.
You know, we think they have lots of good value high value inventory show up in in lots of places people want to go in the winter.
For Thanksgiving Christmas et cetera, and we think there's an opportunity that those ships will be longer in duration and they typically are given.
[music] holidays et cetera around the U.S. in particular.
But.
We don't feel like we're we're deficient on the inventory side that does not mean, we don't have opportunity and it doesn't mean, we have parity everywhere on everything but we.
We think we have plenty of inventory to power.
Very robust.
Winter season, if the demand is there so we're not we're not worried about that.
And.
Sorry, the second part was.
Capital O. transactional agency.
Virtual agent, so I would say to you a couple of things one despite the fact that our volumes were down giving tobin given cancellation rates given all the issues that travelers have I wouldn't necessarily assume that our servicing.
Volume is proportional breakdown because we've had there's been a lot of traveler issues going on in the world that are created huge relative spikes in traffic. So we've been testing account.
The conversation platform into all kinds of use cases.
We will ultimately have it.
Virtually everything we do including are dealing as Wes.
The supply partners and other things so it is being rolled out broadly.
Eric said the NPS scores have been strong on that people generally like to deal with the machine. If they can just get it over with and not have to talk to a person that's not true universally but.
But that seems to be true for most people and Dunham.
We feel very good about it so its scaling up if.
Okay platform tools, the kind of tool we want to have.
Our company across the company that that we.
We have a platform technology that needs to be taught and talked different use cases and applied consistently so we have high confidence in its ability to continue to rollout and handle as much traffic.
Thats come down so.
So no issues there.
Thank you.
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We will now take our final question lean Horlick from Evercore ISI. Your line is open.
Great. Thanks, so much for the question just wanted if I could ask Peter you had mentioned some of your North American suppliers seeing greater direct bookings, perhaps as people shop last I'm wondering if you could comment at all on your mix of direct bookings through the quarter, how that may be trending what you're seeing through this crisis and perhaps.
Your view on how sustainable those trend maybe beyond covet. Thanks, so much.
Yeah sure.
I would say that what we've seen is a mix wise, we've we've mix towards a lot more direct traffic app bookings are up considerably directly up considerably, but I would caution anyone from taking too much from that because we have been.
Less aggressive in the performance market. So it's a little bit of shelf blending if you will down to a mix that is more free which of course has helped our margins and helped us.
The numbers, we posted last quarter.
But that is inherently in part because we have taken our foot off the gas in certain areas in terms of performance marketing and unprofitable performance marketing So I think.
Again, as we blend back into normalcy.
Assuming we will be more proficient and have these tools, we discussed about on the performance marketing side et cetera.
My sincere hope is we can we can grow more share.
Through those performance channels at attractive levels and attractive profitability and I believe that will will happen and if that's true of course will mix our way back to a more historical balance.
But the trends have been very good.
Credit do you know our brand.
Well to your brands loyal guest and and App has been very strong and of course, we are putting lots of energy into improving the products for all those things and make them stickier because.
Well it is great for me not been a topic today you know we do want to have more direct traffic avoid the performance marketing pools as much as we can.
Create recurring business, so that that remains a core goal for us.
Okay.
Hey, Peter before we end I just wanted to clean up one quick comment I made earlier.
Just on burgo on on a year to date.
Year to date, we have seem.
Seeing declines due to the impact earlier this year uncoated, a Q3 was up year on year and we're growing early in the year before Covance. So just wanted to clean up the fact that in the early days. If you will are kind of at that if you aggregate them for the year.
It is down relatively but was up before and up during.
Just wanted to clean that up.
The center.
Thanks.
I will now turn the call back over to Peter Kearney.
Great well. Thank you everybody appreciate the questions.
We hope to give you some clarity.
Again, we're we're keenly focused internally still on everything we talked about and I suspect. Our next call will sound a lot like that and hopefully the worlds health will get better and that will help our business along the way but appreciate.
Appreciate the time.
Thanks, again to our people and appreciate you.
Okay and the question so take care.
This concludes today's conference call you may now disconnect.
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Hi.
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Yes.