Q4 2020 Expedia Group Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue the standby.
Standby and thank you for your patience.
Again, ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.
[noise] aligning all of them.
M.
And Oh.
Okay.
It's Alan.
Uh huh.
Hmm.
Alan.
Okay.
Yeah.
Hello.
Uh huh.
M.
Oh.
[noise].
Yeah.
[music].
Okay.
Okay.
Okay.
Okay.
Good afternoon. My name is Katrina and I will be your conference operator today at this time I would like to welcome everyone to the Expedia group fourth quarter 'twenty 'twenty 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 a 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 key thank you Alan.
Now I would like to turn the call over to batch of Thompson Senior Vice President of corporate finance.
Good afternoon, and welcome to the Expedia group's financial results conference call for the fourth quarter ended December 31, 2020, I'm pleased to be joined on the call today by our CEO, Peter Khan and our CFO Eric Hart.
The following discussion including responses to your questions reflects management's views as of today February 11 2021 only.
We do not undertake any obligation to update or revise this information.
As always some of the statements made on today's call of forward looking typically preceded by words, such as we plan. We expect we believe we anticipate we are optimistic or confident that or similar statements.
Please refer to today's earnings release, and the company's filings with the SEC for information about factors, which could cause our actual 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 all of our IR website for other important content.
Unless otherwise stated all references the 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 the depreciation expense is now reported in the separate line items in prior periods have been restated to reflect this change and with that let me turn the call over to Peter.
Thank you very much growth.
Good afternoon, everybody. Thank you for joining us.
It'd be fairly Bruce of the fall.
Quarter of <unk>.
<unk> kind of reflected what the rest of the year of looks like and so much as it was a bumpy ride.
The Covid news dominated of course everything in travel and I would say that we saw in mixed world of some optimism coming from the vaccine Rollouts beginning.
Mixed with the obviously.
Barry Bad news on the case loads across the globe closures of many countries restrictions of all over the.
Various geographies so with that.
The background, we're happy to turn the page on the year and moving into 'twenty one of <unk>.
I will say that on the whole as.
As you saw on the release booking trends in the fourth quarter pretty much mirrored the third quarter out of about down 60% for total gross bookings net of cancellations that did moderate towards the holiday season.
And the end of the quarter and we saw the moderate into the high Fifty's.
And that has the improvement has seemed to continue through January and.
In the latter part of January we've seen.
In the high 40, so the trends are generally good although very battle for all going in the right direction, but I would caution everybody that.
We continue to expect it to be bumpy.
This is the story of the 1000 different geographies and the 1000 different assets around the virus and of course vaccine Rollouts et cetera.
We did see that improvement overall, driven by verbal not a big surprise that continues to be a terrific use case with the whole home market being very attractive.
Family travel being very attractive in the form.
And North America generally has been a.
Of relative bright spot of cortisol relative strength in North America, certainly helps us in that.
So we continue to hope and expect the vaccine rollout to drive consumer confidence.
Drive things forward, but we certainly are not trying to predict what the consumer sentiment will be as the as the virus changes over the ensuing months so.
We continue to expect a bumpy ride we will watch the pool of governments are doing.
What are the rules might be on international travel things like travel passports et cetera, with the gold just the.
Making the process as seamless as we can for our travelers and getting people back moving again, we know theres a lot of pent up demand and we certainly want to sort of as much as we can.
That market background of mined in the fourth quarter we.
We weren't investing more heavily in marketing this.
This was intended to get ahead of what we thought would be the coming demand from the vaccine.
Rollouts, but it was largely focused sort of.
On the upper funnel brand marketing side on verbal.
We knew there was a lot of momentum and as I've said before on these calls we are using this moment the drop try to drive as much brand recognition of long term.
<unk> and to the brand over time, so we pushed into a verbal on the.
The performance marketing side, which we view as more of the quick Twitch muscle. We have continued to be relatively conservative again, we saw lots of closures happen across the globe of those close the drive massive cancellation strikes.
They can make performance marketing Barry on attractive very quickly when it goes the wrong way. So we have been relatively conservative.
Zane.
Actually removed bareboat.
Google's vacation rental amount of product.
Again, our focus is as much as possible on driving direct traffic driving incremental profitability from all of our performance marketing.
As we see opportunity to remove unprofitable activities, we do that and as we laid back into a more normal market.
We'll be able to drive more into the upper funnel more direct traffic and the.
The.
Much more calculated in performance marketing.
On the on.
On the rest of the marketing side and this is really about brand differentiation and she geographic differentiation I've talked about this before but we continue to focus on driving whatever.
Brands makes sense wherever they are on the globe. So for example, we have leaned heavily into our water brand in Australia. The company, we bought the years ago. It's.
A very strong domestic brands in Australia, particularly associated with domestic travel which has been the primary use case and we're seeing good good reaction from the market by doing that and we are looking at that everywhere that goes for <unk> as well which is not.
The global brand it kind of strength, particularly in North America, but there are parts of Europe, where we have other brands.
The stronger Australia way of another brand called stays with stronger so we're leaning into those sales.
The good growth across all of our.
Alternative accommodation brands in our stronger markets.
Longer term I would just pointed out the oh.
In addition to driving that brand new <unk>.
Reality, if you will.
Also in terms of the drive alternative commendations to Otas brands.
We've been saying that for a long time.
Now of highly focused on doing it it's not ready to roll yet we do do it but it is not the consumer experience is not yet where we want it but we are highly focused on driving out of the future and that will be the way we attack markets, where we don't have the existing probe or other.
The other alternative accommodation of brown.
And then finally, we continue to do work on the marketing side on the on just brand differentiation in segmenting the market and the brand Expedia, our biggest cohort of Ta brand will be rolling out in the spring with with the new campaign focused on essentially the complete trip.
The brand Expedia has the most complete otas and we're going to focus on people who were trying to book multiple things more complex trips, we think theres the big opportunity there.
And the brand does not.
Sufficiently landed that message over the years. So we are optimistic about about our new approach to that on the.
The other side of the house and perhaps the most important place we're investing our time.
Energy and calories.
Of which we've talked about frequently is the.
Tech platform that continues to be a keen focus of ours I just want to point out this is the <unk>.
An area of fraught with opportunity for us it will be years of of mining that opportunity for 2021, it's an important year, where we expect to have significant delivery on important steps forward of simplifying our tech platform and we are keenly focused on the along with the game.
Focused on turning ourselves into a tier one company.
Working for in building systems to find the routine to recruit great talent.
Attaining our great talent that we have.
Build of tier one enterprise that the.
The focus of keenly on solving consumer problems on our business part of your problems and the.
We're well on our way to that.
And finally, I'll end with something Thats, a little easier to calculate by.
Revenue of margin, but I think it's equally critical to the success of our enterprise going forward, which is that the.
So end of this year, we re landed reset of our company mission purpose and values with an emphasis on travel being of course for good.
The people together.
Broadening horizons and strengthening the connections and we think obviously in this time and place the.
The U S and the World of then that is obviously an important role we play in the world, but we want to bring that day everything we do everything we do in the product.
And really express that through the experience.
And in doing that we also acknowledged the <unk>.
Company that what we do have the tax on the environment and we are re focusing ourselves on the tax the travel creates on the environment, particularly in initially around tools and information to help our travelers and help our suppliers make better choices to the.
Help drive better outcomes for the environment.
That's an important push for us and then finally.
We've made some bold.
The ambitious goals for ourselves around diversity and inclusion in terms of our workforce and it really goes beyond our workforce, because we really want to express that through travel as well there are many people who have challenges in having successful turnaround of outcomes. We have not done enough to help all people in that and we want to drive that through everything we do every time.
The role of product out of every time, we think about building of product and the consumer experience and we intend to drive that through through the boat. So.
With that I'll, just close by saying you don't expect things to be bumpy for a while I don't think that the linear what we've been going through and I don't think we should expect it to become a linear.
We are optimistic that when the consumer when it comes back when people feel confident that the vaccine rollout is going well, but they will be able to travel we clearly see demand.
And I think we're just going to power through it and the when consumers are ready to travel we're going to do that and with that I will turn it over to Eric.
Thank you Sir.
Thank you Mark also for joining the call as well.
Coming into 2020.
You've talked a lot about driving margin expansion of being one of our key priorities and we're pleased to have made significant progress in a number of areas along as far as the first I wanted to touch on is on fixed cost basis.
We talked since start of the year of a range of 300 of $500 million, we up that during.
During the year last year, and then update the 700 of $750 million range. We now believe that we will be at the higher end of the 700 to 750 range of our fixed cost savings relative to our 2019 the exit rate.
We have achieved approximately $675 million on a run rate basis.
For the two realized largely all of the cost savings by the end of 2021.
As mentioned previously when projecting four do keep in mind that we will have annual increases.
And expect to invest in areas of the business, where we see attractive opportunities as well.
On the variable cost of revenue side, we remain on track for over 200 million in annual savings based on 2019 volume levels. The three.
Key drivers of our improved economics of our payments platform expansion of our conversations platform.
Cost and lower variable costs as well.
Similar to the fixed cost initiatives, we expect to realize largely all of the variable cost savings by the end of 2021, although given the cost of volume base. The statements will not be fully evident until we reach more normalized business levels.
Shifting to our Q4 results I wanted to start by providing details on two one time items that distorted our P&L and reduced adjusted EBITDA by approximately $65 million.
First we recognized approximately $125 million of Contra revenue related to third party travel insurance due primarily to higher pandemic related cancellations.
We restructured our commercial plans and recorded the expense in Q4, so that we will not impact our unit economics of those products in all of our P&L going forward. Excluding this impact the Q4 revenue declined the.
The decline improved by 4% to 62% year over year.
We continue to believe insurance products are a key part of our offer and also provide true.
Terrific customer experience and protection for them going forward. The continued to decline to continue to invest in that area.
When you look at 'twenty claim the insurance line of business was profitable despite.
The adjustment that we made and despite substantially less revenue.
The second one time change was the favorable adjustments of personnel costs.
Given the impact of our business in 2020, we decided to shift the cash bonuses, which we accrued at 50% throughout the year to equity this year for the vast majority of our employees.
As a result in Q4, we reversed approximately $60 million of bonus expense that crude in the first three quarters of the year.
Net cash savings will comment one of 2021 when bonuses are typically paid.
We recognize the majority of this bonus benefit and overhead expenses exclude.
Excluding the bonus accrual reversal overhead expenses declined 31% year over year in Q4, similar to the year over year decline in Q3.
The bonus reversal had minimal impact on cost of revenue, which declined 47%.
The disposal of of bodybuilding dot com provided approximately of 5% benefit.
Moving generally onto the bonuses. We also made the strategic decision this quarter the shift our compensation structure away from annual cash bonuses going forward with the vast majority of our fully funded annual bonus programs being converted the salary.
We anticipate approximately $50 million of extra quarterly payroll costs, starting in Q2 of 2020 relative to Q1 2020, mainly due to this change.
Moving onto the marketing efficiency, we have been investing more in brand spend Peter mentioned that.
To drive direct traffic at the top of the funnel while at the same time operating at higher Rois in variable channels. We believe this approach along with the benefits of unifying all of our retail marketing data and technology will enable us to be much more strategic in how we balanced volume profitability in both the short end of long term.
As Peter mentioned, we link, particularly heavily into additional brand marketing of <unk>.
Take advantage of the demand in alternative accommodations and we have continued to prudently way back into performance marketing, where we see demand.
Overall, the efficiency initiatives, we've executed during the Covid will enable us to emerge from the disruption leaner faster and with improved margins.
And total adjusted EBITDA was negative $160 million in Q4, and when normalizing for the two nonrecurring items I just walked through it was negative $95 million.
Onto free cash flow is typically negative for us in Q4 due to seasonality of our profit and working capital and as such was negative this quarter as of our Q4 as well 513 negative.
The negative $513 million on a reported reported basis.
Moving onto the cash we ended the year with total unrestricted cash and short term investments of $3 $4 billion, which is about $1 billion lower than we ended Q3 during the quarter, we repaid the remaining $650 million outstanding on our revolver, which accounted for the majority of the change in cash.
We head into 2021, and a strong liquidity position with the $3 4 billion in cash and essentially untapped $2 billion revolver.
The circumference over the next year. So we remain committed to deleveraging back to our historical capital structure.
Turning to 2021.
While we remain optimistic about the vaccines and look forward to travel recovering as Peter mentioned visibility on what the recovery will look like of near term trends remains low at this point given the current trends.
And typical seasonality, we do expect of significant adjusted EBITDA loss in the quarter. As a reminder, Q1 is historically the lowest revenue and profit quarter of the year.
In terms of 2021 four.
Forecasting just to give you a bit of insight on costs and overhead costs or the <unk>.
Part of the P&L, where we have the most of the visibility.
We expect overhead costs in Q1 to be similar to Q4 before the impact of changes to the bonus accrual.
We expect overhead in Q2 to step up by approximately $50 million principally due to the shift away from bonus compensation that I mentioned earlier and the lapping of temporary COVID-19 related savings from 2020.
In closing while there is considerable uncertainty remaining on what the recovery will look like we feel good about where we are from a margin expansion. We feel good about our liquidity position and we're confident that we're taking the right steps to accelerate in the recovery.
Thank you and Katrina, we're ready for our first of all the question.
At this time I would like to remind everyone in order to ask the question Press Star then the number one on the telephone keybank the pause for just the moment to compile the Q&A roster.
Your first question comes from the line of Eric Sheridan.
Of UBS your line is open.
Thanks for taking the question maybe two follow ups on alternative accommodations when you.
You're seeing the strength there can we get a little bit better sense of whether that's coming through the branded sites and apps for what's already in the marketplace, where is that coming through the core Expedia brand, we understand a little bit better how youre thinking about conversion of including more alternative accommodation inventory within the Expedia brand or do you think that might be.
As you optimize for outcomes as demand returns. Thanks, so much.
Yeah, Thanks, Eric happy to happy to address that so just to be clear the vast vast vast virtually all of the success in alternatives and <unk> has been through the brand the verbose sites or as I mentioned some of the sub brands.
Specific to the countries.
We have a very modest business.
Alternative space of happens through our Otas. It has been a less than satisfactory product that we are working.
On aggressively but it is a small small part of the business, we do believe though that in time.
That can be an important part of the business, particularly when you think about markets where ex.
Media or hotels dot com or any of our otas might have strong brands.
But <unk> is basically non present as the brands. So we think that's a scenario where.
Being able to pipe that through is really valuable we think.
We think even in markets, where they overlap there can be use cases, where customers are coming into the expedia or another brand and could absolutely want an alternative accommodation and want to see that option.
Revealed as against hotel on the other kinds of options and then I would just add that.
While you didn't ask it I think there is we believe there's a big opportunity for alternative accommodations through our <unk> partners, which it is not currently really pipe to do so those are all opportunities to continue to expand on.
On the alternative space and I think to take advantage of.
What we have in terms of supply, but what we don't necessarily have on the brand side to drive it in certain markets.
Thank you.
Yes.
We're ready for the next question yes. Okay. Thank you. Your next question comes from the line of Nevada Khan.
<unk>.
Securities Your line is open.
Yeah.
Yeah, Thanks, a lot.
Maybe just a quick clarification.
On the.
On the lodging trends that we called out here in terms of January into late fifties and maybe.
Truly recently.
At the end and most of the improvement versus Q4 is driven by the U S and non.
Much of the change in the Geos and then with respect to the label.
You guys used to break it out separately and then.
More recently, you've been consolidating is it is it does.
Does it make sense for you to again to kind of just share more details within the standard so that maybe they can you kind of give them a credit during the performance in that in the.
The business.
Okay I'll take those questions in order I guess.
First of all the I would say the the lion's share of the improvement yes.
Due to strength in North America compared to other places I mean, it is the tale of many stories in different markets.
Let's come back at different rates, but I would say in terms of any big drivers.
North America has generally retained more Willy.
A willingness to move around people engaging in more travel.
Less government, we haven't had government shutdowns.
And the way in the higher than other places. So yes, I would say North America is probably the bulk of the story.
Of the over the month or so.
The to your second question no we don't intend to break it out not because we don't want to make sure all of your lives easier, but because the.
Because we believe it's one business essentially as I mentioned about piping.
Typing robo.
The robo content through the Otas, but we view this as just another product that of traveler will want.
It's not obviously, it's having a great moment and we're glad that we owned it and we believe we can write some of some of the success of travelers being exposed to the to the product type and the new way, but we view of collectively.
View it as one business that we're driving whatever the best outcome for the consumers and driving that outcome across all lines of business. So we think the separation has been artificial effectively and where we're not planning of reported that way in the future.
Kevin Thank you.
Yep.
Next question the half Brian Nowak from Morgan Stanley. Your line is open.
Thanks for taking my question I have two guys the.
The first of all curious to hear about how how long of your conversations and your relationships with your hotel supplier sort of evolved throughout the crisis and the recovery and sort of what are some of them of their tension points that you are really hoping to solve better through the recovery. There maybe you have in the in the past in the second.
The one I know you've done a lot of great steps to sort of improve data sharing and sort of optimize processes any new examples of areas. You found where you werent sharing data in for sort of other ways in which you've been able to optimize the business more coming out than you were previously.
Yeah. Thanks for the question.
It might sort of smash those two together a little bit which is.
Relations have been quite good with the hoteliers I think we're all aligned and hoping and working towards helping them come out of it.
Renewed of number of agreements.
Without much.
Debate.
And I think our focus has been really on doing more to help the hotelier as you alluded to the data but.
Some of the examples include.
Things like optimize distribution, which we've talked about before where we essentially become the wholesale distribution points.
For for a number of hotels, we've done this with the few changes now and that gives us an opportunity to help them clean up the marketplace, where they might have the wholesale market.
That's being abused by some players.
And driving the wrong outcomes for them and with our technology and with our approach we can help clean that up for them and we think thats. The net positive for both of us.
Similarly, we have the sharing more data.
We're working hard on new tools to provide more data to drive real time decision, making for hoteliers so that.
They can optimize revenue and better ways of of course, we're doing our part to try to drive and improve the product. So that we can sell higher value.
Rooms room types upsell product et cetera.
So that we can help drive.
The ADR is overall revenue so there's a lot of work going on I think we are tightly aligned.
One of the hotels come out and be successful.
The hotel's understand and appreciate the role we play in.
Rebound and it's been a quite.
Good environment and good relationships all around and were all working hard to try to rebuild the market.
Okay. Thanks.
Yes.
Your next question comes from the line of Lloyd Walmsley from Deutsche Bank. Your line is open.
Great. Thanks, two if I can first.
Sounds like Youre, making some big moves like pulling vivo out of Google search.
Think about the performance marketing coming out of the pandemic any other big shifts you'd call out strategically and kind of how do you see direct marketing spend as a percent of revenue maybe when we get back to a normalized environment and then just second one if we go back to when you took over I mean, Barry had some pretty harsh comments about.
The work life balance of the Expedia curious what what have you all been doing the kind of change the culture at the company how as more of our holding up given the tough travel environment in all of the changes going on.
Anything you can share there would be great. Thanks.
Yeah, well, maybe I'll take those in reverse order. Thanks for the question Brian.
I think morale is quite good I think people are energized I think on the.
The early days there was fear of survival in all of those kinds of things, where the long past that.
Thank you.
We are trying to drive a performance culture, a culture of that gets a lot of done.
We shrunk the company considerably in terms of manpower so people who are working hard.
People are tackling big issues.
Re platforming of our entire tech stack at the big undertaking and there is a ton of work going on there. There is a ton of work going on in the suppliers as we just talked about.
The ton of work going on to the customers. So actually Brian was quite good.
Look we're trying to build a culture, where people who want to win and want to thrive.
The inspired to do their best work and I think that's what we're doing we've got the appeal to everybody maybe not.
That is what we're driving at I think there's a lot of energy behind that so so.
So I would say morale is good.
The people engaged.
People feel good about our new mission of our purpose and I think we're all follow on behind that as far as the performance goes.
Eric jump in if you want to as well, but I would say we're Barry.
Sharp minded about it in the sense that.
We are happy to invest in anything that drives incremental.
Profitability good revenue good revenue and good profits.
And we're not keen to kind of.
Continue on the path of just continuing.
Our investment was not productive so we didn't find investment and the Google VR product, particularly incremental we didn't think the customer experience was particularly valuable.
And we are of course also in the period where were.
Seeing great direct traffic for verbal so we've found other ways and our.
The more profitable ways to drive traffic.
As far as the rest of the.
The performance marketing goes and performance marketing for.
Hotels in matter of et cetera, the different products for the consumers of different kinds of different proposition and clearly has historically had value for the consumer I think we feel like we will continue to play out of it I think we will continue to improve at it I've talked before about how we've.
Smashed together our performance marketing teams.
The wiring all of the data streams.
The <unk> towards multi brand the algorithms of things we haven't done before so we think we're going to get much better at it.
In terms of being able to optimize for the portfolio.
And.
Continue to use it.
Actually very effectively.
But right now there are no I wouldn't say the big tectonic shifts in what we're seeing.
We would apply that money other than we're going to be Barry clinical about it in terms of looking for and driving.
The best brains of profitability, we can wherever they are.
Yes. This is Erik thanks for the question and just on the marketing as a percent of revenue just the touch on NAV. We're not at this point solving for a specific percentage ultimately we're in this COVID-19 period and so we're as we've talked about wading back there.
Prudently and to performance and all of the net investment in brand, where we where we think it's appropriate particularly on bareboat.
Peter mentioned that there's just a ton of work that's going on.
For example in the performance channels, leveraging our overall data multi brands bidding as Peter just mentioned, but ultimately trying to understand as well lifetime value.
And.
<unk> as well and so those are new muscles in particular, given the scale the way we're running the business now and the scale of the data that we're aggregating together.
So I think there's more to learn there and then on the brand side of that just has a very different profile of the performance in that it has longer return periods and so we're confident the invest behind the brands, obviously doing that behind <unk>, we expect to do that even more in some of the other brand this week.
Narrow in on specific value propositions of line of product allow behind those in and of the marketing of associated as well. So long winded way of saying, we don't have a specific percentage that we're solving for now, but we're certainly spending a lot of time trying to improve on the marketing side and the value proposition related marketing.
Okay. Thank you guys. Thank.
Thank you.
Your next question comes from the line of Kevin Kopelman from Cowen and company. Your line is open.
Great. Thanks, a lot.
Had a couple of follow up so I was hoping the drilling too.
Some of the improvement that you've seen in the January trends as the the declines have gone from the high <unk> to the high forties.
At the end of January so.
What do you see as the key drivers there.
And did you get a sense if ex the decline in COVID-19 cases in the vaccine and rollout of Ted.
We're having an impact on on the consumer demand there and then what kind of within that what kind of growth rates did barbeau experience in January thanks.
Peter do you want me.
Brian.
Jump in anywhere, but I would just say Kevin Mike.
Broadly.
As I mentioned the improvements were in North America and Bobo.
<unk> was a strong part of it.
It's hard to say, whether it's correlated to.
The improvement in cases that tends to be.
Sometimes you think everyone should be feeling better and it doesn't show up and sometimes you feel of the opposite but I would say that.
Verbose tends to be long dated the summer obviously with the strong opportunity for the verbal use case, and we're seeing people moving into that as the year opens up and so by and large the blending towards that we have seen some improvement.
The conventional logging.
Again, particularly in North America, but I would say.
It's a little bit of the borough.
Verbal continued health and.
And even amplified health.
Going into the summer months et cetera.
Kind of little bit of improvement in the more conventional spaces.
And the.
I don't think we'll break out exactly how good it was both bareboat has been strong.
I don't know if you want it.
Yes, the only add that I have to that is just around and you touched on it which is the booking windows and what we've seen is a bit of a bifurcation, which we've talked about before but the historically during the COVID-19. We saw a shortening of booking windows. We've continued to see that on the conventional logging on the hotel side.
Good of the business, but what we've seen the faribault elong.
Elongate again and look much more like we would have expected to see in any other year, which gets back to the summer bookings that theatres mentioned here and so I suspect that we know there's pent up demand people want the travel and I think people have confidence that they're going to be able to travel.
Domestically.
Using the U S. As an example, and so there they are starting to Buck the summer months now.
Great very helpful and then on.
The kind of a follow up on the last question along those lines.
How has <unk>.
How should we think about as been kind of playing out you've seen the bookings picking up.
Of the base case should we just kind of assume that that AD spend is trending.
Kind of similarly on a year over year basis or.
Do you do you see having to spend ahead of demand.
In the kind of rebound scenario of how has that played out to start the year.
Yes, I think.
We don't.
Definitely we don't want to be behind.
So if anything we will we will certainly invest in getting capturing the demand I think as Eric mentioned there is this funny thing that happened where stay dates and booked rates were much closer together for a large part of the 2020 of 21 starts to look more normal which it seems to be doing.
And then we'll start to see the expand again.
And I think in that vein you may see us investing in capturing that demand even if that demand is not staying for some time and so you may see some dislocation and I would expect.
Bumping this in the numbers in terms of one of the marketing spend is versus one of the revenue recognition of it is but we certainly don't plan to be back on our heels.
As I mentioned, we had the strong campaign.
That were working for brand Expedia.
We've got.
Certainly the consistently stayed and we will stay in the verbal.
Upper funnel work on brand.
<unk> hotels dot com the same so I think you'll see that continue.
And we will continue to lean in as we believe the market is the end demand is opening up no question.
Thanks, so much.
Yes, Kevin just one quick add on that hopefully is helpful as well.
Peter mentioned it briefly but just around the revenue recognition just a reminder for everyone. When it comes to lodging that we recognize that revenue at the time of stay generally speaking.
As we mix end of <unk> with their monitor both the windows in particular in the summer then youre going to see more of that revenue and the transactions that were a lot of it is that we're seeing now get pushed out into the later months. So then when you go back and look at marketing at the bit Bumpier to use Peter's word just because we're spending now elevated <unk> and lots of the.
Different ways, where the revenue may be more down the line.
Yes.
Thanks, a lot.
Okay.
Your next question comes from the line of Justin Post from Bank of America. Your line is open.
Great. Thank you.
Yes, I was just wondering if youre seeing anything in your traffic figures.
Core businesses that that give you of any optimism on the summer very front end planning or attrition of your other sites that you have are you seeing any uptick there as people start looking forward in the summer and second.
Do you of any thoughts on how youre doing the market share wise in the industry right now, especially.
And I'll turn of accommodations, but just overall, how do you feel about your how your how your market share is trending right now.
Yeah, I'll take that one first of all I can come back to the the other question, but I would say.
To be specific in request in alternative accommodations in our strong markets. We believe we have some very good share.
On share growth relative to our competition.
But I would say overall.
Each of <unk> and our main competitors.
Different.
You'll have different wards and different good guys.
Very good.
With the with verbal and the use case, and where where we have supply and where people are wanting to travel, but Conversely, we'd also in conventional lodging kind of heavy.
Our strong presence in major cities and international travel both of which obviously has been hurt equally I could point to any one of our competitors who has the inversion of the tasks.
And has is better in secondary cities et cetera may be better than the alternative accommodations in markets, where we don't even have a presence.
Some of those markets would shut some of those markets are strong.
The sale of many of the stories, so I think.
As it comes this year, we think we're doing well, where we're strong certainly in alternative accommodations.
And the overall in North America.
But there are certainly competitors who have.
<unk> solutions for certain use cases, and they're seeing benefit from that so I think it's really I would caution anybody get too excited about share one way or the other during this because the dislocation really creates a bunch of unique stories and.
And you can.
I would think one could get fooled by the trend that's not a trend. It's just the moment of how people are using travel right now so, but we have gained and we're happy about that.
And.
In our strongest markets in particular.
Sure.
I think the other question was on traffic.
The answer is we see a lot of.
A lot of working.
It's not entirely clear the resolve for summer or.
Which.
Not I don't think there's anything that tells you there's something specific people are searching for a for a specific time zone, but we are seeing interest in the holidays already at the end of the next of the end of this year, it's still relatively small but stronger than it has been.
A year ago we're.
We're seeing trends like that some are very strong and alternative.
Still.
Highly muted and.
Congrats on the lodging and I would just say there are a lot of things we are seeing the contravene. The what people think of going on with you a lot of interest in cities.
In terms of click share and people looking not necessarily booking but.
There's plenty of people looking to travel the cities of other things. So I think it's Mike.
The.
Looking is not yet indicative of the pattern of bookings, but but the terms of interest for sure.
Great. Thank you.
Your next question comes from the line of Brian Fitzgerald from Wells Fargo. Your line is open.
Thanks, guys.
<unk>.
Keeping maybe and then one other one just to confirm the.
500 bps of Contra revenue related to the covered claims that in the third party insurance that was not added back to EBITDA I think I heard that and then.
The <unk> talked yesterday about the trend towards apartment hotels and change of getting.
And of that as transient and group business may struggle to come back or a slower any thoughts on how hotel inventory.
Might lean into that.
Leisure of long term stay for nomadic workers or your thoughts on how you guys would benefit from from that trend.
Thanks, Mike.
Thanks for the question of if I can take the first part.
It was a contra revenue as mentioned and it was not added back the EBITDA I think I just gave and the.
The upfront portion.
What the EBITDA would have been if you're willing to take net outs, it's part of esoteric.
Yes.
At the end.
Yeah, Brian of the say.
Haven't given it a tremendous amount of thought I think we've seen hotels historically.
Try to play.
In the alternative space in different ways Hasnt been the particularly the large part of anybody's business no one's made it into a big success really.
I think many of these trends.
Most of the hotel industry thinks will be relatively short lived and they'll be back out of it.
And of the conventional way.
But I'm sure we will see experimentation there I don't think its particularly.
Flavors of this favors us.
We pray in virtually every.
Every product class and.
If we can help hoteliers, so those kinds of longer stay apartment types day.
Products through verbal or certainly the rider to do that.
But I don't think.
Don't think for us, it's a trend one way or the other that will.
That is a particularly good or particularly bad I think it's just.
It may be a slight shift for some hoteliers, but not a big difference for us.
Got it thanks, Eric Thanks, Peter.
Mark.
Your next question comes from the line of Steven Ju from Credit Suisse. Your line is open.
Okay. Thank you so much so Peter.
Maybe go back of history of a little bit I think part of the pain point for <unk> in the past when it was a public company was to make sure you don't get the ranked in the search results because of duplicative content.
I think as you try to integrate say Abbott tolls inventory onto Homeaway dot com of peripheral dot com. So.
As you work to integrate the verbal contact itself.
Onto your OTT properties is the potential traffic loss or degradation of something that we need to worry about in the future.
And I guess.
What do you think you need to do.
To address from a consumer experience standpoint.
For the seamless integration of inventory so it got to the consumer there are more willing to pick.
Either or it might be bore the alternative accommodations on brand Expedia. Thanks.
Yeah, that's right.
Good question.
So the first part I think yes, there's lots of stories in the non also.
Those of US who play in the world of Google et cetera.
Being the ranks of things and a lot of learnings got into that obviously, we'll have to watch that as we roll it out but I think you shouldn't think of this necessarily a day peanut butter approach not all lodging is.
Sort of parallel so if someone's looking for a hotel.
New people in Paris.
Offering them an apartment for 10 people not necessarily a solution or the house in the south of France. So I think there will be different solutions I think we're working through what the consumer experience should be some of our competitors have done well.
Putting those things next to each other but again, it's particularly when they can sort of match up relatively the use case, so the small apartment versus the small hotel room.
Right now <unk> is largely oriented towards the whole home experience.
Mostly in secondary prices of vacation places et cetera. So it's really the question of as you get those opportunities and we want to go to the beach somewhere.
Out of those things line up how does the product will be able to in an attractive way and not confuse the consumer et cetera. So it's really an end to end.
So we have to do which is what how does the consumer want of digest that how can we surface of the right things for them and then how do we give them the benefit of the information on the service and all of the things one might be used to in the home rental that are different when you rent the hoax of hope.
Tell roomba essentially so theres a lot of work going into that I don't have the absolute answer for you, except we know that there is demand. We know that there is a question of getting discovery in places, where we don't have brands. They know there is demand from our beautiful new partners. So we know there's opportunity but are we still have work to do to make sure the consumer experience Mike.
M.
Thank you.
Your next question comes from the line of Douglas Anmuth from Jpmorgan. Your line is open.
Great. Thanks for taking the question.
Peter you mentioned that verbal isn't global and then you have other VR brands in Europe. For example, I'm just trying to understand what youre doing to build out verbal more there or are you content letting some of the other brands to do more of vacation and those geos.
Yeah, I think where we have strong brands.
Were perfectly content to drive those brands I think we have opportunity to drive them with the same.
Leaks that we have created of made effective in bourbon or whether that's from our creative approach the performance marketing et cetera et cetera. So there's no reason, we can't take the brand.
Like space in Australia.
And drive that true.
And there is no real benefit.
The.
Absolute return into verbal.
That being said.
There are some markets, where we have converted.
The two verbal and we are going to invest behind that brand and we will do that in some places as well. So I think youll see a combination of places where <unk> is the right answer and you'll see a few places where where its intent to use some strong local long dated brands that have real brand awareness and stickiness.
And then of that will use our other OTT brands and other things to drive it in places, where we're neither exists and where we don't think it's worth trying to start start of the brand from scratch.
Thank you.
Yes.
The next question comes from the line of Richard Clarke from Bernstein. Your line is open.
Hi, there. Thanks for taking my question just of the top of the call you mentioned using alternative can beat the beat more I'm. Just wondering what that will look like is that going to be sort of white.
White enabled profitable well, how would you see that not coming true.
Okay.
Another one with the.
The charge you've taken the school zone.
And then in general is there any kind of change in the way you think the amount of flexibility.
To consumers the.
Changing kind of looking into next year and the Internet.
Hum.
Eric you want to take the second one first I'm sorry.
No.
I'm, sorry, I'm happy I'm happy to think of it.
Well, we're constantly trying I think we've got a number of initiatives to build out more insurance and assurance products. That's one of the areas that we think is.
Consumers want that they're telling us they want that we have some offerings. There. We think we can expand those offerings and we've got a great team, that's going off and executing against that so I'd say generally.
We think it's of great product for everyone all around and remember, we're going to invest around it and the enemy.
Around the offerings from a flexibility standpoint, that's certainly something that's top of mind for us I don't think of it necessarily.
And two insurance itself, but of course, we've looked at the terms associated.
With those in there.
As had been modified relative to the situation that we're in I E.
Whether you have kind of of that are been exposed and so on and so forth and so there's adjustments that had been made two of those policies to make them relevant.
But generally speaking.
And we're trying to make sure that we give offerings, we communicate flexibility most of our products have flexibility built into them in one form or another and we're making sure that we're providing is on the site so that customers can make appropriate decisions.
Okay. That's helpful.
And I'll, just sort of Richard of too.
It could be the <unk> through our.
Oh excuse me the alternatives to our <unk> partners I'll remind everyone that we have a quite healthy speed of the business.
Makes many forms including.
Our new rewards programs powering regional Otas in places, where we are not.
In some places where we are.
And even offline travel agents.
And we think Theres a lot of use cases, and all of that for alternative accommodations, we have not been wired.
Do it goes to our tech platform that I talked about frequently.
And but we believe when we can do it there will be significant.
Demand opportunities in those in those vectors. So it could take the form of a white label product in certain kinds of circumstances. It could equally take the form of being part of a broader template where we were.
The repower everything in the rewards program and that's twice the conventional and alternative.
Right now because the auction of product has not been strong even in our own otas.
Just don't have of product offerings is particularly compelling for our day to be part of it. So that's coming as we know as we build the flexibility into our platform and as we.
Master the.
Alternative accommodations on our own Otas.
The theater of gas opportunities expense, yes.
Yeah, and just adds of about I mean, theres certainly demand from our <unk> partners for that inventory.
As Peter said.
That can get distributed based on different types of VW partners, whether that's a rewards program et cetera that can be template that can be API.
And we just got to make sure that we have on the tempo at the right experience around the API of the right data that the folks may be able to incorporate it into whatever site or how the work on it.
<unk>.
Thank you Mike.
Thank you Richard.
Your next question comes from the line of Mario Lu from Barclays. Your line is open.
Great. Thanks for taking the question. So just curious to hear your high level thoughts on capital allocation with the $8 $4 billion of cash on hand, do you see this environment as one where you might find some value.
M&A, where it might make some strategic sense, despite still ratings by the recovery.
And the second one you guys are removing the listings from Google.
Any color you can provide on what percentage of bookings came from that historically thanks.
Yes, I can take the first part theater, which is.
I think our focus continues to be for the moment on stable Asian and recovery I think we've gotten through the stabilization of more in that recovery phase. If you will in call. It the early innings of that so.
Do think that we feel like we're in a great position as mentioned with $3 4 billion plus the $2 billion on our revolver.
But.
From a capital allocation standpoint, I want to make sure that we can invest behind our brands and feel comfortable that we'd be able to take whatever level of risk. We decided to do so that we can be relevant and net recovery and be in a conversation with consumers.
When it comes to.
The debt side of the house, but you Didnt ask obviously, we pay the $650 million off of the revolver to get that back up to the $2 billion.
But at this point I would say we're in net recovery phase not obviously looking to return capital, but down the line.
Suspect we will.
I want to take down our debt get back the investment grade all of the good things we've talked about in previous quarters, and then we could talk about.
Sure.
How do we how do we think about returning capital now more specifically on your question on M&A.
I would say we're more in an opportunistic posture at this moment, we've got a strong legacy in the M&A as the company as you will know.
We are certainly out and having conversations in and seeing what might be opportunistic if you will.
But right now I would say, we're primarily focused on ourselves and making sure that we get our data platform, Brian We've got a marketing Brian we can invest behind the business.
Yeah.
The cash rather than sort of width.
No.
Our historical M&A, which was successful also is what made us as complicated as we whereas the company and we are keen to make sure we don't make those mistakes again.
It doesn't mean, we will never buy something doesn't mean that we won't find opportunities but.
But we are not.
That is not going into the core of what your odds of us.
And then on the verbal question.
Google VR was not particularly significant.
And we concluded that it was not additive which is why we made the move we made.
And.
So it's not it wasn't like we are sort.
The substantial part of our business and just sort of a shot across the bar. We just believe it was not a particularly critical piece of our business and we're not adding value and the.
Net of decision.
Great that makes a lot of sense. Thank you Mike.
Kevin.
We will now take our final question coming from the line of Andrew <unk> from JMP Securities. Your line is open.
Hey, guys. Thanks for getting in one.
One of your ultra of a combination competitors talks about kind of the exclusivity of their listings can.
Can you talk about any of your efforts there to expand your alternative accommodation listings and I think you guys historically have talked about lack of inventory and more price sensitive areas.
Can you just give an update there and then secondly, as we were seeing the first signs of recovery can you just provide an update on your marketing tech stack and whether you guys kind of like Youre ready to lean in there. Thank you.
Sure.
So I would say on the listing side.
Our competitors have a fair amount of exclusivity, sometimes that's because the geography, sometimes that's because of the pipe.
It's a bunch of different things that drive the we're not spending a huge amount of time trying to figure out how the Jeff.
Yes.
Make our inventory of entirely exclusive we're trying to spend our time building the category.
I think thats, probably broadly true for them as well.
As far as.
Increasing inventory hasn't been of particularly great markets of doing that between the home turnover.
Between the people moving in the second homes and others. It's been it's been a challenging time, we have seen some compression.
In certain markets.
That we serve and we are focused on expanding inventory in those places.
Because of the challenges broadly in the Mark we haven't just been Willy Nilly trying to grow supply all over the place.
So we are focused on the places, where we know theres lots of demand, where we know there is compression.
As the first order of business and.
Over time of the market normalizes, and we see the opportunity to attract a good quality content will be back of the market.
Sure.
As far as.
As far as the text that goes on marketing, we're making lots of progress every day.
Where do we want to be yet no.
Are we now.
Going as fast as we think we can yes.
And we're making improvements every day, so I think again converting all of our brands. The one common tech stack one common set of data of one common set of analytics.
It is a big lift we've been doing it throughout this.
The crisis, and we're still doing it but we are beginning to reap real benefits.
Thank you.
By the time I think you said now that we're coming out of the if I'm not sure I am.
I'm not sure of how to measure of that but if we are indeed coming out of it it's probably not going to take 10 months of three weeks.
It's going to take a while.
Over the course of this year I'm sure, we'll be coming out of it and hopefully we'll be back to some more normal level of ni.
Hope we will be in a good place.
In terms of the Tech stack, we are a long way of kind of where we were in.
And we will continue to make progress every day. So it just depends when the recovery comes but.
We're making really good progress.
Thank you so much.
Yes.
And I think that's it so.
Again, thank you all for your time.
Hope you all stay safe and hopefully we can all get back to traveling soon you probably missed it as much as we do.
And.
So we can talk to the against the ticket.
Thank you everyone.
Thank you for Sunrise. This concludes today's conference call. You may now disconnect have a great day.
[music].