Q2 2022 Expedia Group Inc Earnings Call
You can color share results and I also believe you are well acquainted with the fact that we divested or shut down a number of non core businesses shedding certain volume over the last two years, whereas some competitors were buying business and thereby adding volume.
So today I'm going to focus more narrowly on how our long term consumer strategy is impacting these short term share issues.
To be clear, we have been evolving our consumer approach from being largely transaction, we focused where we and the industry spent virtually all of our time tuning our products for maximum arbitrage in performance marketing channels and spending more and more money on intermediaries to a future, where we build longer lasting direct relationships with oil high lifetime value come.
This means that we have not chased all traffic available in performance marketing no matter the cost and instead have focused on the pockets of consumers. We think will drive the highest long term value and the best future shape of our business.
To give you more perspective on why it is so valuable to focus on these types of consumers who would like to give you a few facts about our biggest OTC brands.
Over the last 18 months, and our Expedia and hotels Dot Com brands loyalty members drove approximately three times, the gross bookings per customer and over twice the gross profit per customer and twice the repeat business as compared to nonmembers similar.
Similarly, app users drove over two five times the gross bookings per customer two five times, the gross profit per customer and two five times the repeat bookings versus non app users and of course, when we combine the two and have loyalty members, who also booked through the App you get the highest production of any customers.
These core drivers of our entire company is focused on getting the right customers in the funnel and then turning them into loyalty members and App users and while both will accelerate as we deliver on our platform with better features better personalization and with one overarching loyalty program I'm pleased to highlight that we are already seeing strong traction for example in Q2 'twenty two.
One we grew new loyalty members, 33% compared to Q2 thousand 19.
Similarly on the App side, New App downloads grew 58% in Q2 'twenty two versus Q2 dollars 19 non.
Not surprisingly therefore, our direct business continues to grow with almost two thirds of our b to C. Gross bookings in Q2 generated from traffic that came to us directly.
And really this is just the beginning with improving products and features including our price tracking product for flights, which has been a huge engagement driver in the app and with the rollout of loyalty to all of our customers next year, we will be able to drive much more direct engagement with our customers.
That being said, it's also important to remember that lifetime value and travel does not come through the numbers instantly because of the frequency of travel for most consumers. While we have been gaining ground building up our base of high lifetime value customers and are confident in their ability to drive future velocity. It is not as quick twitches buying transactions through Google and other meta channels.
In the coming quarters, we will continue to update you on these important core drivers of our future success and provide any additional disclosures that may help you measure and understand our progress for.
For example, starting today, we've added an incremental disclosure room nights on a booked basis. This disclosure should not only give you a better sense of our trajectory, but should also help you better understand our marketing spend but to be clear. It does not the complete picture ultimately what you need to understand is that we are spending against the profit we derive from the market.
While we May currently look less efficient on even our booked room night basis compared to booked gross profit, we're still spending below historical levels.
We've done this while allocating more money to channels that drive direct traffic and the kind of high lifetime value of consumers we seek.
It is early days even for this but we know we have the best creative in the category in a great spot to acquire App customers and believe strongly in these veins of opportunity.
Now, let anyone forget while we've been making the transition from volume at all costs to the right volume with the right long term characteristics. We have also been going through a massive technical transformation as we move to a single platform.
Transitions like this always until certain short term versus long term trade offs.
The Perfect example of which is our migration of hotels dot com onto the Expedia stack, we accelerated this over the last two quarters because of the benefits of being able to optimize across our largest two otas brands on the same stack are massive but to be clear migrations generally disrupt customer patterns and can impact conversion in the short term.
And we're no exception, we had to make some choices to prioritize speed over perfection.
The really good news is that hotels dot com front end is now nearly fully migrated and we've been freeing up engineers, who can now turn their attention to optimizing the full stack.
This is just one example of the many choices we make every day to trade modest short term disruption for significant long term growth and frankly, we are more excited every day by our progress the acceleration of the transition and what is still to come.
So in summary, we know we are massively improving our technical position. We know we are engaging more customers in our membership programs and our apps and we know both will drive significant improvement in our business and in general we are willing to give up short term unprofitable volume for longer term sustainable growth.
Because we know that at any given moment, a large portion of the traveling public is up for grabs searching around for the best travel options.
The industry literally billions of searches and customers every year and rarely has engendered true loyalty traffic has never been an issue in travel. It's always been a question of retention, we mean to once and for all change that dynamic by providing a product instead of services worthy of customer loyalty and ultimately we intend to spend much.
Less of our time and money chasing them over and over again in the wild.
Of course in the meantime, we will look for every opportunity to grab back share where it makes sense and where we are bringing in the right kind of traffic at the right value.
Fixated as some of you may be on share I can assure you. We are more so our competition has been very promotional and highly geared to performance marketing, but we are determined to build our business in a better way and we fully believe that as we build our base of high lifetime value customers, we will be able to buy the right customers more efficiently and grow revenue and share far more quickly.
And profitably than we ever have.
Let me end by reverting to our core theme, we are evolving all things in the business to a place of better customer oriented products and capabilities better service and understanding of our customers personalization and ultimately building what we believe will be the best in stickiest product in the industry and all of these advancements also benefit our <unk> business.
Which continues to grow at an accelerated rate.
Just this quarter, we had a variety of wins, we now power Delta Airlines car rental offering along with hotel, which we have powered for some time and we've already seen significant benefit to our partner we've become the exclusive provider of hotel supply the obvious the rewards program for all the airlines under the IAG flag and while we continue to find new ways to add value to class.
Travel partners, we've also expanded into emerging pools of captive consumers to with this quarter. We proudly partnered with built which has the first ever loyalty program for renters, and we now power their travel portal and as we continue to power all of that New partners. We are also looking for new capabilities to externalized to expand our open world.
Platform products suite.
Late last year, we externalized, our travel ads platform that allows travel suppliers to advertise to our consumers with this externalization, we are expanding our reach for our travel advertisers and the scope of what we power for our demand partners. This quarter alone. We added travel after multiple template partners. We continue to see enormous potential for travel as a service and the <unk>.
<unk> growth of our product lineup will help fuel our ambition to power the whole industry. So.
So in closing, we had a record financial quarter, and we added more loyalty members and app customers than ever before all while continuing to make huge progress on our technical transformation, we're grateful to our employees our customers and our partners, who are helping us change the industry and with that I'll pass it onto Erik for financials.
The second quarter was strong on multiple fronts and I am pleased with our financial results the business continues to generate.
Before I dive into the numbers, let me preface the I'll provide our reported numbers in growth rate.
As well as like for like growth rate that excluded gensia amex, GBT and the non lodging elements of our chase relationship.
So through that last one is that as the new adjustment.
This is a valued partner and our relationship remains strong, but as I said.
During 2020, Q, we stopped hiring their non lodging business Aaron.
Aaron Karp, However, we continue to power their logging business, which has performed well while the non life business was significant on a gross booking basis. It was not material to us on profitability.
And as a reminder, we completed the sale of MTS Amex GBT on November one 2021, and our EPS business entered into a 10 year lodging supply agreement with <unk>.
We believe these like for like numbers are more reflective of the actual performance of our business.
Moving onto the P&L total gross bookings for all products were up 1% on a like for like basis and down 8% versus Q2 2019 on a reported basis, which was a sequential improvement as compared to Q1 down 9% on a like for like basis and down 17% on a reported basis.
For like bridge bookings growth was driven by an improvement in lodging bookings and ADR as well about 2019 levels. We've seen a continued recovery across all our geographies and main prototypes with particular strength in North America.
Lodging gross bookings, which were the highest we've ever had we're up 9% on a like for like basis versus Q2 2019.
8% on a reported basis.
Now for the monthly walk on a reported basis logging gross bookings were up 9% in April up 9% in may and up 5% in June .
For July we saw some choppiness early in the month likely due to airport and airline disruptions, but in the back half of the month, we are seeing strong performance similar to the rest of Q2.
All in we expect July for land in line with 2019 levels.
Currently we are seeing a robust summer with Q3 lodging bookings pacing ahead of 2019.
Same is true for pacing for the remainder of the year, but it's still early with the majority of the bookings for the back half of the year yet to be made.
We remain optimistic and as Peter mentioned, we will continue to monitor bookings and other leading indicators closely and adjust our actions accordingly.
Total revenue was up 5% versus Q2 2019 on a like for like basis.
On a reported basis revenue was $3 2 billion up 1% a sequential improvement from down 10% on a like for like basis and down 14% on a reported basis.
Direct sales and marketing expense was $1 5 billion up 12% versus Q2 2019 levels as we continue to spend into the recovery to capture demand.
As Peter mentioned, we increased our efficiency on marketing expense as a percent of booked gross profit.
As part of our strategic focus to build a direct relationship with travelers, we continued to allocate spend towards higher lifetime value channels, such as paid App installs and brand Creatives.
Moving on to overhead costs were $551 million, a sequential increase of $18 million from Q1, 2022 and were approximately $170 million or 23% lower than Q2 2019.
Adjusted EBITDA for the quarter was $648 million, the highest second quarter in our history and was up 20% versus Q2 2019 like for like basis and was up 14% on a reported basis.
Adjusted EBITDA margin for the quarter was 20% over 230 basis points higher than the 18% adjusted EBITDA margin in Q2 2019.
This quarter I also wanted to call out the other expense line, which was a loss of $385 million.
This was primarily driven by a mark to market loss on our minority equity investment in American Express global business travel, which we received in exchange for our equity interest in against.
The losses due to the reduction of GBP share price since the company became public in May 2022.
Through the end of Q2.
We continue to be long term believers in Amex GBT is the lead.
<unk> corporate travel management company in the World led by a terrific management team.
Additionally, corporate travel has been rebounding faster than anticipated and our supply deal with <unk> continues to perform very well.
On the free cash flow, which totaled $1 5 million in Q2 on a reported basis.
Excluding the change in restricted cash primarily driven by the change in bareboat deferred merchant bookings free cash flow was approximately $1 3 billion.
As it relates to our current cash position, we have $8 billion in total liquidity, which includes $5 6 billion of unrestricted cash on hand as of quarter end, which provides us ample cash to operate the business.
We remain committed to maintaining our investment grade rating and consistent with this in May we announced the early redemption of our senior notes due 2023, and 2024 totaling approximately $1 billion post. This redemption, we have no debt maturing until 2025.
Since may of 2021, we have repaid over $2 9 billion and net debt and preferred equity.
Regarding our capital allocation strategy, we had a strong track record of returning capital to shareholders and we believe our stock remains undervalued as we get more clarity on the macro picture, we will accordingly, reevaluate our options, including potential share repurchases.
In closing we are pleased with the results. We achieved this quarter I believe executing on our strategy will yield a stronger direct relationship with travelers and improve our overall financial performance. Further operator, we are ready for our first question.
As a reminder, if you'd like to ask a question. Please press star followed by one on your keypad.
If you would like to retract your question. Please press star followed by team.
Okay.
Our first question comes from Eric Sheridan with Goldman Sachs. Your line is open.
Thank you so much for taking the question maybe coming back to all the disclosure and framing of the strategy around <unk>, which I think was really helpful. For investors can you talk a little bit whether it's either qualitatively or quantitatively about how we should be thinking about.
Longer term marketing ROI or gross profit per booked room night and thinking about ways in which you could generate additional leverage in the model beyond some of the margin targets or margin framework, we've talked about before coming out of the cost cutting exercises during the pandemic just a better framing around what might that do for sort.
Returns for the business over the long term thanks.
Sure. Thank you for the question.
I'll certainly try to put a little more color on it ultimately as we as we drive towards.
High lifetime value customers and moving our customers into these high.
Value positions in App, and membership et cetera, and up the membership ladder, we believe that we'll be able to use.
Our marketing capital more efficiently through a variety of channels, including loyalty, including.
CRM in a variety of ways to drive more direct relationships.
Ultimately, we believe we're going to get better and better at being able to buy the right kinds of customers out of the market. We are trying to do that now we are doing it I would say.
With fairly remedial tools, but we are getting better and better as we get better at.
More granular understanding of each customer and each customer's potential LTV and what channels. They come from so we're on that journey to basically drive lifetime value broadly, but also ultimately understand lifetime value in a very granular way. So that we can then.
Again be buying that lifetime value out of the market in the most efficient ways. We can we think we're doing that now but admittedly our tools are somewhat remedial as we get all of our customer accounts together, you've heard us talk about consolidating data consolidating the one loyalty plan across everything as that loyalty plan.
As everybody as we have one identity for every customer we are going to get better and better at understanding LTV and understand each customer's performance and that's going to allow us to get a lot sharper on how we acquire traffic and who we acquire so ultimately.
We are looking to drive more efficient acquisition of the right kinds of customers and as I've said in a couple of calls that doesn't mean, we're necessarily planning to spend less money. It means we expect to get more value out of the money, we spend and if we get really good at it we may be spending more money and buying just more and more value out of the marketplace. So.
That is our ultimate goal.
There's lots of tools, we have already.
To drive the LTV, but we're going to have many more and a better understanding of how to buy the right kinds of customers out of the market as time passes.
Great. Thank you.
Sure.
Thank you.
Your next question comes from.
Kevin Kopelman of Cowen Kevin Your line is open.
Thanks, a lot.
Okay.
I was hoping you could drill down a little bit more on how you view the current travel booking environment that youre seeing quarter to date, given you did see some of that choppiness early in the quarter, but then it sounds like.
Growth has come back quite a bit center.
Yes sure.
Eric can chime in I'll give you my thoughts I think we've seen.
As Eric referred to we saw some choppiness in the early part of July as you all know there's been a lot of disruption.
In North America and in Europe .
Airports.
Ben.
Keith thrilled capped how many flights could go in and out there's been a lot of noise and a lot of cancellations and <unk>.
We think thats, probably responsible for a lot of it obviously in a time of weird macro backdrops, we're all.
Looking for dose but.
With the strong rebound over the last few weeks of July we feel like it was more temporary than anything and we're seeing better.
Better resilience in similar strength as Eric says said compared to compared to earlier in Q2, So we're optimistic again.
The summer period looks looks strong there is no real let up that we've seen other than what we reflected in July and.
And beyond that there's still a lot of bookings to be had but we're optimistic.
Could you and also just as a follow up could you touch on.
Puts and takes for EBITDA in the third quarter given its debt.
Typically the largest profit quarter for the year. Thanks.
Yeah, maybe what Eric take that but I think you may be having some technical difficulties.
Yes.
And you are there.
Over here you got it okay and Kevin can you hear me okay.
Okay, Yes, as you mentioned.
Q3 is our seasonal high from an EBIT perspective.
If we look at Q2.
Feel good about where EBIT came in call it in the aggregate or the quantum and and also seeing the leverage that I mentioned in my prepared remarks and.
We continue.
Operating the business in a very similar structure, if you will.
So we feel good about the quarter as I also mentioned, our pacing also looks and when I say pacing in forward bookings or whatever language one wants to use on what's on the books already for coming periods. That's also above 2019 now the bulk of the transaction's still need to occur over Q3.
Q4 for that matter, but thus far feeling pretty good about the trends that we're seeing and then just adding a layer of comment on that.
And Peter went through as we continue to remain in an environment where.
Yes, there is more volatility in training than I am necessarily seen in the business historically, just given the pandemic and COVID-19 and variants that come along and now disruption and so there are periods, where you might see more volatility than we've historically seen but the consumer's consent continued to be resilient and continue to.
Prioritize travel and their spend and as Peter mentioned and I mentioned earlier the back half of July in early part of <unk>.
August was back to similar levels of <unk>.
Great. Thanks, Eric Thanks, Peter.
Thanks, Kevin Thanks, Kevin.
We now have a question from Navin.
<unk> Khan of <unk> Securities. Please go ahead. Your line is now open.
Okay. Thank you.
Just a quick clarification, maybe so the monthly trends you saw.
Sure.
Two Q and into July .
For like her.
On a reported basis, how should we understand them and then.
On the <unk>.
So you said that the hotels dot com.
Tech.
Integration is complete.
Any earlier, those who can share with us in terms of any kind of benefits you might be.
The drag from that.
Yes.
I'll take the first part of that and perhaps Peter you take the second one on.
On a like for like basis. So that is giving you a sense for what we believe is the more accurate representation of the trajectory of the business and again just for everyone's edification, it's essentially.
Taking out of Genocea.
Chase.
Non lodging components and then also the lodging service agreements that we have with Amex GBT. So then it gives you a sense of quote unquote for our core business and what the trends look like.
Given the puts and takes that we've had given the changes that we've made over the last few years.
And I'll take the <unk> question. So the short answer is.
We've mostly seen the disruption and not much of the wind yet obviously as I mentioned the engineers were now freeing up to optimize the stack is.
Or are highly valuable to us and we expect now to get wins not only on the H comes back but on the Beck stacked Expedia stack at the same time. So the whole idea is we've been broken into two different stacks. We've had engineered we've needed twice as many engineers to work both stacks and we've been any time.
Yes, any wins any improvements are made on one stack or the other and not necessarily carried across or not necessarily working the same across so now that we get more onto the same stack every time, we get a win it's a win for everybody and it's a win for much more of our traffic. So the opportunity to now have one consolidated place where we can do that.
Is massive and we're just getting going now that we've moved so much of the front end, we can put those engineers on the work and we can start to get lift across not only hotels dot com, but expedia the portfolio of brands and everywhere else that runs on that stack and ultimately we will all be on the same front ends back and then every other.
Ration every test and win every opportunity to make the product better we will go to all our customers and we will get the benefit across the biggest space. So that's that's what we're driving to.
Early days in that particular bit.
But but I will say the disruption was somewhat less than we expected which is good and the opportunity is enormous so we're putting people on it now and we're starting to get those benefits, but it's very early days.
Yes.
Im going to just clean up my quick remarks, because we actually have both and they're both on a like for like and on a reported basis. So let me just be really clear we provided both numbers, which is the 9% on a like for like basis for total lodging gross bookings and then the 8% on a reported basis and then the block itself is on a reported basis just to make that clear.
So let me just maybe understand that better maybe for July . So you shared the trends and how July has started out weak and sort of picked up towards the backend.
Is that on a reported basis or how should we look at that.
Yes, that's.
Thats reported.
That's on a reported basis all the monthly user on a reported basis.
Yes.
<unk> bookings.
Correct.
Great. Thanks, Greg just to make sure you heard me yes.
Yes.
Thanks.
Thank you our next.
Question comes from Lee Horowitz with Deutsche Bank. Your line is open.
Yeah.
Great. Thanks for the question.
No I appreciate that long haul capacity.
Can you guys comment at all on what Youre seeing in term.
Urban traveled during the quarter <unk> are you still seeing kind of a robust.
The recovery.
When do you guys still kind of remain below 19 levels.
Florida.
Yes.
I would say to the first partly yes.
Our cities have been coming back pretty strong and if you've been traveling this summer.
You've probably seen it particularly in Europe .
And.
And the strength is not as strong as beach and other things that have been but it is materially coming back so as I mentioned in the beginning we've seen improvement kind of everywhere in every product.
It's different by Geo and it's different by urban and non urban but but everything has been going up into the right and urban has recovered substantially.
I think you can tell from our numbers that in various spots we are not buying.
Bad business.
So I'm not going to go into breaking out which places that is per se, but but urban has been growing nicely for us and.
And it's been growing nicely for the whole industry. So I think.
Cities are back end.
Certainly the summer there will be plenty of plenty of urban travel.
Great and one follow up if I could.
You guys had talked about perhaps some struggles in terms of bringing on as much as you're more like I guess, given maybe some of the slack in the labor market would you say that thats no longer a problem are you still trying to kind of ramp hi, Ken.
Some.
Roadblocks in terms of the upbringing.
Hi, Catherine.
Yes.
Yes, I can.
Go ahead Doug.
Got it.
Yes, yes, I would say we continue to trend below both our forecasted and candidly what we want to do from a new hire perspective, so that I would say that that continues to persist obviously the market is dynamic at the moment. So it's something that we're watching.
See if there is greater accessibility of talent. If you will theres also continues to be some wage inflation challenges as well, which I think you are probably hearing across a lot of these calls so we haven't seen that necessarily come through at this point, but it's something that we're watching closely but I will also say.
<unk>.
From a recruiting standpoint.
I do think our strategy and our execution and our story does resonate quite well as we are recruiting people are excited about what we're trying to accomplish we're just doing that within a broader context of a challenging environment and not tonight wish ill on any.
People out there from a layoff perspective, or whatever else, but I think there could be an opportunity for us to ramp some of that hiring over the coming months now with that said there is a lot of uncertainty out in the environment. We are like everyone else looking at our head count and making sure that we are prioritizing accordingly, putting people on our highest priority items.
And looking at our open head count to make sure that we're making the appropriate investment decision. So it's dynamic Mike a lot of other aspects of the business, but we continue to have.
Success in recruiting talent, but not necessarily at the levels that we want to relative to our priorities Peter Im not sure. If you want to add anything to that.
Yes, I would just add that as we continue to make progress on our technical.
Transition.
We're constantly solving problems and free free.
People to work on new things. So it's kind of we're solving it two ways, which is we're looking for talent in the market to help fill open roles, where we need people.
And every day, we're also kind of freeing up capacity that can work on the next thing so.
We're moderating it that way and ultimately as I've said before.
We're going to get more efficiency.
Out of the machine over time, so balancing that trajectory is something we're always looking at.
Great. Thank you Bob.
Thank you. Thank you.
Thank you Lee.
Question comes from Tom Champion with Piper. Please go ahead, when you're ready Tom.
Hi, good afternoon, thanks for taking the questions.
Just curious if you could talk a little bit about <unk> in the alternative space and whether or not.
You encountered any any supply constraints.
Okay.
In the summer with inventory.
And then second maybe you could just talk a little bit more about new partnerships in the <unk> business and <unk>.
Very strong revenue and EBITDA and in the segment.
Just your thoughts on that sustainability. Thank you okay.
Sure. Thanks, Tom.
Couple of highlights I guess on Barbara I mean first of all the business continues to be strong.
Well above 2019 levels.
We've seen some demand sorry supply constraints in our best markets think southeast beaches in.
In the U S and such but we have been adding supply.
Accelerating level and actually in our strongest markets like U S Beach et cetera, we've been adding supply faster than our main competition.
So we feel pretty good about that trajectory and we're getting better at that.
Kind of all the time, so in our strongest markets again, we're adding supply, but there were constraints there were market sold out this summer for sure.
And we'd love to have more supply in those places.
As far as new partnerships go I'd love to name a bunch of names. Unfortunately in some cases, we are constrained by our agreements with our partners, but we've seen really good growth.
And our <unk> business and our <unk> pipeline.
There's a lot of products.
That we can help our partners with and as our products get better all the things I was talking about even with the hotels dot com to <unk> front end change that's not just getting onto one stack. It's also component timing all the front end.
Modules, so that we can more easily use them and reuse them for our partners to create.
Their travel products on the front end, so there's a lot of opportunity and all the work we're doing to make the products better for our partners and to externalized, new things that we have an externalized before like our service capabilities or our machine learning capabilities or our fraud capabilities. So we're working kind of two tracks, which is we want to drive.
Ah.
More value into our partnerships that we already have with the products already available and we wanted to externalize.
Lots of new products that we think will be valuable to the partners, we already have and to a much wider base of partners. So both of those things are going.
Theres lots of exciting things happening on both fronts and.
Most excitingly when we deliver things like we did with our new card deal with Delta or many others.
They deliver more value for our partners and that means it's a good product that makes our partners more successful more.
More successful so I think it's one of those places its really a great symbiotic situation, where we can use our technology and our supply to drive better outcomes for our travel partners and really sort of turn those into partnerships. Instead of just the classic supply deals and other things we've always had so.
So we're excited we think the growth there's plenty of growth there.
It's like linear and just accelerates I think we will have new products that rollout new exciting things that come will happen big new partnerships that come over time.
And each of those will add to it and ultimately the more products, we can externalize I think.
The more partners, we will have and that's what we're most excited about.
Thank you.
You bet. Thank you.
Thank you.
First question comes from Deepak Mcmahon with Wolfe Research. Please go ahead when you're ready.
Hey, guys. Thanks for taking the question sorry to jump on the monthly trends again, given that it kind of staying near sort of 10% about 2019 levels is it sort of plan to assume that the volume recovery from kind of the pent up demand that we saw over the last few quarters is somewhat now behind us and it's a more normalized growth in wine.
And driven by more marketing and sort of like the product engine.
In a partnership that puts that you mentioned just now are there any markets.
Geographically, maybe what a recovery could still be significant how do you kind of think about the growth from here to take it much higher at about 2019 levels. Thank you so much.
Yeah, I'll take a stab Eric maybe you can follow.
I would say the fact that there is.
Still plenty of markets that have not fully recovered.
APAC for one.
Latin America for another.
And then within certain geographies they are still.
There are still places that are not as robust, but so so theres plenty of opportunity I think there's no sign that what we've seen as the robust recovery now.
Won't continue.
For the foreseeable future.
As Eric alluded to there's no one knows quite what's happening with the macro environment and when and if that will impact travel, but so far everything looks pretty pretty strong so I think.
There is still opportunity for growth from our perspective.
Pi is enormous right I mean, we and the other big Otas eat about I don't know if 15% maybe of the of the global travel market and maybe a bit more of the big ones are main big competitors. So there's a lot of pie out there.
And I think we have lots of opportunity and.
And the strategy I was trying to describe to continue to grab high value travelers.
We can add to the pot and drive our business and stack them up. So so we think there is plenty of recovery to be had.
No macro global travel is definitely still way under.
2019 levels, because so many geos are not caught up yet.
And that long haul air et cetera, but ADR as had been very high. So we've seen escalated numbers driven by that but there's definitely a fair amount of consumption in the world that's not back in the market.
Eric I don't know if you want to add anything.
Yeah.
No.
Okay. Thank you Peter.
Great. Thank you so much.
You bet.
We now have Lloyd Wamsley of UBS. Please go ahead, when you're ready.
Alright. Thanks.
Two questions if I can first on the on the marketing side.
It looks like there was a bit of deleverage in the quarter and just looking at kind of direct marketing per room night.
By my math, I think 28% year over year.
Is that just a function of bidding up because of the higher ADR or something going on in our brand campaign, you guys mentioned efficiency improvements. Unlike a gross profit basis. So if you can just explain that a little more and then just second one on the on the product side, you guys talk a lot about improving the product.
Doing driving more direct from product improvements wondering how does adding hotel supply and kind of localizing that that supply fit in as a priority in the product strategy are you guys rebuilding.
My acquisition team like where does that fit in.
Yes, maybe I'll take that in reverse order Lloyd.
So on the supply side, yes.
Supplied plays an important role both in terms of breadth in terms of.
Price pricing competitiveness and then in terms of.
Transaction.
If you will different kinds of discounts different kind of.
Our member discounts package discounts other things so supply plays an important role. We are yes, we have been ramping our acquisitions, but we've also been ramping something we've been trying to do for a long time, which is our self service capabilities. So that suppliers can more easily sign on I don't know if you remember.
In the past.
It always took us a lot longer to sign up.
Partners, partly because we had the merchant model, but also it was just harder and more cumbersome and we are working tirelessly to try to change that and try to bring more people on boarded self serve so that of course gives us scale beyond just hiring backup market management and people to acquire properties.
So that's one line of work that we are absolutely.
<unk> focused on and driving.
On the deleverage side I would say you have to sort of look at all the cost of marketing kind of all up which.
Which includes other things besides what you see in the marketing line, including loyalty and <unk>.
Pricing moves et cetera.
And and then we look at our book GP. Our GP, we are deriving from the bookings, we're booking and where we are getting when you compare those two things we are getting leverage in that number you can't really look at room nights, because youre missing other mix issues and you're missing some of the some of these other components.
With loyalty et cetera, which is why some of our competitors appear to be getting leverage but they are really getting deleverage because they are discounting more and being more merchandise and aggressive on the promotional side. So we're getting leverage out of that collective and others are not.
Yes, and hopefully you can hear me, okay. Peter if I can get a thumbs up yes, yes, you're back I'm going to go thank you Sir.
Yes.
So.
Peter spent a fair amount of time and I did as well just around the book gross profit and looking at it from a holistic perspective, but I do want to just make sure that.
I reflect and we reflect that we have said that we are going to be a.
A couple of things one is aggressive and marketing spend and then recovery so <unk>.
To the extent that we see opportunities to acquire the types of travelers or customers that Peter mentioned, we are going to push into that and are seeing nice returns from that perspective, and then to us.
The profile of the travelers and customers that we're acquiring because of a mix shift of marketing into longer term relationships such as brand marketing our creative as I mentioned and then also app downloads that we're essentially building cohorts over time that have a higher lifetime value, but also can take longer to hit the P&L.
Well, so there's a timing aspect to it so again gross bookings.
<unk> gross profit we feel good and we feel that that is healthy too is we do want to be aggressive in marketing given the rebound from the pandemic and then three is longer spend profiles from a mix standpoint, and our marketing spend.
Got it okay. Thanks.
Thanks, a lot.
Thank you we now have a question from Brian Fitzgerald of Wells Fargo. You May proceed with your question Brian .
Thanks, maybe.
Bit of a follow on to Lloyd's question. As you look ahead into 'twenty, three and the implementation of the.
Digital.
Architect in the EU just wondering if you could offer any thoughts in terms of how that could change in marketing environment for you potentially benefit the business.
From marketing segment. Thanks.
Yes.
Yes. Thanks for the question appreciate it Brian its a very dynamic environment as you can imagine there is.
International tax treaties that are being negotiated their DSD taxes.
Our ebbing and flowing if you will.
Ultimately it is something that we're watching and we're building then of course, where we need to don't necessarily have a crystal ball on it but ultimately believe that.
We won't be the only ones that are impacted if you will on a per geography basis, and it will impact pricing and ultimately what the consumer may end up paying in the end and so I don't foresee at this time any debt.
Detrimental impact to our ability to acquire the types of customer relationships that Peter and I have spoken to you, but it is a very dynamic environment and something that we're spending time on in Washington.
Thank you.
We now have Justin post with Bank of America. You May proceed with your question.
Great I appreciate the other book night disclosure and I think I think that has been the overhang last quarter couple.
Couple of questions around that.
As you are presumably trying to get better customers. What have you seen on return rates. So far since you've changed your strategy and are those higher.
And second.
What time frame or is the board or the management team holding the marketing group to start showing better leverage on that line. Thank you.
Okay.
Yes, I would just say.
So a couple of things.
We don't really disclose repeat rate.
I will say I'll state the obvious which is you heard what I said about the repeat rates of members.
Of App users and.
And how much direct business, we have so I think it's safe to assume that you can follow the trend lines of where that's headed as we continue to build these higher value higher repeat rate customers into our base.
As for the timeframe.
We want to drive leverage in marketing broadly and long term, but it's not just up the marketing.
<unk> of the product.
I think Lloyd asked about supply the effectiveness of supply all of those pieces play a part in.
In marketing efficiency, having the right support the right product on the shelves.
The right high converting.
Product for the customer and and again, all the things, we've talked about and moving them into the right products into membership into App et cetera. So there's a lot of pieces that fall together right now we're interested in investing in the right types of customers that build that base of law of high lifetime value customers and and as long as we can do.
And in an efficient way and again as we look at all of our spend all up we are doing that more efficiently right. Now is against book value. So we're very happy to keep investing in that over time, we will get better and better at finding those pockets as I said on a more granular level, but right now.
With the blunt instruments, we have we are driving app membership all of it in the right kinds of customers into the funnel as best we can and we will get sharper and sharper on that over time. So I don't think theres, a we're not saying okay by the end of 'twenty three we have to pull X many basis points out of marketing, we are saying as long as marketing.
To drive the right base of customers high value customers into the machine and as long as the machine is getting better at converting them into the types of customers. We want we are winning and we want to keep driving that.
Okay.
Yes.
Sorry, I can just add to that as well quickly just around.
We've announced and launched some new products at our explore conference and then subsequently are ramping those in just a couple of examples.
On how we can drive engagement with our travelers and customers and the relationships that one example of that is our price tracking product that we.
Rolled out relatively recently and early days, it's quite positive what we're seeing we're seeing good uptake and people signing up for it we're seeing great open rates when we send notifications and then seeing a very strong return rates as well so again.
It is of course about our ability to generate transactions from customers. So that we can deepen our relationship but we now have new tools that we have developed that we're rolling out that are showing great promise and engaging those customers along the way in their journey and then subsequently you. So you can imagine after that first transaction that just gives us more and more opportunities with an increasing number of.
<unk> using the App, which is a multiplier as Peter talked about and being a member which is a multiplier on the amount of the depth of relationship the number of transactions that all of those are adding up.
For us.
Increase our number of customers our share of wallet and ultimately drive the business.
Profitable way.
Great. Thank you maybe one follow up you do see take rates up from 19 and I was wondering if if the strategy is driving higher value customers that that may be spend on different types of hotels or is that just more timing related. Thank you.
You have the typical seasonal component on on take rates, but what I would say is there are a number of different moving parts. We've got a higher mix North America are about the hotel relative to some of our our historical number of switch.
I think we've talked about in previous quarters. We also have.
Slightly higher margins on verbal itself, just given some of the take rate decisions that we've made over the last few quarters and so that revenue margin has benefited from mix. Some more lodging a lot. There. So I would expect that to come down just a reverse somewhat back to the to the mean, but there are promotional.
<unk>.
Talked about that were not necessarily as aggressive or making different choices, along the way and balancing that with marketing spend that will continue to be dynamic. So feel good about the take rates they are higher.
Some of that is because of mix, we should expect some of that to come back down but.
We feel good about the absolute level, where we landed.
Great. Thank you and I think.
Sorry, I was just going to add and if you look at our ADR as we've driven quite strong ADR growth and I think strong.
Stronger than some of our competitors and then you're right and part of that is driving the right customers driving the right products.
As Eric says being less promotional and we think thats, that's evidence of that as compared to what's going on in other places.
Great. Thank you.
Thank you.
Thanks suggestion, we now have Ron Josey with Citi. Please go ahead, when you're ready to turn.
Great. Thanks for taking the question Peter I, just wanted to follow up on your comments around grabbing back share in the mixed shift to direct can you just help us understand over time or talk to US. How this is just evolved over time and maybe the mix of direct between mobile web and App and I think I've heard you use the term we've got blunter instruments. Several times today I think as we go.
Talk about moving upstream to LTV, just talk to us about how these instruments could become sharper what what are you looking for what needs to happen to be more efficient as we track. These LTV customers. Thank you.
Yes, so to be specific and I don't I don't want to underwrite our instruments, but our goal is true granular understanding of every customer's lifetime value and the difference of where those customers emanate from and what actions they take.
<unk> indicated and drive higher lifetime value that is the Holy Grail of understanding customer value and and trying and getting super sharp and efficient on buying.
The best you can all the right customers right now we are giving you some basic ideas, which as we know members perform much better we know app users perform much better we know what they are both they performed much better but that obviously has a broad brush not the finest brush you can have and we ultimately want to have a very fine brush. So that we can know.
If we find people on a certain performance channels are more likely to perform a certain way maybe by Geo maybe by product that they come in on et cetera. So we want to have all of that scope of information and that involves understanding all our customers in a common way as we've talked about many times, we have data on our customers.
We're in silos, because they were H, Comcast hotels, dot com customers orthopedic customers or verbal customers or orbitz customers or you name it and as we continue to consolidate the data as we continue to consolidate those customer files and as we get everybody essentially into one broad loyalty program, we will be able to understand customers.
Is that a much more granular level and that will give us more tools I'm not saying our blunt tools aren't good tools theyre just not as fine as we can someday I hope to get to.
And then as we add personalization on top of that we will have a bunch more drivers that allow us to trigger more high LTV events. So there's a lot of opportunity in that still to come we're doing lots of good stuff now, but it will get better and better over time and as far as grabbing back share and mixed shift to direct.
We said as I alluded to.
In general we are willing to give up unprofitable short term traffic for longer term gains that involves buying somewhat different kinds of traffic as Eric alluded to we've been.
Much more leaned into a cap acquisition and other opportunities, where we know there's more value.
And that involves again, making short term trade offs, whether it's.
And technical transitions, where we have to give up something in the short term to move faster. So we have been willing to do that and and give up some of the historically highly unprofitable.
The last incremental performance marketing customer purchased so that's kind of what we've been going through but we're getting better at understanding and being able to drive member sign up we were never that great at getting sort of the owned sign ups.
As hone as we wanted to do getting the owned App downloads going faster. So every time, we make that better.
We see more opportunity then to drive into Okay. Now we can acquire this set of customers and they'll perform better because we can get them into these high lifetime value activities and then we get more value derive more value out of them long term. So that's what I'm talking about in terms of grabbing back share, where we can grabbing back opportunities.
These things are not perfect.
We see veins to drive we are looking for more and more veins to drive that will drive growth and ultimately drive share.
Very helpful. Thank you Peter.
You bet. Thanks, Ron.
Thank you.
I would like to hand.
Our final question will be from <unk>.
Jed Kelly of Oppenheimer. Please go ahead.
Hey, great. Thanks for sneaking me in just two if I may one can you talk about how the stronger U S dollar.
It did benefit.
Your long haul international business potentially into next year and are you developing any strategies around that given your higher North American base and then can you just just Peter you mentioned Youre seeing stronger bareboat supply gained over your largest competitor can you talk about where that's timing of that coming more from the property managers or individual homes. Thank you.
Yeah.
Sure.
I'll take the last one first.
So those gains have been sort of broad we have a very good presence with property managers, we always have.
I think we're probably certainly in North America, where the preferred partner for most of them or many of them, but I think.
What we've been focused on is really driving.
Systemic approach to adding supply in.
The places, where we where we have the highest demand where we know we can drive.
Performance for our supply partners, the homeowner or the or the.
The management company, certainly successful management companies that acquire more properties become managers with more properties is a great thing for us because theyre already.
Working with us they know how to work with us and they can put those properties into the system, but we are also adding direct homeowners.
At a pretty strong basis. So so it's kind of both veins theres no theres no. We're all in on one or the other we're trying to find the right supply in the right markets whoever happens to be managing that or owning that.
And then as far as the U S. Dollar goes I would say long haul again remains as I mentioned in my opening remarks remains.
Considerably down still those planes or there is 30%.
Air lift and I think in.
U S to EMEA in EMEA to U S. It's about down 20%.
And if any of you have travelled you've seen that prices are through the roof.
So the airlines have been fairly content to run with less capacity.
Higher revpar.
<unk> makes it makes sense.
Revenue per air model.
I think over time as that comes back.
There will be demand I think the U S dollar being strong given our strength in the U S and continued demand patterns, which seem to want to travel considerably still.
Augurs well for international travel in long haul travel I think the only constraint is just what's pricing going to be and how much airlift as theyre really in those channels, but strong U S dollar definitely.
A good sign for U S International travel so.
And that's always been a strong suit of ours. So we hope that continues to be.
Our strong.
<unk> and into 'twenty, three we will see what happens with the dollar and with <unk>.
Recessions or not on around the world, but we're optimistic about how that trade is working right now for us.
Yes. Thank you one quick thing to add as well, which is not necessarily a question, but I think it might be helpful to you all which is just around we didn't spend a lot of time in this call on constant currencies, our FX impacts to our P&L just given our weighting to the U S market to your question, but if we.
Did adjust on a constant currency basis as compared to 2021, our EBITDA would have been 4% higher than Q2. So there we've got.
Slight detriment or knockdown in our EBITDA. So we would have had slightly higher EBITDA margins than would've had 4% higher EBITDA and on the quantum of dollars as well. So again not your question I do think we've got an opportunity from a marketing perspective, all else equal with the strong dollars U.
U S residents are Americans into Europe , but theres also some adjustments or some impacts for this quarter as well.
Thank you.
Thank you. Thank you.
Yes.
That concludes today's call you may now disconnect your lines and have a.
Paul.
Thank you.
Yeah.