TV travel advertising in the U.S. has suddenly become more crowded and competitive, and as Expedia Inc. brands struggled to break through the clutter in the second quarter, the company’s hotel business suffered, and its Hotwire unit took a particularly hard hit.
Amidst some downbeat financials, that was the competitive climate that officials said Expedia operated in during the quarter.
The impact of Expedia’s multifaceted woes? Room night growth decelerated from 28% year-over year in the first quarter to 19% in the second quarter, and revenue growth likewise slowed from 24% in the first quarter to 16% in the second.
And, Expedia Inc.’s net income declined 27% to $90.5 million in the second quarter of 2013, compared with the same period a year earlier.
TV Advertising Blues
Dara Khosrowshahi, the Expedia Inc. CEO, spoke during the company’s second quarter conference call, and indicated that aggressive advertising In the U.S. by Priceline’s Booking.com and TripAdvisor made offline-brand marketing more difficult for Expedia Inc. brands such as Hotwire, Hotels.com and Trivago, acquired in March.
“It is really the brand channel where we are seeing the competition and the change in the marketplace,” Khosrowshahi said, adding that the “share of voice effect” has lowered the Expedia brands’ TV profile in the U.S.
Hotwire, which has been struggling since Priceline launched its Hotwire-like Express Deals, and continued with a William Shatner-Kelly Cuoco advertising blitz to support it, performed “worse than expected” in the second quarter, Khosrowshahi said.
Hotwire’s “fairly weak” performance, Khosrowshahi said, was also exacerbated by rising occupancy and average daily rates industrywide, factors that usually hurt discounters.
“At this point, it [Hotwire] is not performing the way we want it to,” Khosrowshahi said.
For example, Hotwire, said Expedia Inc. CFO Mark Okerstrom, ran “a big sale in May based on what they saw [presumably Priceline's Express Deals advertising],” which led to considerable spending that wasn’t recouped in revenue.
Expedia’s TripAdvisor Difficulties
On the search engine marketing front, Expedia was also negatively impacted by advertising partner TripAdvisor’s switch from pop-up hotel advertising to hotel metasearch, but Expedia is working with TripAdvisor and making adjustments, officials said.
There were some bright spots — sort of.
The second quarter was the first full quarter that Germany-based Trivago and its hotel metasearch business were included in Expedia Inc.’s results. Expedia has a majority stake in Trivago, which contributed four percentage points to year-over-year revenue growth in the fourth quarter.
Trivago is currently making a big push in the U.S., Canada, Australia and New Zealand, and saw its revenue soar 80% year over year in the second quarter, Khosrowshahi said.
Khosrowshahi stated that Expedia Inc. considers Trivago, Egencia and eLong as its “growth drivers,” and that means the company will be focusing on growing scale rather than near-term profitability.
Along those lines, Okerstrom said Trivago accounted for some $13 million toward Expedia Inc.’s increased marketing spend in the second quarter.
It looks costly, but Okerstrom said Trivago has a “sophisticated formula” for entering new countries, building its brand, becoming profitable, and then expanding even more.
Without identifying leading China online travel agency and compettior Ctrip by name, Khosrowshahi said eLong is winning marketshare in China, building scale, and heading “possibly” toward “a leadership position in that marketplace.”
It sounds like eLong is finding its voice in China while Hotwire is having trouble breaking through the noise in the U.S.