Expedia CEO Defends His Portfolio Despite Rivals’ Recent Acquisitions

After a lackluster 2016 that he conceded had its “ups and downs for Expedia,” as well as moves by Ctrip to acquire Skyscanner and the Priceline Group’s acquisition of Momondo, CEO Dara Khosrowshahi said he’s “happy” with the company’s portfolio mix of global online travel agencies, regional brands and Egencia in corporate travel.

“At this point the deals ahead of us will be driven more by opportunity than necessity,” Khosrowshahi said during Expedia Inc.’s fourth quarter and full year 2016 earnings call Thursday.

He said the company faces “very big” growth opportunities from its Trivago hotel-metasearch unit, which went public in December, vacation rental leader HomeAway, and corporate travel agency Egencia, which is now a “scale” player and did $6.4 billion in gross bookings last year. Trivago, HomeAway, and Egencia, as well as brands including Expedia, Hotels.com, Orbitz Worldwide, Travelocity, and Wotif are all part of the Expedia family.

If merger and acquisition targets emerge, Expedia ended 2016 with $1.9 billion in cash, including $1.2 billion of it offshore. As part of a declaration in support of the Washington and Minnesota’s lawsuit against the Trump administration’s travel ban from certain Muslim-majority countries, an Expedia official noted that the company’s motto for 2017 is “Go Global.”

Headwinds from Google, TripAdvisor and Booking.com

But Khosrowshahi also addressed headwinds from Google and TripAdvisor and another one that he said “has settled down a bit,” namely major hotel chains’ push for direct bookings at the expense of Expedia reservations.

Khosrowshahi said the way Google treats natural, or organic, search results and monetizes its screen space is a “headwind” and a “negative for HomeAway.” He said Google has a right to operate this way — and so far regulators in the United States, unlike in Europe, have not done anything to bar these practices — and Expedia has no choice but to deal with it.

Expedia acquired HomeAway in 2015 and now looking forward to accelerating its traffic growth and increase conversions on HomeAway sites. Despite the headwinds from Google, HomeAway is in the early stages of testing and learning to improve conversion and Khosrowshahi said he was confident that HomeAway could accelerate its traffic growth through learnings and technology and marketing investments.

TripAdvisor Instant Booking

Talking about other headwinds, Khosrowshahi said Expedia, which began participating in TripAdvisor’s booking program, called TripAdvisor Instant Booking, in December, is barred from getting 100 percent access to TripAdvisor’s audience for all of 2017 and 2018. He wouldn’t say why but it very likely that Booking.com’s Instant Booking deal with TripAdvisor, which was notched in October 2014, gives it preferred treatment.

Expedia CFO Mark Okerstrom said Expedia suffered a 100 to 300 basis point adverse impact on room night growth when TripAdvisor launched Instant Booking in 2014. So presumably the fact that Booking.com gets preference over Expedia in reaching TripAdvisor’s Instant Booking audience would impact room night growth less than that.

Expedia’s hotel revenue climbed 16 percent in 2016, fueled by the 21 percent growth in room nights, but revenue growth was offset by a 4 percent drop in revenue per room night.

Hotel Direct Booking Campaigns

Campaigns by Hilton and Marriott, among others, to increasingly drive direct bookings to their own websites to the detriment of distribution partners such as Expedia and Priceline are likely a pressure on Expedia’s hotel revenue although Khosrowshahi said they haven’t negatively impacted hotel volumes.

Khosrowshahi said independent hotels are a higher percentage of overall bookings on Expedia sites than they were in the past and Expedia is looking for constructive ways to work with hotels, including driving traffic to their websites or providing them with technology. Expedia is working in these says with Marriott Vacations and Red Lion hotels.

“Things have settled down a bit and there are certainly many opportunities going forward,” he said.

Ups and Downs

Khosrowshahi’s reference to “ups and downs for Expedia” in 2016 had to do with the migration of Orbitz Worldwide and Orbitz for Business onto a common Expedia technology platform. Conversions on sites such as Expedia.com suffered as the company devoted an inordinate amount of tech resources to executing the Orbitz migration.

That integration is now complete, he said, arguing that the company has momentum going into 2017.

Expedia, however, faces some big challenges in 2017, including a $110 million projected expense in transitioning to cloud computing, which CFO Okerstrom said would negatively impact EBITDA growth, projected to be in the 10 percent to 15 percent range for the year.

It seems as though the mergers and acquisition environment is heating up, too, after a relatively quiet 2016, although mammoth deals in travel don’t appear on the immediate horizon other than a relatively unlikely scenario that some company could buy TripAdvisor.