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It was almost as if they flipped a switch.
Although the trend started to take shape a year or so earlier, in the second quarter five publicly traded online travel agencies — headquartered in the United States, India and Argentina — all shrunk their marketing spend as a percentage of revenue.
For years, online travel agencies’ direct marketing spend in outlets such as Google outpaced their revenue growth, and critics wondered whether this spending bonanza was sustainable.
But in the quarter ending June 30, the two largest travel-marketing spenders, Booking Holdings and Expedia Group, which each devoted about $1.26 billion to direct marketing, recalibrated their marketing spend to decline as a percentage of revenue.
The turnabout is a watershed moment, although it’s unclear whether this is the new “normal” or a trend that will get upended before long.
Among the two spending titans, Booking Holdings saw the largest marketing-spending drop, 660 basis points to 35.8 percent of revenue, while Expedia’s marketing spend fell a more modest 279 basis points to 43.9 percent of revenue. (See the chart below.)
Online Travel Agency Marketing Spend as a Percentage of Revenue
|Online Travel Agency||Q2 2018 Sales & Marketing||Percent Change Versus Q2 2017||Percent of Revenue Q2 2017||Percent of Revenue Q2 2018||Percent Change|
|MakeMyTrip*||$149 million||4.6 percent||100.8 percent||87.6 percent||-(1,322) basis points|
|Booking Holdings||$1.26 billion||-(1.25 percent)||42.3 percent||35.8 percent||-(660 basis points)|
|TripAdvisor||$217 million||-(5.2 percent)||54 percent||50.1 percent||-(390 basis points)|
|Expedia||$1.26 billion||4.7 percent||46.7 percent||43.9 percent||-(279 basis points)|
|Despegar||$43.45 million||4 percent||35.1 percent||33.9 percent||-(120 basis points)|
Note: MakeMyTrip’s June 30 quarter was its fiscal first quarter.
Source: Public filings
But this is not a monolithic story.
While Booking Holdings’ direct marketing spend fell 1.25 percent in the second quarter to around $1.26 billion, Expedia’s increased 4.7 percent to $1.26 billion even as both online travel agencies saw their marketing spend dip as a percent of revenue. So the story is nuanced from company to company. In the second quarter, Expedia saw a $57 million hike in direct marketing costs, most of which was tied to promoting its Hotels.com, Expedia Affiliate Network, and HomeAway units, the company said.
“It’s hard to say in the travel industry whether anything is the new normal,” Expedia CEO Market Okerstrom told analysts during an earnings call last month, responding to a question about the company’s push for marketing efficiencies. “It’s always dynamic. It’s always been dynamic. I think the one thing, of course, that has created opportunities for us is just our increased capabilities,” referring to what he characterized as Expedia’s increasing sophistication in using data science to inform its bidding and marketing decisions.
Suddenly, words like “optimization” and “balance,” referring to the push and pull of marketing spend versus profitability, are being articulated in c-suites almost as often as discussions about performance bonuses and stock options.
“Our brand teams are making good progress in better optimizing direct marketing spend, and that was evidenced in the balance between healthy room night growth and profitability in the second quarter,” Okerstrom said. “We plan to keep leveraging our data-driven approach to marketing optimization while at the same time continue to aggressively drive our global expansion agenda.”
Booking Holdings’ Glenn Fogel signaled that something was afoot last year when he said that his company would put more emphasis on brand advertising, including TV, than it had in the past in a bid to woo more direct traffic and to reduce spending on competitive platforms like Expedia’s Trivago.
Breaking Away From a Performance Marketing Addiction
“Our performance marketing ROI (Return on Investment) optimization has continued to impact year-over-year growth rates, as has slower growth in some performance marketing channels. We have talked about this in the past about our desire to decrease our historical dependency on performance marketing channels and increase our direct business,” Fogel told analysts earlier in August during the company’s quarterly earnings call.
He said that half of the company’s booked room nights were generated by travelers who came to Booking’s brands directly, and that direct traffic is “one of our fastest-growing channels but also represents a significant source of new users to our platform.”
Each company has its own reasons for changes to its marketing spend, of course. In the UK, publicly traded On the Beach, an online travel agency selling beach holidays, said it reduced its marketing spend from April to August because of weak demand tied to a heat wave in Europe and people staying home to watch the World Cup.
On the Beach CEO Simon Cooper told Skift that industrywide “a number of factors collided,” and this led to the recalibration of marketing spend versus profitability.
“The harder you push online, the less efficient it becomes,” Cooper said, adding that for years online travel companies have been bidding relentlessly for the same customers on numerous occasions who were showing up to their sites using different devices.
Cooper claimed that the “lion’s share” of users are now on a single device, such as a smartphone, making it easier to market to them and to measure “attribution,” or which user actions led to a booking. Travel companies can therefore tune their marketing to make it more efficient.
Another reason travel marketers are changing their marketing strategies and spending, he said, is because audience growth has become “slimmer.”
TripAdvisor Cuts Back
TripAdvisor, which had returned to TV advertising in 2017 after some starts and stops in recent years, saw both its marketing spend (-5.2 percent) and marketing spend as a percentage of revenue (a reduction of 390 basis points) fall in the second quarter.
The online review, hotel, and restaurant site was looking for earnings growth at the expense of marketing spend, and it was willing to sacrifice shopper growth in the process, the company said.
“One of the important initiatives has been rationalizing our marketing portfolio and particularly weeding out some marketing spend that we felt was not as efficient as we thought before,” said TripAdvisor CFO Ernst Teunissen during the company’s second- quarter call Aug. 2. “And that has resulted in some shopper headwind. And we saw negative 3 percent shopper growth in the quarter, which is actually pretty good considering the magnitude of what we cut back to the benefit of” earnings.
India’s MakeMyTrip saw the largest reduction in marketing spend as a percentage of revenue, 1,322 basis points, in its June 30 quarter, its fiscal first quarter. It spent $149 million, which was a 4.6 percent increase compared to the year-earlier period, but this was a fraction of what players like Booking Holdings and Expedia spend in marketing. MakeMyTrip said the changes in its marketing spend were geared toward making it more efficient, particularly when marketing budget hotels.
Of the five public companies we examined, Argentina-based Despegar had the smallest drop (120 basis points) in marketing spend as a percentage of revenue in the second quarter. Despegar said its marketing spend as percentage of revenue declined because of regional currency depreciation, the reduced marketing spend itself, and other efficiencies.
From the United States to Europe, India, and Argentina, online travel agencies are retooling their marketing toolkits and budgets. The trend toward rationalizing marketing spend, in terms of making it more efficient to bolster profitability, is taking root.
But this is online travel — anything can happen.