Behind the scenes, the reorganization within Expedia Group must be ugly. Otherwise the CEO wouldn't have cited it near the beginning of his prepared remarks during the earnings call. The last time Expedia cited a distraction like this was in 2016 when it stumbled after acquiring Orbitz Worldwide the previous year.
At a time when headwinds from Google’s business practices, lower hotel rooms rates, and a shift toward higher-cost marketing channels are negatively impacting Expedia Group‘s financial results, the online travel agency finds itself caught up in — and preoccupied with — an internal reorganization.
“With many people focused on that effort, it did likely impact our ability to anticipate and react to the dynamics we saw in the quarter,” Expedia Group CEO Mark Okerstrom told analysts Wednesday during the company third-quarter financial results announcement.
In fact, Expedia Group lowered its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) growth guidance to 5 percent, from 8 percent, for 2019.
Although the company notched what it considers to be healthy room night growth of 11 percent in the third quarter, it saw its adjusted earnings come in lower than expected as Google shifted more volume toward its own paid products, forcing Expedia in a “related shift” to lean into “higher-cost marketing channels,” Okerstrom said.
In the third quarter, Expedia adjusted earnings were flat, and net income fell 22 percent to $409 million. Revenue climbed 9 percent to $3.6 billion.
On the reorganization front, Okerstrom said, “we brought supplier-facing teams closer together to better serve our travel partners and realigned many of our tech and product teams to drive increased collaboration, innovation, and scale.”
Saying that an internal reorganization hadn’t taken place at Expedia in years, Okerstrom argued that the moves position the company for “better top- and bottom-line growth over the long term.”
Although Expedia increased its roster of integrated listings from homesharing unit Vrbo to 650,000 in the quarter, booking and room night growth at Vrbo was “muted,” Okerstrom said. Expedia Group was also negatively impacted by higher costs in shifting Vrbo’s payment processing from a third party into Expedia’s own payment processing solution.
Meanwhile, Expedia-controlled Trivago’s disappointing quarter, which grew out of changed standards it rolled out to advertisers over the last couple of years, negatively impacted Expedia, as well.
Okerstrom said headwinds from Google’s search engine practices, as it downplays organic search in favor of its own Google Flights and Google Hotels, are expected to be persistent through 2020, and Expedia’s strategy is to build its loyalty programs and direct traffic.
Okerstrom said Expedia has made progress conducting influencer campaigns on Instagram and Facebook, to a lesser extent, but these social media efforts remain relatively small.
“But generally, the trend is that Google does continue to push for more revenue per visitor, and I think it’s just the reality of where the world is in the internet, and the importance of Google at the top of the funnel,” Okerstrom said.
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Photo credit: Expedia Group is reshaping its internal teams, which contributed to a weak third quarter of 2019. Expedia Group