“We don’t think investors will be overly disappointed with a change in upper management,” said Michael Olson, senior research analyst at Piper Jaffray in a note to investors on Wednesday. In fact, Expedia Group share prices were up about 6 percent, to $106 a share, in trading midday Wednesday.
On Wednesday, Barry Diller, chairman of Expedia Group and owner of a controlling interest in the conglomerate, said in a statement that Okerstrom’s reorganization of the company’s teams and repositioning of some of its brands had distracted the company’s leaders from near-term growth goals.
Skift has been covering Okerstrom’s reign intensively. Here’s a recap of key points from his tenure, including what the CEO set out to do and why his reorganization may have stumbled.
The narrative, based mostly on reporting by Skift Executive Editor Dennis Schaal, may help cast light on the factors that led to today’s news.
Why DID Okerstrom GET ELEVATED TO CEO?
In August 2017, after Expedia Group’s then-CEO Dara Khosrowshahi announced he was quitting to take the top job at Uber, Skift evaluated the potential replacements and named Mark Okerstrom as the most likely candidate. Our call turned out to be right, though it wasn’t too hard to make. Okerstrom was seen as a deals guy, and nobody likes doing deals more than his boss Barry Diller.
Okerstrom, 46, won the job for two key reasons. During his half-dozen years as the chief financial officer, he had shown a steady hand at overseeing consistent earnings growth. Okerstrom also led several well-regarded acquisitions, such as of home rental company HomeAway, since rebranded as Vrbo.
So it’s tragic and ironic that Expedia Group’s board of directors, led by crucial investor Diller, pushed out Okerstrom based on concerns about steady earning growth. For example, during the second quarter of this year, Okerstrom’s team raised guidance for investors about the earnings the company would generate. Then management revised its forecast downward — creating “credibility issues” with investors, according to Olson at Piper.
In the third quarter, Expedia’s adjusted earnings were flat.
To be fair, Expedia did meet earnings goals for much of Okerstrom’s tenure. For example, in February 2018, Expedia guided analysts that in 2018 earnings before interest, taxes, depreciation, and amortization, a measure of profit, would be between 6 percent to 11 percent growth.
“The company exceeded that, posting a 15 percent increase in 2018,” noted Dan Wasiolek, senior equity analyst at Morningstar in a note on Wednesday. “In our view, this offers credence to Okerstrom’s ability to effectively manage the company.”
For context, see our 2017 article:
It’s also ironic that Okerstrom left without having made any significant acquisitions, other than of two small property-management startups. The CEO’s less-is-more approach to mergers and acquisitions surprised people given his past track record.
What Was Okerstrom’s Game Plan?
Okerstrom wanted to change the playbook at Expedia Group.
As we reported in July, “Expedia is looking at a broader restructuring of the company to simplify and scale the business.” During an earnings call, Okerstrom said he wanted to take advantage of opportunities through cross-selling and cooperation among various Expedia brands.
The plan mirrored in some ways the moves at Booking Holdings, its more massive rival. Booking Holdings CEO Glenn Fogel has recently been pushing for more cross-selling and cooperation among brands that had formally acted as independent fiefdoms in many ways.
But speed may have been an issue. Reorganizations always take time and can be distracting. In July, for example, management pushed out Aman Bhutani as president of Brand Expedia Group, a multi-year veteran.
“We’ve recently begun a design process with the goal of realigning certain teams across the company to enable us to better connect our operating model with our platform business model and strategy,” Okerstrom said in July, as he explained three new organizational groupings.
For deeper backstory, see our July story, Expedia President Aman Bhutani Is Leaving Amid Exec Reshuffle .
Vrbo: Did the rebranding backfire?
One of Okerstrom’s most fateful decisions may have been to approve the rebranding of the home rental division from HomeAway to Vrbo.
Shifting HomeAway to Vrbo meant Google had to crawl for new information. The effect on referrals and bookings growth was more impactful than Expedia Group had projected.
Vrbo remains a more recognized brand. It has had stronger growth in Google search rankings than HomeAway. The payoff will likely come, though it’ll be too late for Okerstrom.
The broader home rentals business seemed to be in disarray, though, according to comments made on a condition of anonymity by professional property managers at the October Vacation Rental Managers Association annual conference in New Orleans.
“It’s been a year since I heard from my Expedia account manager,” said one owner of a vacation property management company based in the Southwestern U.S., in a point echoed several other owners anecdotally. The owners said the “ground game” by representatives from other online aggregators like Booking.com and Google was more friendly, responsive, and accommodating.
It’s unclear to what extent operational problems were the cause of Okerstrom’s decision in November to replace the boss of the home rentals division, John Kim, with Jeff Hurst. Kim had taken the reins of the unit in 2016.
Some insiders argue that the reorganization makes sense. Okerstrom tasked Hurst with the job of repositioning Vrbo as a brand offering vacation rentals, resorts, and other features facilitating family vacations. Hurst, as a long-time HomeAway executive, understands ground-level strategy for Vrbo well.
Okerstrom moved John Kim and other Vrbo executives like Tina Weyand and Steve Davis into fairly high-ranking, group-wide leadership posts.
See our coverage:
Vrbo Shuffles Leadership as Latest Expedia Group Reorganization Moves Take Shape
What May Have Gone Wrong
We don’t yet know the details of what transpired at Tuesday’s board meeting that preceded the word of Okerstrom’s ouster. But some signals of trouble are in plain sight.
“Earlier this year, Expedia embarked on an ambitious reorganization plan with the goal of bringing our brands and technology together in a more efficient way,” the company said in a statement Wednesday. “This reorganization, while sound in concept, resulted in a material loss of focus on our current operations, leading to disappointing third-quarter results and a lackluster near-term outlook. The board disagreed with that outlook, as well as the departing leadership’s vision for growth.”
“Some of the issues presented in the third-quarter results were new, while some were simply amplified,” said Olson at Piper.
Problem number one: This year, Expedia has been grappling with how to cope with Google’s adjustment in how it displays travel-related links and advertisements in its search engine.
For years, Expedia Group, along with other online travel companies and suppliers like hotel groups, have received fewer customer referrals from Google based on optimizing their sites to appear high in search results, called “search engine optimization marketing.”
Google has downplayed these so-called organic links while making its own advertising platform for travel products more prominent in mobile and desktop search. It costs more for companies like Expedia to advertise in Google’s travel products, in essence, inflating the cost for Expedia and others to acquire customers.
“The trend is that Google does continue to push for more revenue per visitor,” Okerstrom acknowledged during an earnings call in November. Industry observers have long anticipated Google’s move. So Expedia’s critics feel it shouldn’t have been caught by surprise.
For context, see our 2017 story, Interview: Expedia CEO Sees an Opening With Chatbots to Loosen Google’s Grip on Travel, and our November 2019 story Google’s Travel Gains Levy Pain at TripAdvisor and Expedia.
More giant rival Booking Holdings has also faced this headwind but may be suffering less because of years-long investment in its branding, which encourages customers to come direct and may involve a lower long-term cost-of-acquisition cost.
The Trivago Factor and the Hubris Factor
Problem number two: Okerstrom failed to use Expedia Group’s considerable shareholder influence over travel search company Trivago to press more quickly for management changes there. Trivago has, for a couple of years, underperformed according to expectations. Given Expedia Group’s ownership stake, Trivago dragged down earnings performance. This autumn, Trivago replaced its CEO as the management attempts to pivot to a less combative approach to its key advertisers.
As a style point, Okerstrom may have made a mistake by trying to take a John Wayne approach to his job. During the halcyon days of growth, when Dara Khosrowshahi was CEO and Okerstrom was the co-pilot, the colleagues worked in offices within shouting distance of each other. Having two minds with different skill sets enabled each person to complement the gaps and amplify the strengths of each other. Okerstrom didn’t appear to have created a similar rapport with his chief financial officer Alan Pickerill or any other senior management counterpart.
For a context on how Okerstrom was hopeful for the future, see his talk at September’s Skift Global Forum:
So What’s Next?
The Expedia Group’s failure to have a leader chosen to replace Mark Okerstrom suggests that there wasn’t anyone on the leadership team who stood out to fill the gap or else that Okerstrom took a strong line of resistance at the Tuesday board meeting. Diller felt he needed to act fast to oust Okerstrom to show who is truly calling the shots.
Perhaps Skift’s most prescient report came last month when we noted that Expedia’s Reorganization Efforts Has Made the Company Less Nimble.
“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 during the company third-quarter financial results announcement.
It seems now that Diller felt that Okerstrom had failed to keep his eye on the ball.
See our story, Expedia’s Reorganization Efforts Make the Company Less Nimble.
Check out our timeline of events in Expedia Group’s recent history for more context and clues to the group’s future.