Expedia has been going through internal restructuring this past year, including the rebranding of Vrbo. While this is happening, industry dynamics were quickly changing, with Google further muscling into the hospitality space. Google has forced companies to spend more on marketing by pushing organic search results further down the page. With this confluence of events, Expedia’s earnings took a hit and the stock tanked after it reported third-quarter earnings in early November.
To quickly shore up investors’ confidence, Expedia’s chairman of the board and tech mogul, Barry Diller, took swift action by parting with CEO Mark Okerstrom and CFO Alan Pickerilll and announcing a new 20 million share buyback on top of an existing 9 million share buyback authorization. Diller owns 10% of Expedia shares but controls 48% of the company’s voting stock.
Expedia issued a press release stating that it sees opportunities to “accelerate growth in 2020.” This is contrary to what Okerstrom said last month about Expedia’s 2019 adjusted earnings before interest, taxes, depreciation and amortization (EDITA) growth of 5% to 9%, down from a previous forecast of over 15% growth, cautioning that 2020 will lag. Okerstrom certainly offered a different vision, and strategy, for the company’s performance.
Now, the company expects business to accelerate in 2020, which is certainly optimistic. There is not a lot of time left to pivot and execute a new strategy. The company still has to work through its restructuring. They also have to fill two top management posts, which can typically take months. Diller, however, is not to be underestimated. If Expedia can show turnaround and progress by the first half of 2020, investors will likely warm up to the company.
Vrbo and the Alternative Accommodation Business
Vbro is still on shaky grounds. Expedia has struggled with its strategy for the business since buying Homeaway (the parent company of Vrbo) for $3.9 billion in 2015 and entering the alternative accommodation sector. Vrbo has been undergoing a transition from a listings-based classified advertising model to an online transactional model. As Skift has reported:
Along the way, as Expedia re-platformed its short-term rental business, it made a series of business model changes, such as adding a traveler fee and downplaying subscriptions in favor of payments per booking. HomeAway missed some performance targets and has proved very heavy lifting for the parent company.
Expedia said it intends to launch Vrbo-branded sites in several new markets where it doesn’t have a presence and will rebrand country-specific sites to Vrbo in phases over the next year “and beyond.” When Expedia bought HomeAway, it operated 55 local websites, VRBO, and a handful of regional brands.
Expedia announced a rebrand of Vrbo in March with a brand new logo and identity, doing away with the Homeaway brand. Vbro is now targeting families and groups, a segment they believe resonates with their product offerings.
So far, there has been a couple of missteps and shuffles. In October, Vrbo tested unbranded listings and angered property managers. In November, Vrbo shuffled leadership, replacing John Kim with Jeff Hurst to helm the business.
Vrbo dominates the pure vacation rental market in the U.S., while Airbnb and Booking have a larger share of the global alternative accommodation market, estimated at $34 billion, which includes non-traditional hotels and home sharing. Vrbo has over 2 million listings compared to Airbnb’s 7+ million listings and Booking’s 6+ million listings. The Vbro brand recognition is more limited, especially globally, which means the company will need to invest higher marketing dollars to build awareness and be subjected to Google’s changes.
Expedia’s alternative accommodations business is a smaller share of its overall business, accounting for 11.4% of gross bookings, 12.3% of revenues and 16.2% of profits for the first nine months of 2019. However, the alternative accommodations market is fast-growing and highly important to investors. Vrbo got the majority of the questions during Expedia’s recent 3Q earnings call as analysts tried to assess the health of the business.
Expedia’s Plan for Vrbo
As recently as a few weeks ago, management’s plan for Vrbo seemed unclear and its commitment hazy, based on what Okerstrom told analysts.
“With respect to the VR category, right now, it’s pretty small. And it’s something that we are actively looking at in terms of evaluating that product and looking at whether it’s something that we think is going to be a good thing for us over the long term or not,” he said. “But right now, it’s still pretty small.”
Meanwhile, he indicated plans “to roll out the Vrbo brand in more markets over the course of the next couple of quarters, and Vrbo does plan to put some marketing spend against those rollouts and then there’ll be further rollouts across 2020.”
Now the question is what will Expedia do with Vrbo.
The alternative accommodations business represents a growth opportunity for Expedia. According to Guggenheim Securities’ analyst Jake Fuller’s note to clients, as reported by Bloomberg.
“The most logical strategic shift we can identify at this point would be getting back on track with Vrbo,” Fuller wrote in a note to clients. “Alternative accommodations is a growth category and Expedia cannot afford to cede that space.”
photo credit: vrbo