Door closed. Thanks everyone for being here for our next fireside chat. It is my pleasure to welcome Expedia to the conference this year. Ariane has never been to the conference before. We love first-time guests to Communacopia + Technology. Thank you for making the time to be here. I have been looking forward to this conversation because the company has been on such an interesting journey since you took over a couple of years ago. First, let us get the legalities out of the way. Before we begin, I would like to remind everyone that today's discussion may include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the company's SEC filings for additional information on relevant risk factors. Okay.
Now that I have got that, I do have a law degree, so I always joke that I have dusted off the law degree whenever I have to read these things. To level set for everyone, you have been CEO, you have been in this role now for a little over two years. What have been your biggest priorities for Expedia when you reflect back on the journey you have been on the last couple of years, and how do you think that sets up for your priorities going forward? Just to level set.
Yep. First of all, thank you for inviting me. It is great to be here as a first-timer. When I took on this role just over two years ago, the priorities were clear. It was bring the consumer business back to faster growth, continue the strong performance of our B2B business, large, fast-growing business, and run the company more efficiently. If you look at our company compared to some peers, you can see that there is a gap in the margins. It was really about how do we accelerate the growth while running the company more effectively. We set out three strategic priorities to allow us to achieve that. The first was about creating more traveler value, because ultimately, travelers are our end consumers.
We need to be obsessed with how are we making sure that we are spending our time and efforts on things that matter to them. We have made great progress there. If you look at our supply, on Vrbo, we have got now 40% of our transactions that are happening on promotional rates. We are the only OTA with a complete air marketplace in the U.S. We were the first with Southwest, then with Allegiant. We are doing a ton of work on personalization in the product so that travelers can move faster from search to find to book. That is reflected in the fact that, for example, on Brand Expedia, we have the highest attach we have ever had. The first thing is really deliver more traveler value through the products, through supply, through servicing.
The second is to continue to accelerate and to invest in where we see the fastest growth opportunities. That translates into our investments in B2B. This is a business that's grown double digits for 20 quarters in a row. It means investing in these new AI experiences. AEO is small, but it's still our fastest-growing channel. Our third priority was run the business more efficiently, make every dollar matter, whether that's in our marketing spend, whether it's in our cost base. It's really just having a mentality of making every dollar matter. If you look at where we are now, two years later, we have accelerated the consumer business. We've expanded margins meaningfully, and we've actually doubled our free cash flow over the last compared to two years ago and now in a trailing 12-month basis.
All of that brings us to where we are today. The strategic priorities remain the same, and you can just feel in the company it's a simpler, faster, more agile company. There's still always much more to do, but those were really the foundational things we've done over the last couple of years.
Okay. That's really a great way to think about it. Against that backdrop, what do you think is the greatest opportunity to unlock growth when you think about going forward?
Okay, I'm going to surprise everyone. AI.
We're at a technology conference, we have to say it.
Well, I would say, you have to remember, travel is a massive industry. It's over $3 trillion. It's still fragmented. It's growing faster than GDP. Expedia Group is a company that's got incredible assets in our B2B business. Brand Expedia is the biggest consumer OTA brand in the U.S. We've got these brands in Vrbo and Hotels.com, that are wonderful brands as well. We've got a market and assets that are really attractive and that are right for growth. When I think about what's going to accelerate it, I do think about AI, and it's how are we using AI in our products? How are we using it to be more personalized?
As we've introduced things like natural language search in the product, while it's not yet delivering better conversion, it's giving us so much more information about travelers that over time will allow us to have deeper relationships with them. AI is allowing us to get more throughput, so the way our teams are using it internally, our tech and product teams are able to get 40% faster cycle times. Our marketing teams are using agentic solutions, both our own and those of our big ad partners, in order to have better creative, more campaigns, get better understanding of our returns so we can lean into where we see the best returns. AI can deliver growth through these new interfaces.
Whether it's ChatGPT, whether it's Claude, whether it's new personal agents, we see those as opportunities for our brands to show up and go meet customers where they are and then bring them back into our brands directly.
Okay. There's a lot in there that I want to probably unpack as I think there's a lot to discuss. One of the conversation points over the last two days of the conference has been the current state of the consumer. Travel, obviously, right at the forefront of that debate.
Yeah.
Travel also has been an area where there's been gains in terms of wallet share by consumers as experiences in travel have started getting uploaded in the economy. What is the consumer telling you today about the demand you're seeing in the travel industry more broadly, and are you seeing any differences by geography or anything else to call out?
Yeah. When we had our second quarter earnings about a month ago, we said that the consumer is resilient and that the trends we've seen in July were consistent with what we'd seen in the second quarter. Despite oil prices, despite the fact that air ticket prices are up, people are still prioritizing travel. I think it's probably one of the few good things that has stuck around after our experience in COVID, which was sort of this human need to want to travel. Certainly, we're seeing more strength at the high end than on the low end. There was more strength in domestic travel. Still, U.S. outbound is strong, but my interpretation is that with gas prices up, maybe people are choosing to stay a bit more local. This summer was great. You saw live events are big drivers of travel. People are spending on that.
Even now, our searches for travel on Labor Day were up 35% for vacation destinations like Las Vegas, places in Mexico. When we look out to where the most searches are in the fall, it's more cities. It's New York, Boston, Chicago. So, people are still traveling. One thing I would add, though, is that people are also looking for good deals.
Yeah.
We see more and more use of our budget filter, of our all-inclusive filter. To me, that's an indication of people still looking for deals and looking for their dollars to go further.
Okay. Very clear. B2B, which is something I feel like I talk to investors about all the time as part of broader education about the company.
You and me both.
Yeah, exactly. You came out of that business.
Yes.
You grew that business. Talk to us a little bit about the differentiation of the asset that you're building around B2B.
Yeah.
And how it can continue to scale in the years ahead?
Yep. I started running our B2B business back in 2014. As you said, it's amazing if I think back then, I don't know that in my wildest dreams I would think we are where we are today, but it's really been fun to watch that business evolve and to watch us be able to help partners all over the world build their businesses in travel. For those of you who don't know as much about our B2B business, what we basically do is we take our assets, whether it's our technology, our supply, our content, and we bring those to bear to partners who want to build their own travel programs. Whether it's an airline that's looking to add hotels as part of their loyalty program, because actually people use their airline loyalty points to burn on hotels.
Whether it's a bank that's using travel as part of their credit card program, whether it's an online travel agent in Indonesia who says, "I'm going to source my hotels locally in Indonesia, but I'm going to use Expedia in order to access the hotels elsewhere around the world." As we think about the asset that we were building or the business that we've built, it starts with, one, understanding who our partners are. And we're clear on the segments. There's the, as I said, the airline segment, the bank segment, the OTA segment, the corporate travel segment, understanding their needs. There are some things that are constant. Everybody wants great technology with uptime. Everyone wants really good supply.
Servicing, I think, is a real differentiator for us, because if you're building a travel program, but you're a non-travel company, you want to make sure that the customer experience you're able to give is commensurate with your overall offering to that person. We've done a lot of work taking the servicing technology that we use for our own brands and putting a partner wrapper around it. I think our, I wouldn't say secret sauce, but what's made us successful is listening to the partners, the technology supply, servicing, all the account management and financials and the wrapper that goes around it, and just innovating based on what we hear from partners. That is why, over the last year, we've built out new lines of business. We acquired a company in activities called Tiqets. We just closed a company in-car called CarTrawler.
There, the idea is that as a partner is building their travel business, we want to be able to serve all of the needs that they may have, and these two lines of business were good opportunities.
Okay. Against that, when you think about how investors should think about the margin profile business, we've talked a little bit about the compounded nature of the growth of the business and some of the new opportunities. How do you think about the output of the business in terms of profitability in B2B?
It is evolving. It is true there are some investments that we are making that could put short-term pressure on margins, but we're thinking about it for the long term. Again, it will depend on what is the partner mix. But overall, I think you can have dollar additive where margin rate may not be as strong. But this is a business that in the years to come, will continue to grow, will continue to add dollars. I would add that at our company level, we continue to see opportunity for margin expansion.
Okay. That's helpful. Maybe turning to alternative accommodations. If we went back 18 months ago, you were sorting through different elements of tech re-platforming-
Yep.
And brand dynamics inside the company, and now there's some operating momentum at Vrbo.
Yep.
Talk a little bit about what are the opportunities ahead for Vrbo, and how you think about continuing to grow supply measured with continuing to grow demand on the platform?
We, as you said, right before I stepped in, we had gone through a number of years of re-platforming. We were re-platforming the consumer brands both on the back end and on the front end. Because of that, I would say it sort of kept us from getting to some of the things that we needed to do for individual brands. When I talked about my first pillar of the strategy, which was traveler value, it was all focused on, for Vrbo, what are the things we can do to deliver more traveler value? And one was clearly supply. We had not yet gotten to having promotions. We had partners who would've been willing to give us promotional rates for our travelers, but we hadn't done the build-out because we were working on re-platforming. We fixed that a little bit over a year ago.
We got Vrbo promotions, and as I said, last quarter, 40% of our bookings came from promotional rates. We have been able to do a lot of work around payments and various payment types, making the checkout flow easier. We have been able to do a lot of work in the funnel, just through personalization, helping people better get to the property they want.
And then a lot of work on trust. Vacation rentals is actually a category where people have lower trust than other places in travel, that what they have booked is what they are going to get. And we believe that Vrbo has a real opportunity to stand out there. That is why we have our premier host program. It is why we came out with VrboCare, which is really telling a traveler if there is something that goes wrong in trip, we will be there to take care of you.
Those were all things that we had not been able to get to as we were doing the re-platforming. My last example, I would say, is even on Vrbo partner support, last quarter, we rolled out agentic voice, and now 10% of our partner queries are resolved with agentic voice, which then gives us capacity to help them with other things. All of that to say, we are still in early innings. We are very focused on the North America market. We have some Vrbo brands outside of the U.S. and outside of Canada that are smaller brands. They are nice brands, but I am focused with the team on how do we continue building the value proposition, creating traveler value, bringing value to our hosts, because hosts love the Vrbo guest. Again, I would say we are early innings in the overall Vrbo story.
Maybe just one quick follow-up there is when you think about Vrbo as a standalone brand and a standalone operation, and then part of the broader Expedia family, how do you think about alternative accommodations, both standalone, but also more broadly across your multi-brand strategy?
It is actually one of the beautiful things about being a multi-brand company and also having a B2B business, is that we are able to bring demand to our partners, not just from one brand, but from multiple of our brands and from our partners. What that means for vacation rentals is we now distribute vacation rentals on Brand Expedia. So if I am a Vrbo host, I am going to be able to get demand for Vrbo, and I can get it from Expedia. It is not just about having the supply show up, it is also about having a really good experience in product. We are now on Brand Expedia at a run rate-- or last quarter, I said, at a run rate of about $1 billion of vacation rental bookings a year. That is up meaningfully from where it was a year ago.
It's a great value proposition if you're an Expedia traveler because it means you open the app, it's your one-stop shop for everything, including vacation rentals and hotels. As I said, Vrbo, we're very focused on North America. We have some business outside of North America. If you think about Expedia, we're able to go in a lot of places and bring demand to our VR partners through that.
Okay. Very clear. You talked earlier about what excites you for the next couple of years, AI. I think one of the biggest investor debates right now is how the travel funnel might evolve as a result of AI. What's been coming up at the conference so far has been the elements of how much of AI will take place on a platform like yours-
Yeah.
Versus through agents that you might partner with. Maybe just level set with what your working view is about how to plan for any evolution or changes that might come through into the travel funnel as a result of AI?
Yeah. It's a big question for everyone. It's funny because we were talking about it a year ago. We said we're going to keep on experimenting, and we continue to experiment. What I am very confident of is that our consumer business today, two-thirds of it comes direct. These are people who are coming direct to us and booking. We've got to make sure that our products and our brands and our apps have incredible personalized experiences, some of which are natural language conversation, some of which are AI for personalization, without people even knowing that there's AI behind it. So, we're doing a lot of work in our own products to make sure that they're sticky, they're helping people make their travel decisions well. At the same time, the one-third of our business that doesn't come direct is coming from a number of places.
As you have these more horizontal agents, or as you have chat experiences like ChatGPT or Claude, we need to make sure that our brands are showing up there. What you saw over the last year us do is experiment, whether it is in organic with AEO, whether it was with agentic browsers, whether it was with the micro apps, and more recently with paid ads in ChatGPT. We, I wouldn't say over-investing, but we are actively investing to make sure we are learning and experimenting early in all of those. It is going to be the same thing with these horizontal agents. The reason I see these as ways to bring travelers into us is ultimately people want to know when they are booking a trip that they are booking with someone who will take care of them if something goes wrong, someone who they can trust.
We have to keep on doing the work. As we are doing all these integrations and experimenting, we have to keep on doing the work for each of our big brands to build the brand value proposition, to have people understand what our loyalty program is, that when you book a flight on Expedia, if you are a Platinum member, you get price drop protection. So, if the price goes down, you get the money back in OneKeyCash. That if you buy a flight, you are going to get a hotel potentially for 20% off, that if something goes wrong on Vrbo, we are going to take care of you. So, even if the way these agents evolve is that you conversationally discuss and then make the booking in the agent, it is still we want it to be with the Expedia brand or the Vrbo brand.
The last thing I would just say is what we have also learned over the last year in the work with some of these partners is that just a chat interface purely with text is not always the best way-
Yeah.
To shop for travel. As we were evolving the partnerships with a couple of these big players, as we started to add photos, as we added content, as we added descriptions, as we added multiple properties instead of just one property, we started seeing more engagement. So again, what we have learned over the last year is these things are going to evolve. They are going to move quickly. We have to, on the one hand, continue to invest in our apps, in our brands and value propositions, and be working with all these big tech players on how their interfaces will evolve.
Okay. We'll have to look forward to and see how it all evolves in the year ahead. But one of the interesting things you mentioned there, though, was the direct traffic and the customer relationship part of your business today. Can we build upon that and talk a little bit about what you're trying to build around loyalty, personalization, app usage? To your point, if you can build upon that two-thirds-
Yep.
And solidify that two-thirds, that obviously gives you a lot of room to experiment with where the world might go. Talk about some of these initiatives that build upon the skew of the business that already relies on direct.
Yeah. Actually, last December, we hired a new Chief AI and Data Officer, Xavi, and he's been doing a lot of work on the underlying personalization in our marketplace because we have so much data that we can use to help a traveler make a better decision. By the way, people are happiest when they're planning, so it's not always about shortening the time to planning. It can be about how do you make planning delightful. There's a lot of data that we might not have been using, or like these natural language searches, we're getting 60% more information about a traveler, about their intent through that.
What I'm seeing is immediate impact from using the data from personalization, whether it's recommendations on attach, whether it's just recommendations in the sort order and ranking of the hotels, or whether it's which filters are we putting on the top or which filters are we pre-filling for you. So there's a huge amount of personalization that I think can help us not only with our direct business, but also better converting the traffic that comes from paid channels. That's a big one. Loyalty is another big one. We made some changes to the Expedia loyalty program earlier this year to put more value into our higher tier members and actually to remove some of the loyalty earn that we didn't think was having an impact.
But one important thing to keep in mind on our loyalty program is much of it is our partners actually providing discounted rates to our travelers. So that is partner funding, and they do it because they like the travelers they can get from us. So there is a part of our program that we are funding, and there is a part of the program that our partners are funding because of that sort of nice flywheel that they are getting of the demand that we can bring them.
Okay. Couple more topics I wanted to hit before I lose you. Advertising media has increasingly become a larger contributor to growth in the business. How do you think about the scope for that to continue to be a healthy contributor to growth going forward? What is the opportunity set look like in advertising and media?
Yep. There is absolutely a big market opportunity in advertising and media. And it has got to be additive to the marketplace. When I think about the growth prospects, first, I should say we brought in a new leader of advertising, who is amazing. I am very excited for what he is working on. But if you look at the advertising that comes from our supply partners, which is a big part of our ads, there are still many supply partners that are not using any of our ad products, whether it is sponsored listings or our display products. There is an opportunity to get further penetration there.
As an example, we just launched sponsored listings on Vrbo, where that was something that was not available before. And what I love about the advertising products when it comes to our supply partners is it is part of helping them get more out of our marketplace.
There is also real opportunity with non-endemics. If you think about the customers that we have, we know a lot about travel intent. We also know when people have booked. And so if there are ways that we can bring that qualified audience to advertisers in a way that is additive to our travelers, that is an opportunity. So, I think you will hear more over the quarters to come. But it is a big, important business for us.
Okay. Bringing it all together, we've primarily talked about where you're going to go from a platform standpoint, from a growth standpoint. You have healthy margins and you've made margin progression since taking over running the company day-to-day. Talk a little bit about the balance you want to strike between making sure you're making the right level of investment to growth, but also continue to deliver on elements of what investors always want, which is profitability that goes alongside with that growth.
Yeah. Again, as you look at the last two years, we've expanded margins quite a bit. At the same time, we've continued to invest in our growth businesses. That was why on my three strategic pillars, the second one was invest where we see the biggest opportunities for growth. Because no one wants to expand margin massively, but then, in two years you hit a wall because you haven't made the investments that you need. We had the opportunity, as we looked at our marketing efficiencies, to not only get more efficient with the dollars that we were spending, but also to identify some of the money that just wasn't getting the returns that we wanted.
I recognize that pulling away some of that marketing meant that there was some volume that we were giving up, and we made a choice that it wasn't something that we thought was going to be sustainable over the long term. I don't at all feel like I'm depriving us of being able to invest. I think because we're managing our cost base, because we're using technology to be able to automate things, because we're getting smarter on understanding the incrementality of our marketing returns, we've been able to expand margins while investing for growth, and you're also seeing the acceleration of the business that's related to that. But I think I see Derek in the back of the room, my CFO. We will continue to manage very closely the expansion as well as the investments for growth.
Maybe just one follow-up. When you layer on the types of things you want to invest in against the strategic priorities you've articulated or laid out, what do you see as the most critical things you need to invest in to make sure the company capitalizes on the growth potential looking forward?
I think the number one thing we need to do is make sure the company is moving fast, is agile, is getting great throughput in product and tech. Because ultimately, growth is going to come from innovation. We've just done some work with our product and tech teams. They've done a fantastic job in using AI really across the software development life cycle, from prototyping to building products and then deploying them. We've just recently moved more into a squad working model. I think the number one thing we need to do is just make sure we're moving fast and getting more throughput to innovate.
Okay. Bringing it all together in the last few minutes we have, obviously, you talk to investors about this business. You've laid out what you're most excited about. What do you see as some of the biggest gaps of under-appreciation of what you're building and scaling that you want to try to close with investors so investors marry some of what you're excited about for the business going forward?
I think sometimes. When I took this role and I talked to investors, they sort of said, "Ariane, with talk about Expedia, it's really complicated, and you tell us you're going to execute on something, and then there hasn't always been a consistency in execution." So we, the management team, have worked very hard on being consistent, like say-do ratio. We tell you we're going to do this, we're going to deliver, and you continue to see that. At the same time, to help investors get an understanding of we, again, operate in a large market, growing faster than GDP. We've got incredible assets with Expedia and Vrbo and Hotels.com and this amazing B2B business. The scale that we operate at and the diversification of our business, just all of that is sort of an unbeatable combination.
You've got the right team, a great market, and some really great assets that is front-footed in a world of AI, and all of that equals opportunity.
Okay. Well, look, I really appreciate having had the opportunity to talk today. Thanks so much for being here. Please join me in thanking Expedia for being a part of the company.
Thank you.