Barry Diller’s vision for Expedia resonates with Wall Street

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Expedia Group chairman Barry Diller on stage at an Expedia event in 2016.
Expedia Group chairman Barry Diller on stage at an Expedia event in 2016. Photo Credit: Jamie Biesiada

Expedia Group chairman Barry Diller believes he is the leadership Expedia needs at the moment.

Diller made that much clear on the company’s earnings call earlier this month, during which he revealed that the company is not undertaking a CEO search. He also laid out his plans for Expedia Group, which include streamlining a complex company and increasing consumer loyalty and users’ propensity to book with Expedia. (Earlier this week, Expedia followed through on the streamlining part of its plan, announcing that it would cut 12% of its workforce.

It was Diller’s first earnings call since a December management shake-up that saw the ouster of CEO Mark Okerstrom. Since then, Diller and vice chairman Peter Kern have headed the organization, an arrangement Diller said will likely continue through the year.

CEO recruitment searches, he said, “usually turn up the usual and obvious suspects. And when you only know somebody from interviewing and recommendations, I figure [the] failure rate is usually certainly above 50% in my experience.”

Diller did allow for the possibility that a CEO candidate could emerge over the course of his time heading Expedia, “but right now, look, time will tell.”

Diller and Kern have taken a boots-on-the-ground approach to better getting to know Expedia and its leaders. While Diller said he believes in the company’s future, he also said he had inherited management of a “bloated” and “wildly complex business” whose previous management “didn’t really have a clear path how to grow the company.”

The chairman’s plan for the future focuses on simplifying Expedia’s strategy. As an example, Diller pointed to eliminating “wasteful activities” that are not driving growth; encouraging a single marketing strategy, versus brands working in silos; and lessening reliance on Google and metasearch, instead growing online bookings and loyalty.

Expedia will also embark on a plan to achieve incremental savings of $300 million to $500 million this year. Kern said everything will be considered, including technology licenses and procurement, “and we think there’s a lot of money there.”

With several looming uncertainties, such as the full impact of the Covid-19 coronavirus outbreak and exactly how much cost savings can be realized, Expedia did not provide specific guidance for expected growth in 2020. But it did say it expected growth of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the double digits.

Wall Street seemingly approved of Diller’s plan: Expedia’s shares soared more than 11% after the call. (However, those gains have been erased, as travel stocks have taken a hit due to the coronavirus outbreak.)

Phocuswright research analyst Mark Blutstein said, “If the goal was to turn around the stock, it definitely helped that, as there was a gain pretty much right after the earnings call. I guess it worked in that sense; investors were happy to see something different and leadership being a little more out in front of things than maybe what they expected in the past.”

As an OTA, Blutstein said, Expedia is performing well in the U.S. in terms of gaining consumer bookings. Much of its customer base is younger and uses OTAs consistently, year over year. He also said that Diller brings clout as a founder of online travel and other e-commerce sectors.

“He does get a lot of respect, especially from other executives and in public markets, as we’re seeing,” Blutstein said.

Financial analysts were cautiously optimistic about Diller’s plan. Oppenheimer, for example, titled its most recent notes on Expedia “Talking the talk but still need to walk the walk.”

In his notes, Morgan Stanley equity analyst Brian Nowak said the $300 million to $500 million in savings “may just be the beginning of opportunities” for Expedia. 

He also looked positively on Diller’s plans to better structure the company, focus on using its assets better (e.g., integrating alternative accommodations from Vrbo into its OTA brands), return capital to shareholders and increase spending on loyalty while decreasing spending on lower-performing marketing.

RBC Capital Markets analyst Mark Mahaney said in his notes that he was “cautious” about Expedia operating without a full-time CEO, though “we are fully respectful of the almost unparalleled experience Barry Diller has in the sector.”

“Yes, we are initially skeptical -- and we believe the market will be as well -- of [Expedia’s] ability to deliver double-digit EBITDA growth in ’20,” Mahaney wrote. “The good news is that this skepticism is arguably priced in ... so if [Expedia] can actually do this, there is upside to shares.”

Nowak identified three key factors that have to be considered with Expedia’s new strategies. Structural changes will lead to employee turnover and, likely, new hires, leading to “high execution risk,” he said. That is especially a concern in light of factors such as Google’s continuing to make “challenging changes,” hotels seeking direct bookings and a response from competitor Booking Holdings. 

“As with any duopoly, one player’s uncertainty is another’s opportunity,” Nowak said, noting that Booking will likely realize opportunities, especially if Expedia “has any missteps in its core U.S. market.”

Finally, Nowak said, building direct bookings and loyalty is difficult in the low-frequency travel category.

Phocuswright’s Blutstein agreed. While younger people are using OTAs consistently, they still book on other websites. And Phocuswright research indicates that fewer than 20% of U.S. travelers belong to an OTA loyalty program.

In his view, Expedia’s biggest challenge is a common one: trying to compete against Google. That could change the way businesses drive traffic to their websites, perhaps turning to more channels, such as social media and mobile apps.

But Expedia also has opportunities, Blutstein said, especially in importing Vrbo content into its OTA brands and potentially driving traffic to its sites by advertising in-destination activities. While those activities are typically lower-ticket items compared with accommodations, they could drive traffic, he said.

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