Analysts said last week they had been blindsided by the
abrupt forced departure of Expedia Group CEO Mark Okerstrom, and some voiced
skepticism that his firing would turn the company's fortunes around.
Lorraine Sileo, senior vice president for research and
business operations at Phocuswright, said, "Considering Mark was just onstage
at the Phocuswright conference a few weeks ago and chatting about the company's
plans, I'd certainly call this an industry surprise. We hadn't heard any rumors
or rumblings or any other big warning signs."
Expedia announced on Dec. 4 that Okerstrom, along with CFO
Alan Pickerill, would be stepping down immediately.
At the same time, it announced that Expedia chairman Barry
Diller and vice chairman Peter Kern had jointly taken over management of
Expedia's executive team and day-to-day operations, while Expedia chief
strategy officer Eric Hart had been tapped to serve as interim CFO.
In a statement, Diller attributed both departures to a
disagreement between senior management and the board over strategy.
"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," Diller wrote. "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, strongly believing the company can
accelerate growth in 2020. That divergence necessitated a change in management."
For the third quarter, Expedia reported a 22% decrease in
net income, to $409 million. Adjusted earnings before interest, taxes,
depreciation and amortization (EBITDA) was flat, at $912 million. While revenue
was up a solid 9%, to $3.6 billion, that result was about $10 million less than
analysts had forecast.
According to Sileo, however, those results were somewhat in
line with the challenging environment that online travel agencies are currently
"We all know that all OTAs are under pressure," Sileo said. "They're
under huge competitive pressure, and Expedia in particular has been challenged
to grow internationally, to grow its Vrbo business as Airbnb continues to
expand and to grow tours and activities, which is a business opportunity some
competitors have been a little more aggressive toward."
There's also the issue of Google and its domination of the
online search ecosystem, which Okerstrom had blamed in part for Expedia’s more
Google's move to place more paid ads above organic search
results has translated into Expedia needing to spend more on search engine
optimization (SEO) to drive traffic. Additionally, the search giant has
steadily encroached on OTA territory of late, making it look increasingly like
a direct competitor.
While onstage at the company’s recent Explore 19 conference,
held Nov. 13 and 14 in Las Vegas, Okerstrom said, "SEO has been a headwind for
a very long time, obviously. Everything we've been doing around relevancy and
customer centricity has really been about building strong direct customer
relationships. As always, you hit bumps in the road, and we will absolutely
move through this. The strategy is set on actually making sure we continue to
grow ... and we get through this bump."
Whether an immediate turnaround for Expedia is likely,
however, remains up for debate.
"I don’t know if Diller's maybe expecting the growth the company
was seeing 10 years ago, but Expedia's now a mature business," Sileo said. "And
while the third-quarter results were unexpected, if you look at Expedia’s
top-line growth, it's faster than any growth you might see for a mature travel
business. To expect double-digit growth now is likely unrealistic.
"And it's also important to keep in mind that the company
grew a lot through acquisition," she added. "Expedia is now facing this need to
grow organically, and that’s a lot more challenging."
Sileo said she expects that Expedia's new leadership will
take an even more aggressive approach to building direct business and becoming
less reliant on Google search.
In a note, Cowen managing director and research analyst
Kevin Kopelman also predicted that the company might have to significantly cut
costs in the coming year.
"Given the board's stated goal of acceleration, ... we
believe some cost cuts are likely," Kopelman said. "Expedia has a large base of
overhead costs and very low margins, implying a large ability to drive margin
expansion via cost-cutting."
Meanwhile, Diller appeared to remain confident about Expedia’s
upside. Concurrent with the executive shake-up, he announced he would be "purchasing
additional shares in the company as a tangible sign of my faith in and
commitment to Expedia’s long-term future."
In a letter to Expedia employees, Diller also said, "We need
to concentrate on the tasks at hand and get back to business. [My] and Peter’s
energy will go into bringing more acute focus to our day-to-day operations,
building on our iconic brands and getting Expedia back to the growth we all
Diller’s email concluded: "I've spent a great deal of time
with our leadership team, have great confidence in each of them individually
and have the greatest confidence that, collectively, we’ll set new goals and
strategies that will quickly build back momentum both internally and
Okerstrom, 46, was named Expedia's CEO in August 2017
following the departure of Dara Khosrowshahi to become CEO of Uber.
Khosrowshahi remains an Expedia director.
Prior to being named CEO, the Canadian-born Okerstrom had
negotiated Expedia's investment in Trivago and had led the acquisitions of
Travelocity and Wotif. He holds both a law degree and an MBA.