Good day, everyone, and welcome to the Expedia Group Q4 2023 Financial Results Teleconference. My name is Lauren, and I'll be your operator for today's call. [Operator Instructions]. For opening remarks, I will turn the call over to SVP, Corporate Development Strategy and Investor Relations, Harshit Vaish. Please go ahead.

Good afternoon, and welcome to Expedia Group's Fourth Quarter 2023 Earnings Call. I'm pleased to be joined on today's call by our CEO, Peter Kern, and our CFO, Julie Whalen. As a reminder, our commentary today will include references to certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in our earnings release. And unless otherwise stated, any reference to expenses exclude stock-based compensation. We will also be making forward-looking statements during the call, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions, which are subject to risks and uncertainties that are difficult to predict. Actual results could materially differ due to factors discussed during this call and in our most recent Forms 10-K, 10-Q and other filings with the SEC. Except as required by law, we do not undertake any responsibility to update these forward-looking statements. Our earnings release, SEC filings, and the replay of today's call can be found on our investor relations website at ir.xpediagroup.com. And with that, let me turn the call over to Peter.

Thank you, Harshit, and good afternoon, and thank you all for joining us today. First of all, I just want to acknowledge the news that I will be stepping down in May as CEO after my contract ends, and will be passing the baton to Ariane Gorin, who currently heads our Expedia for Business. As many of you know, when I started this unexpected journey during COVID, travel was at a standstill. Money was flowing out of the company faster than we could replace it. And our people, our shareholders, and most of the world were unsure how and when we would ever come back. Strangely, those days never really worried me. Maybe I'm an optimist, but I always believed we'd get back to life and travel would follow. While you might assume that COVID was the defining part of my tenure, in reality, we quickly saw an opportunity to use our COVID time to embark on one of the most audacious and ambitious transformations I think a company of our size has ever attempted. It was always my hope that we would finish this massive task by now, but I'd be lying if I didn't say that was sometimes in doubt. We had many fits and starts as we took on this massive overhaul. But when you do something as bold as we were attempting, you have to be prepared to deal with some mess. And as much as anything, I'm proud that we were not afraid of the mess, and we pushed through. And as the work began to accelerate in the back half of last year, I could finally see that we would, in fact, meet my timetable. Over the last four years, we built a tremendous team who in turn accomplished amazing things. I have to…

Thanks, Peter, and hello, everyone. Before I get into our financials, I do want to take a moment to thank Peter and to express my confidence in Ariane as our new CEO come May. I've had the pleasure of knowing Peter since I joined Expedia Group's board in 2019, and of course, in a more detailed manner since assuming my role as CFO in 2022. Throughout this journey, Peter has done an amazing job navigating us through the pandemic, driving our massive business transformation, and setting us up for a very successful future. I am so thankful to have had the opportunity to work for Peter. He will be missed, but I am glad he'll continue to support Expedia Group through his ongoing role on our board as Vice Chairman. At the same time, I look forward to working alongside Ariane as she assumes her new role as CEO this May. Ariane and I have partnered closely together since I first came to Expedia Group. She's an accomplished operator who has been in our leadership team for many years, and it will be great to have someone so familiar with our business and our ecosystem lead us into this next exciting phase for our company. And now let's turn to the financials. Our fourth quarter results once again reflect another quarter of accelerating performance on the top and bottom line, with revenue and EBITDA growing double digits to record levels. This continued strong quarterly performance resulted in full year results at the highest levels we have ever seen across lodging bookings and overall revenue in EBITDA. For full year 2023, we delivered over $104 billion in total gross bookings, growing 10% versus last year, including almost $74 billion in lodging bookings, growing 11%, with the hotel business growing even faster…

Thank you. [Operator Instructions] Our first question comes from Naved Khan from B. Riley. Naved, please go ahead.

Yes, thanks a lot. And Peter, we'll miss you on these calls after the Q1 call. But I have a few questions, one on Vrbo, with the migration complete. I think you talked about sort of, the app update kind of taking some time. And I'm a little surprised that it's still been seeing some weakness in January. Just give us some color on what exactly is the reason for that. And you talked about some sort of green shoots. So give us some commentary there. And then maybe on One Key, can you talk about maybe where maybe the learnings are? Are you satisfied with the retention and the convergence so far? And how much room do you see for improvement from here on? And also in terms of international rollout, I think previously you talked about first half for that. Is that still on the cards?

Yes. So three good questions. Lots of material there. Thanks, Naved. And you can call me anytime if you miss my voice. The first on Vrbo, I would say, if you think about what we were doing at the tail end of last year, we were pushing to 100% migration, the app, everything moved over. And I think as we told you, everybody, these steps come with expected conversion degradation because you can't get everything to par. It takes forever. You have to move everything and start working on the new product. So we did that. I'd say that degradation was broadly in line or slightly better than what we hoped, but it was still there. And when you're doing that, you obviously are not investing as heavily in terms of marketing because you're marketing people into a less converting product. So you kind of tend to back off on that spend because the spend becomes less efficient. As you now get to a place where the product is ramping back up very quickly and we've clawed back much of the conversion, which is I think the green shoots you're referring to. So we're actually gaining much faster than at least in my tenure I've ever seen us gain back in terms of one of these transitions. And the product is basically virtually back to the same levels of conversion. Now we can push back in and spend again. There is a little bit of a lag there because you've been underspending, if you will, for a bit waiting for the product to get to where it's converting as strongly. Now we are spending back up. So it will take a little time to get the engines fully operational, if you will, but it's more or less a sequence we…

Great, thank you, Peter.

Thank you.

Thank you. Our next question comes from Kevin Kopelman from Cowen. Kevin, please go ahead.

Thank you very much. Yes, first of all, Peter, congrats on your tenure. We'll definitely miss you on working with you on the calls. I did want to ask a question on that. Could you let us into your thought process a little bit, or any color on your decision to step away in the timing?

Yes, sure. I mean, I think I tried to capture it in my comments, but when this started, the idea was for me to come in for a period of time and sort of ride the ship, put us where we wanted to be, and then build the team and make sure we had the people to take it forward for the next generation, as it were. And the transformation turned into a bigger, I bit off more than I thought I was going to, and it was a bigger job than I thought it was, and I had my doubts a year ago, but we've made so much progress, and as I stared at, and the board and I stared at, should I go further, etcetera? I love this company, I love the category, I love my team. We've built an amazing group here, but I built it so that they could take it forward, and there's never a right time, but hopefully this is a good time to transition. We're fortunate to have Ariane, we're fortunate to have all the people around her that we've brought in or have been here many years, and I just think the company's ready, and I'll be here till May, I'll be busting my butt till then. I don't know how to do it a different way, but, and look, we still, transformations are never done, the work is never done, there isn't like an end date, and it's like, good, we did number 100 on our list of 100 things to do, but we've just made so much progress that I think the company's in a good place for it, and it felt like the right time for everybody.

Understood, and thanks for that, and if I could just ask a quick follow-up on Naved's question on Vrbo. Could you walk us through what that looks like as you pass through Q2? Is it fair to think about that as an easier comp once you anniversary the initial platform upgrade, and what the timeframe could be to get that back to flat and then growth?

Yes, I think basically you can assume we anticipate growing out of this consistently across the year. Fourth quarter will be higher than third quarter, higher than second quarter, higher than first quarter. So we expect to continue growing. I think as I alluded to, conversion is now basically back to where it was before we did all this, but we didn't do it to get to even. We did it to get to materially better, and now Vrbo can benefit, and the reason it's going as quickly as it is we have lots of winning tests, if you will, that we used on the broader OTA platform that are also winners for Vrbo. So we're able to take a lot of our winning experiments, move them over to Vrbo, and get that humming again, but we continue to go further, and as I alluded to, our ability to multiply our test and learn capacity in a material way, both in speed and in breadth, is really changing how we do things. So now when we have tests many of our tests we launch across all our brands across all our platforms all devices And we just couldn't do that before so the speed of improvement we expect to continue to accelerate that will enhance all the brands, but Vrbo is the one that has a hole to dig out of, that were the most recent hole to dig out of and so we expect that to continue to grow we expect the investment back into the brand to continue to have impact. We expect the cross shopping effect of having the H com and Expedia customers being able to use their One Key cash number about to have an effect. So all of that we expect to continue to build throughout the year, but we shot our own foot off on purpose Late last year we pulled back on spend because we thought that was the rational thing to do given the conversion situation and now we're leaning back in and it's really as simple as that except we expect to improve faster in product and I still think we have the best-in-class marketing full stop in our category And when we go back on offense it will take hold and both of those things will work together.

Great, thanks Peter.

Thank you. Our next question comes from Eric Sheridan from Golden Sachs. Eric, please go ahead.

Thanks so much for taking the question I'd love to ask more of a big picture one now with One Key in the market and elements of the Replatforming behind you, how should we think about some of the things you talked about in the prepared remarks about unified product offerings and being more innovative in the way you go to market and retain customers and drive direct traffic And how we should be thinking about some of the product roadmap that you're most excited about and the mixture of both growth that could come from those initiatives versus investments that still need to be made. Thanks.

Yes, I mean I'd say broadly working backwards I don't think their investments of time calories to be made. But in terms of investments of money and capital, I think we're on the other side of that hill and we expect to be able to do things more efficiently going forward. But if you talk about One Key and the product itself as I say like, One Key is a great way to create stickiness within our environment, but you might have heard me mention that we've we finally migrated all our CRM virtually 100% of our CRM and the brands to our new unified messaging platform that platform allows us to do things much faster to communicate with customers. So whether we have One Key benefits whether we have new, new offerings in One Key whether there are One Key bonuses, all the things we can use to merchandise and keep people and use One Key to be the glue that keeps members sticky. And remember, member members get more than just One Key They get member discounts in the product and in many of the products were expanding that every day We now have deeper discounts for silver and gold. And so there's just a lot of things to keep them in, but it's important to be able obviously to communicate with them in the most modern ways and that's what our new single messaging platform allows us to do. And then you add on to that, this kind of goes to the broader point as we've woven, we've improved the products, we've added new features, but I say you said what am I most excited about? It's really machine learning and AI plumbed into essentially the entire product experience, because what that gets you is effectively a…

Thank you, Peter.

Thank you. Our next question comes from Lee Horowitz from Deutsche Bank. Lee please go ahead.

Great. Thanks for the question. First Peter, congrats on your tenure. Thanks again It's been a crazy couple years and congratulations on all that you've accomplished over that time period. Maybe just sticking with Vrbo as we think about it in 2024. I guess one, how do you feel about the overall health of the alternative accommodations industry? Do you think there may be some continued pricing headwinds in say core vacation rental destinations as travel patterns continue to normalize and perhaps some macro weakness plays through? And then secondly, can you provide any thoughts on how the competitive set for Vrbo has evolved over the past couple of years, maybe as you've taken your foot off the gas and how maybe this shifting competitive landscape, if it is happening, is informing your strategies to get this business back to humming again? Thanks.

Yes, sure, Lee, and thanks for your thoughts. It has been a couple of crazy years. I would say a few things. Sort of working backwards, I think, obviously we've seen VR continue to be healthy even post pandemic as habits have shifted. However, there's like VR within VR. So Urban has done better. We are not heavily weighted to Urban. Some of our competitors are. I think that's what you mean by the evolving landscape. Obviously Airbnb has always been there. Booking has been doing more with that product. Again, largely, as best we can tell, focused and benefiting from the Urban side of VR or alternative accommodations. We're still squarely situated in our core markets. We haven't made a big decision to pivot to Urban, but one of the things that's enabled by all the migrations we're doing that will come this year, we have a bunch of multi-unit VR inventory on our OTA brands that is not on Vrbo. And we still have some Vrbo content that is not on our OTA brand. So there's still opportunity to do more in sharing the inventory we already possess. We've had no shortage of finding inventory, and I think housing market issues and other things probably make that macro easier now. It's really just changing habits. Now, our hedge against renting a mountain house or a beach house is, of course, renting a hotel or resort room as the alternative, and we've participated very well in that, and we feel good about our position there. But I think we feel very good about Vrbo. We needed to get the product to a new place. We are now firmly on that journey. I don't think we gave space to anybody. I think we have a good brand. We have an improving product that I have no doubt will be best-in-class. And we just have to get back on offense. And again, this is one of those places where you had to take a pause, go slow to go fast. And the slow part always hurts a little, but if you don't do it, you can never go fast. So we're in a good spot now, and I think we just have to accelerate out of it. And I don't worry about the supply situation, and I don't really think we're losing ground to other competitors who have some super sticky product. And over time, we should have the stickiest product because our product comes with loyalty, and our loyalty is usable across any travel product. So I think that's a winning combination. We just got to keep pounding it home now, and now that we have the product to get behind, we will do that.

Helpful, thank you.

Thank you. Our next question comes from Anthony Post from Bank of America. Anthony, please go ahead.

Great, thank you. I guess a couple for Julie. You gave us the 11% growth for lodging and 18% for hotels. So we can kind of solve for Vrbo, but can you give us any range of what percent your alternative accommodation nights are or bookings just so we can not have too big of a range there? And then second, last year you were very clear, double digit top and bottom line. I think you said similar growth on the top line and then margin improvement. I mean, is that kind of saying double digit for both, or do you want to clarify kind of the growth rates at all? Thank you.

Sure. On the first one, we haven't, and I think recently we haven't given out what percent is our Vrbo piece of the business, but I think once we bought the company, there was some, obviously numbers that were provided at that time. You can do some extrapolation on the growth rate and get pretty close probably. So I don't think there's anything else that we would give out today from a disclosure perspective on that front. On the guidance perspective, we basically have said, as you alluded to, that we are planning to grow relatively in line with our growth rates from this year, which is about, call it 9.5%, 10% in GBV [ph] and 10% on revenue. And then we said with margin expansion relatively in line, which we're calling about 75 basis points for expansion this year. So that's how I would take it. I mean, relatively in line to us, plus or minus 100 or so basis points. But that's how I'd think about it, that it's both for GBV and revenue.

Great. Thank you.

Thank you. Our next question comes from Jed Kelly from Oppenheimer. Jed, please go ahead.

Yes. Hey, thanks. Thanks for taking my question. Just going on to your overall marketing strategy, just by watching TV, I still see you're still marketing to a lot of the brands, Hotels.com, Expedia. And do you start to pivot those brands more into One Key? Can you talk about that? And then can you just talk about your comments on streamlining expenses sort of what's the strategy behind that move? Thank you.

Yes, sure. Thanks, Jed. So on the marketing front, yes. In the U.S., you will see all the brands advertised used to be far more brands. We're down to those core three and we believe in those three. I think, we're still trying to find the balance between, can they be advertised as one or do they need to be advertised as three? And what is the best way to penetrate? So I would think of that as sort of a we're on our own learning journey about what we can do, how we can help people see them as a family of products that work together. And we continue to try to optimize, be it on television, which is what you're seeing or in programmatic, or frankly, even in meta search and so forth. So we're constantly working to see what the optimum way to drive those are. But I will say in the rest of the world, we have made very conscious decisions of where we will maintain one brand or if we think it's worth it, two or three brands and what we will do there. And we will lean heavily into a high bar for there to be more than one. There has to be real brand affinity and other things that are driving that continuation of the second brand. So especially now that conceivably any of our brands could have all or any lines of business and that's not that hard for us to do. So the opportunity to take, for example, a market that is a predominant Hotel.com market and potentially add car and air and other packages and other things is within our gift now. And so we can make quite different decisions about do we need to be in with Expedia just to have air or something else? So that's really a big opportunity for us and allows us to simplify how we think about those decisions and in some ways not replicate some of the complexity we've made for ourselves over the years. So that's a work in progress. But, all those things are effective and we're working to optimize all the time on the best way to communicate that. Maybe Julie can say something about the…

Yes. So on the streamlining of expenses, I think we've been saying all last year that, obviously during the transformation phase, we've ramped up in expenses. We've had duplicate systems, legacy systems while we're still building out the new system and all the costs that are associated with that across the board from cloud and licensing and maintenance and things like that. And so we have said as we come out of this transformation phase that we think there's opportunity to deprecate systems and redeploy resources and find cost savings throughout the P&L. So this is our first sort of stab, if you will, at that. And so you'll see things across the board coming out as we move throughout the year in cost of sales, in overhead. And to the extent that obviously crosses over into capital expenditures, you'll see some of the pressure coming off at least the growth rates there. And if not, it also in absolute dollars. But that's simply what that represents. We're obviously not going to go into a lot of details today, but we did purposely say that we will give you more information later this quarter. And as we move throughout the year on that, as we give you more of the details associated with it.

And I would just add. That's always been the plot that we wanted. This wasn't just to build cool new things. This was also to build them the right way and be efficient in how we did it. And that's the opportunity that the transformation has also provided for us. And we're excited to be on that side of it, too, not just from an experience standpoint, but from an efficiency standpoint.

Thank you.

Thank you. Our final question comes from Mark Mahaney from Evercore ISI. Mark, please go ahead.

Okay, thanks. I'm sure these questions have been covered, but if I could ask again, please. Of these two initiatives, the replatforming of the brands, particularly the Vrbo brand, and then the One Key strategy, I assume these are more like snowball events. Have you already seen an impact on the business or on demand cross-selling retention acquisition from these so far? Or would you, if not, could you let us have expectations of when we would? Thank you very much.

Yes, Mark, I'll give you a quick answer. I think we sort of addressed some of it already. But basically, the Vrbo transition to the unified stack is more of just a, an execution thing. I think what it gives us is the opportunity now to accelerate Vrbo in terms of feature and test and learn and grow faster, as I mentioned to the rest of the group. We dug a hole, we knew we would. When we moved it to the new stack, the conversion would go down. We have been digging out of that hole. We're about back to par. But we didn't do it to get to par. We did it to accelerate far past that. And now we have the opportunity in Vrbo riding on the same rail as the other brands, gets the benefit of all the testing, shared testing opportunities, winners that we found other places and so forth. So we're excited about the progression of that product, but it had to go through the bad to get to the good. As far as One Key goes, I also mentioned, we feel very good about the early indicators. Yes, there is more cross shopping. Yes, we're seeing more repeat from certain pools of customers that we thought would benefit from this, like hotels.com customers who had less than 10 stamps in our old system and people, if you will, who hadn't earned any benefit. Now they have benefit and they're coming back more. And that's what we want to see. But as I also mentioned, while millions of people have earned One Key cash on Vrbo, a small percentage of them have re-spent it. And that just has to do with the cycles of the booking windows for Vrbo and that people rarely book more than once or twice a year. So we've got to get those, we expect to see those people back in. That's why I've said we've built up this value and now that value needs to be realized as they come back direct later, as they use that One Key cash across other brands with more cross shopping, like that's the dream. And of course getting Expedia and hotels.com members to use their One Key cash on Vrbo, which we've also seen. But again, those cycles aren't every month. People do that once, twice a year. So we're seeing good early signals, but it's all building. And that's why I'm excited. Like it's going to be a slow build, but it's going to be a great sticky thing for us over time. And again, we'll keep more and more people as we get more of the right people in, as we keep more of them, and as they get to use all of our products. And again, we capture more wallet share from them. That's what we're pushing for.

Thank you, Peter.

Thanks. And thank you everybody. I think that was the last question, operator. Is that right?

That's correct.

Okay, thank you everybody. Appreciate your questions and we'll see you in May. Take care.

That concludes today's call. You may now disconnect your lines and have a nice day.