Expedia Group, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights: - Delivering more value to travelers: Brands are personalized travel companions with AI integration in products, improved supply with more great deals, and a loyalty program (One Key) with new capabilities on Vrbo and Hotels.com. - Investing where we see growth: Strong B2B growth with new tools and partnerships, advertising with record active partners and AI use, and AI-driven search and partnerships. - Driving operating efficiencies and margin expansion: Expanded margins by over 2 points, improved marketing productivity in the consumer business, and AI benefits in teams like customer service and developer productivity.

Segment Performance: B2C gross bookings were $21.3 billion, accelerating 7% year-over-year, with B2C revenue at $2.9 billion growing 4%. B2C EBITDA margins were 41%, up approximately 4 points from the prior year. B2B gross bookings were $9.4 billion, a 26% increase with broad-based growth across all regions. B2B revenue grew 18%, and B2B EBITDA margins were 29%, flat year-over-year.

Guidance: - Raised Q4 guidance: Expect gross bookings and revenue growth of 6% to 8%, with adjusted EBITDA margins expected to expand by approximately 2 points. - Full year 2025: Expect gross bookings up approximately 7%, revenue up approximately 6% to 7%, and EBITDA margins up approximately 2 points versus the prior year. 2026 margin expansion expected but at a moderated pace as they continue cost-out efforts and invest in growth initiatives. - Capital allocation: Expect to continue share repurchasing roughly in line with recent levels.

Risks: - Macro environment uncertainties and economic indicators. - Competitive dynamics in the travel industry. - Potential impact of events like government shutdown on travel demand and performance.

Q: How should we be thinking about the building blocks for medium-term growth of the amount of supply and partnerships in B2B as driving organic growth?

A: It's a mix of signing new partners and growing existing partners, with lodging as the core and potential in other lines of business. The business is diversified geographically and in partner types, with growth potential in the over $3 trillion travel industry.

Q: Just talk about what the sources are of a big picture in the next couple of years for margin expansion?

A: Sources include sales and marketing optimization in B2C, tighter cost of sales management using AI, overhead cost population control, and leverage from ads, insurtech, etc.

Q: Is the quality of the signals that you're getting from places like ChatGPT, Perplexity, Gemini equivalent to performance leads the company got in the past?

A: It's early days, but volume is growing quickly and quality seems good. AI is helping with personalization in products, marketing, and partner experiences, driving growth.

Q: How is the replatforming helping to compete better?

A: Leveraging capabilities from replatforming for more scale across brands, with common data and lodging paths, and enabling better personalization and loyalty program integration.

Q: Can you talk about the evolving competitive dynamics in the alternative accommodation market?

A: Vrbo is a vacation rental pure play with new product features, and Expedia is integrating vacation rentals into lodging flow and distributing through B2B partners.

Q: How are you looking in competition for B2B and what about contracts and renewal cycle?

A: There's always competition, but confident in value proposition and continue to innovate to meet partner demands.

Q: Where are things in terms of B2C business and reasonable medium-term target for marketing efficiency?

A: 2/3 of B2C bookings come direct. Conversion in direct channels is ticking up, with room to improve, and traffic in Q3 was strong.

Q: Could you talk more about the acceleration you saw in U.S. room nights?

A: U.S. room nights were up high single digits, strongest in over 3 years, with growth across main regions and brands.

Q: How are you approaching partnerships with OpenAI and balancing branding and booking experience?

A: Using partnerships to attract people to brands, focusing on Answer Engine Optimization and seamless traveler experience when handed off to Expedia.

Q: Can you talk about primary investment areas for 2026?

A: Continue to focus on core strategic priorities, invest in growth opportunities, and focus on operational efficiencies including marketing leverage, cost of sales, and overheads.

Q: How do you feel about Vrbo growth in the U.S. relative to the market?

A: Vrbo grew bookings and room nights in the quarter and believes it maintained or grew market share in the U.S.

Q: What are you baking in for the fourth quarter outlook considering potential government shutdown risk?

A: Guidance factors in stable trends in October, lapping of prior year acceleration in November and December, and ability to absorb potential impacts like Air revenue reductions.