Expedia predicts 2016 growth, home and away

Profile picture for user slauchlan By Stuart Lauchlan February 10, 2016
Summary:
The Paris terrorist attacks hurt Expedia's bottom line, but there's enough going on for CEO Dara Khosrowshahi to be confident about for 2016.

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Digital travel giant Expedia has experienced a financial hit from the Paris terrorist attacks, but predicts a rise in earnings in 2016, despite turning in a $13 million loss for the fourth quarter of 2015.

On the plus side, revenue rose to $1.7 billion, while gross bookings were up 40% year-on-year. Domestic (ie US) bookings, nearly two-thirds of total bookings, rose 50% year-on-year, while international bookings rose 26%.

CEO Dara Khosrowshahi points to the full year 2015 numbers to support his predictions for 2016:

Gross bookings for 2015, up 24% to $59.7 billion and total revenue up 19% to $6.6 billion. Our customers bought 35% more airlines tickets, 36% more room nights totaling more than $200 million for the year and 37% more car days in 2015 versus 2014.

But the main reason for such confidence about 2016? The additional revenue due to appear from 2015’s spending spree, which included:

  • Vacation rental site HomeAway for $3.9 billion.
  • Orbitz Worldwide for $1.3 billion.
  • Travelocity for $280 million.

Khosrowshahi says:

These transactions have consolidated and scaled our US operations, extended our international reach and have opened up a new leg of growth in the alternative accommodation sector. We also divested our stake in eLong for a nice profit and entered into a long-term alliance with Citra.

Of course, those new businesses need to be integrated into the Expedia stack, but Khosrowshahi points to the progress made to date with Orbitz as evidence that this can be achieved relatively painlessly:

The integration is progressing well with nearly all of the direct type in traffic of Orbitz.com and CheapTickets already on the brand Expedia platform. It's early but results so far are promising. The migration work will continue to the first half of 2016 followed by optimizing the sites and tuning our variable marketing channels post migration.

We’re also actively working on other parts of the Orbitz business, including eBooker’s, Hotel Club, Orbitz Partner Network and Orbitz for Business. Our goal is to migrate the vast majority of our Orbitz for Business clients onto Egencia platform before year end.

Transitioning

HomeAway could be more of a challenge however as its listings business model differs from the transactional one seen in other parts of Expedia. Khosrowshahi admits that it’s early days, noting:

HomeAway will be operated largely as a standalone business and will serve as the end-to-end vacation rental and a home sharing platform for Expedia Inc. family. That said, we plan to be highly involved with the HomeAway team helping them expand aggressively and move from their traditional listings model to a fully online transaction model.

He adds:

We are going to be working on increasing the percentage of online bookable listings in 2016 and get it much closer of 100% as much as we can. Really, we're going to be pushing online booking, offering it to our partners and that, along with the book, would confidence guarantee for travellers. We think it's going be a win for the travellers and it’s as also going to be win for our supply base as well and that’s really the focus of the business.

We will try to obviously drive the online booking volume. But that is really much more of a long-term goal for us as a company and I think 2016 is going to be about kind of setting the base, making sure the technology infrastructure is right and making sure that we’re taking any and all kinks out of the online booking process to make it incredibly easy for travellers and incredibly easy for our subscribers as well.

The transition to online transactions will also bring booking fees to HomeAway, but Khosrowshahi doesn’t expect this to cause any bumps in the road due to increased peace of mind on the buy side:

We’re going to be watching it very closely. We obviously want the consumer experience to be great and we are obviously going to be watching the percentage of bookings running over the system. We think with the ‘book with confidence’ guarantee, we are going to give our consumers, our travelers a lot of confidence as far as booking with HomeAway and making sure that they get what expect, making sure that if they have any issues regarding quality or the deposits etc, they’re taken care of.

He adds:

The booking fee is something that has been widely expected as far as AirBnB and TripAdvisor go. AirBnB has always had a booking fee, TripAdvisor introduced the booking fees last year. Those transitions have gone very, very smoothly. Our pricing is going to be quite competitive. So this is something that has already been market tested and we feel pretty good moving into this model based on the competition already being that.

As for future M&A, that’s still very much an option, says Khosrowshahi, although:

When we look at the portfolio of assets that we have especially with HomeAway as part of our family we feel like we have a full portfolio, we feel like we don’t have any competitive holes and if we don’t engage in any M&A for the next two, three years we'll be perfectly happy.

That said, we do want to extend our international coverage I think we are in general too US dependent, at this point it’s really good thing because the US economy is the strongest economy in the world. So it is positive now, but five to ten years from now, shame on us if we haven't grown significantly more outside of the US and in all the markets, Asia-Pacific, Latin America, Europe etc.

My take

It’s all a long away from 1996 and Expedia’s origins within a division of Microsoft.

Khosrowshahi’s upbeat predictions about 2016 are encouraging, although any repetition of the Paris atrocities is clearly something that he can’t factor into his calculations, just a horrible reality in the current political climate.