Expedia (NASDAQ:EXPE) shares were climbing, up 11%, after its fourth-quarter earnings report as the company beat guidance on the bottom line and said it would grow adjusted profits by double digits in 2020.
Revenue at the online travel agency increased 7% to $2.75 billion, slightly below estimates at $2.76 billion, while adjusted earnings per share was flat at $1.24, which was ahead of expectations at $1.19.
The travel company, which is now being run by Chairman Barry Diller following the ouster of its CEO and CFO in December, said it would focus on cost-cutting in 2020 as Diller called the business "bloated." Management is eyeing $ -$500 million of run-rate costs savings across the business this year.
Diller and Vice Chairman Peter Kern did not mince words on the earnings call. Here are a few comments that highlight their current assessment of Expedia and their goals for the OTA.
On organizational complexity
Commenting on prior management, Diller said:
Management at the same time didn't really have a clear path on how to grow the company. It just kind of had a top-down commandment to deliver x earnings, and that misled a lot of people into actions that kind of made sense for a quarter of a day. And the rest of the day this results in a kind of a top-down pressure without understanding how to actually execute and simplify the business and give it clarity. We've somewhat become a kind of consultant-led and wildly complex business. I said and I think sclerotic and bloated.
Diller seems to be identifying a common problem in large publicly traded companies, as employees lose sight of long-term focus and instead work to manage earnings from quarter to quarter. That leads not only to a lack of a long-term strategy but also to a bloated cost structure, which he's now aiming to tame.
On implementing a new strategy
Diller went on to identify several of the issues in the company's current operations:
So we're changing a great deal. We're stopping this too large complexity. We're simplifying our strategy. We're stopping doing dumb things and starting to do what we think are good things. So from doing that dumb to doing this smart, here are a few examples. From wasteful activities that weren't core to our business, to actually driving sustained growth. From every brand working in silos around the world to one strategy on marketing and the geographies across all of our brands. From our reliance on Google and Metasearch, to aggressively moving to grow our own direct business and have loyal relationships with our customers.
Expedia has over a dozen brands, with many of them in direct competition with one another. That's part of the silo problem that Diller is referring to, as the company would be better served by its brands working in concert together to serve its customers, rather than operating independently.
Similarly, Expedia has realized that the market has changed with the rise of Google Travel and with hotel chains themselves even trying to drive their own direct business. That's why the company is focused on building a direct relationship with its customers, encouraging brand loyalty and app downloads. Diller noted that the company has reached 400 million app downloads among its brands, and that they increased 40% last year.
On Google's entry into the market
Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google has sent shockwaves through the industry as it's built up its own travel-booking business, much to the displeasure of established OTAs like Expedia and Booking Holdings (NASDAQ:BKNG). Here's what Diller had to say on that:
I've been quite vocal about this that Google has certainly a monopoly share all over the world, and it does what monopoly shares get you to do, which is extend its business in every direction they can. Now so long as they don't use unfair practices, I've got no problem with that. But when they compete against their advertisers, and we are one of their largest advertisers, we have Booking.com within their top five of advertisers. They're using their tactics to squeeze these entities that are delivering real service is, among many things, antisocial. I mean, I think it's bad practice.
Diller also said he had told Google's senior management to stop taking profits away from its bigger advertisers. The issue underscores not just a challenge for Expedia and other OTAs, but also that Google is setting itself up to face increased regulatory pressure as it's now in the awkward position of competing with some of its biggest advertising customers. The company has run into similar problems in the past with websites like Yelp.
Management was careful to note that its current strategy is a work in progress, and it declined to give details on its cost-cutting program as it was still working it out. However, Expedia was confident that it would be able to deliver low-double-digit adjusted EBITDA growth in 2020, which would be a substantial improvement from the 1% growth in that metric in the fourth quarter.
The company refrained from giving specific guidance due to the coronavirus outbreak, but it nonetheless sees significant opportunity to improve profitability, customer service, and efficiency this year.
Diller, who is also the Chairman of IAC, the tech conglomerate that spun off Expedia in 2005, has no plans to actively search for a full-time CEO at this point. So it seems that he and Kern are owning the turnaround plan for now.
Wall Street seems encouraged, based on the double-digit percentage jump on Friday. But there's no doubt the company faces a number of challenges ahead, including Google and coronavirus, as well as effectively streamlining a company with over a dozen brands.