So there’s a lot of new impact from it. There’s also a lot of impact, as we’ve talked about before, from old-fashioned machine learning driving all kinds of wins across the product. And as I mentioned, much more at scale because they can be deployed much more readily across all brands and across different lines of business. So we’re having really good wins, I would say, from ML and AI, but the coolest, newest things we really think will impact consumer behavior and experience are still coming and Ariane and the team will get to tell the world about those in a week or so.
Ariane Gorin: Yes. I would just add, as Peter said, we’re excited to share some things in a couple of weeks at our partner conference. And again, in addition to what we’re doing for travelers, there’s a lot of work that we’re experimenting with for partners. How do we help partners use Gen AI to better show their inventory in our apps or in our brands? How do we allow them to use Gen AI to improve their advertising with us? There’s work, as Peter said, with our customer support organization. How do they use it to be more effective? Our development teams, even our commercial teams are looking at are there pilots for how we can use those to be more effective as well. So I think it’s really going to touch every part of the internal organization as well as how travelers search and book.
Unidentified Analyst: Great. That’s helpful. Thanks a lot.
Peter Kern: Thank you.
Operator: Our next question comes from Mark Mahaney from Evercore ISI. Please go ahead.
Mark Mahaney: Can I ask two questions? First is, any new thoughts on further managing or paring down costs? Where are you in terms of kind of rethinking reengineering the cost structure? It may well be that you finished all that sort of work, but just asking. And then secondly, I think it’s been a while since you’ve talked about what percentage of your products that are sold, units, services that are sold or bundled? Do you have an update on that? And what I’m particularly interested in is whether things like AI, particularly mobile apps, have really led to a greater ability to cross-sell travel products to bundled travel products in a way that wasn’t the case in the past. Thank you.
Julie Whalen: Hi, Mark. Thanks for the question. I’ll take the cost question. I would say that, literally, we are just getting started. So I mean, we did have an announcement back in February where we had impacted about 1,500 associates. We’re still on the journey of that. We haven’t done all of that yet. You can see some of the savings already coming through in the P&L within cost of sales and within overhead and also within capitalized labor. And there’s more of that to come, and it should be substantial savings on an annualized basis. Again, hitting all three of those lines, of course, cap labor you won’t see in the P&L, even in EBIT because the capitalized software is amortized over three years. But you’ll see it billed as we continue to move forward.
But I think even as Ariane said, we’re looking at every single line to drive efficiencies. And so we have kicked off a few projects to go through and really sort of push on the P&L. So we think there’s an incredible opportunities to drive cost efficiencies and obviously, as we deprecate more systems, we come out of this other side of the migration side of it, there’s going to be a lot of opportunity to bring the cost down going forward.
Ariane Gorin: And I’m happy to take the second part about products that we bundle. Look, we don’t disclose what percentage of our business comes from packages or from cross-sell. But what I would tell you is, one, a unique value proposition of the Brand Expedia is our package path and this ability to dynamically bundle an air ticket with a hotel and the like. And we’re seeing really good results as we continue to lean into the package path, and we think it’s a great value proposition. And then when you think about sort of the cross-sell and attach, which again has always been one of our strategies, I mean, for as long as I’ve been at Expedia Group, it has been. It is true that with machine learning, you can get a lot smarter in understanding what is the next best thing to propose to a traveler.
What are they most likely to attach, given what we know about them, given what we know about what they’re doing in that trip plan? So I think we have lots of ambitions around cross-sell and attach and what machine learning can do to help us there.
Mark Mahaney: Thank you.
Ariane Gorin: Thanks.
Operator: Our next question comes from Ken Gawrelski from Wells Fargo. Please go ahead.
Unidentified Analyst: Hey, this is Alec on for Ken. I appreciate the question. B2B has grown faster than the overall corporate growth rate for a while now. A question we get from investors a lot is how to think about the long-term growth rate. It seems like there has been some transient benefits to the business, whether it’s been the recovery of corporate travel or exposure to Asia Pacific. And so when we normalize for those factors, I guess, how do you think about B2B growth over the medium to long-term? Thanks.
Ariane Gorin: Yes. Ken, thanks for the question. Look, we’re not sharing projections of how we see things long-term. I guess I would just remind everyone that there’s a huge market out there for travel. And our B2B business serves a lot of different types of partners, whether they’re airlines, whether they’re banks. Last year, we launched a partnership with Walmart. We work with off-line travel agencies. We work all over the world. So I would just say, even if it has certainly been growing at a very fast clip for the last few years, we continue to have big ambitions for that business. And as we think about our investments in technology, in our supply, and in our teams and our partner relationships, I think we’ve got really great assets to continue being leaders in B2B.
Unidentified Analyst: Thanks so much.
Operator: Our next question comes from Jed Kelly from Oppenheimer. Please go ahead.
Jed Kelly: Great. Thanks for taking my question. Can you just sort of dive into some of the mechanics around the recent head count reduction? How much of that is coming out of capitalized software versus how much can be reinvested into marketing? And then in your hotel segment great to see double-digit growth. Can you talk about how that’s trending in North America relative to international? Thanks.
Julie Whalen: Sure. I’ll take the cost actions question. We have not broken out in detail how much is impacting each line. As I mentioned, you can see it within cost of sales improvements, you could see it in the overhead improvements, you can kind of deduce how much of that is due to that. But you can also see it in our cap labor – in our capital expenditures at least this quarter, how they’ve come down a significant portion of that is associated with capital labor. I think the reason why we didn’t want to unpack it all, especially this year, there’s a lot of moving parts. As I said, hitting across three lines, cost of sales, overhead and capital labor. Most of it or a significant piece of it is capital labor, and it is a partial year for the savings.
And as you asked, we are going to be taking some of that savings, which is implied within our guidance, and reinvesting it back into marketing. But on an annualized basis, on a go-forward basis, it’s substantial and will hit across those three lines.
Peter Kern: Yes. And I’ll just jump in on the hotel segment. I mean, obviously, a couple of things to keep in mind. It’s all our businesses, as Ariane mentioned our B2B business has more exposure to international, so that has some of the better tailwinds, has been in international. Our international investments have been doing well, but that’s a fairly small part of our B2C business and all. So the short answer is yes, hotel segment is growing more outside the U.S. just because of tailwinds. But we are growing it in the U.S. and we are taking share in the U.S., so both are good. We’d obviously love it if the U.S. had tailwinds of 10% macro growth, but it doesn’t. But we are growing and we are growing share in the U.S., and as I mentioned, growing share in most of our focus markets. And then B2B benefits from a little more geographical diversity into Asia and LatAm and other places that are growing a bit faster.
Jed Kelly: Thank you.
Peter Kern: Yes.
Operator: Our next question comes from Anthony Post from Bank of America. Please go ahead.
Anthony Post: Thank you. I just want to dive in a little bit more on Vrbo. Obviously, huge customer surge during the pandemic. And then it looked like your app strategy of getting apps distributed was working. So just kind of what’s not meeting your expectations? Is it the paid channel or is it reactivating customers that to kind of higher repeat rates? And what’s the plan to fix that? And then second, can you provide any detail on the mix of Vrbo versus core, how that’s trending? I think people are coming up with their own estimates whether it’s down or not, but we would love some commentary to help us with that? Thank you.
Peter Kern: Yes. Well, I’ll do the bad news first. We can’t help you with the splits. We don’t break out the business that way. But I’ll talk about the beginning part, which is, yes, we saw a huge pandemic surge. That was great for customer acquisition. It was great for the Vrbo business. And to be clear, we are still well above 2019 levels even as we sit today. So the category has seen a boost. It has sustained the boost. I think what – when you get to what we’re not happy with now is just we went through, as we’ve said many times, we have to go backwards to go forward. On Vrbo that meant changing the product, going through the migration. And for us, it meant that we didn’t think we could spend our money efficiently on Vrbo while we were going through that.
So we are winning back customer – we’re winning back new customers with new marketing as we push in with investment. We have to get customers back who may have gone through the bumpy period of migration. But also VR is fairly flat in North America right now in terms of demand. So again, we don’t have the tailwinds of just a growth driver that was there. Now we do believe we have the best product. We do believe One Key makes it the most valuable, we do believe we have great supply. And so it’s really getting the customers back in. And One Key, on that point, gives us a really good tool to attract not only Vrbo customers back, but as Ariane mentioned, customers from Expedia and Hotels.com, where we have a much bigger base of total humans and customers in those pools, to bring them into Vrbo and see the benefits of staying within our universe of products.
So we have a lot of tools to use. We’re just really putting them to use now again, now that we’re past the migration, now that we know the product experience is what we want it to be. And we will keep making it better. But it’s at a place where we’re happy with it, and we can invest behind it, and we know the returns will come through and the product will be sticky when customers get to us. So that’s really what we’re – that’s the backdrop, and we’re just investing into that backdrop, and we’ve got to keep driving it. We gave up some ground clearly, and now we have to win it back.
Anthony Post: Thank you.
Peter Kern: Thank you.
Operator: Our last question comes from Tom Champion from Piper Sandler. Please go ahead
Tom Champion: Hi, good afternoon. Thanks for taking the question. Ariane, the business remains in transition and it seems to be maybe a difficult period. I’m just curious how you think about your priorities over the next quarter or two tactically where you can allocate your time and really focus first. And then for Julie, I’m wondering if you could just elaborate a little bit on the margin commentary for full year and your expectations. There’s a head count reduction. The tech stack being migrated would seem to be a cost savings. Where are you going to be investing such that margins will be more similar to last year versus maybe improving? Thank you.
Ariane Gorin: Thanks, Tom. Look, on the next quarter or two, like let me say, even if I’ve been in this business for 11 years, stepping into the CEO role is a new perspective. And so I will listen and learn with our teams over the months to come. I think we have set really solid foundations. And as I said in my prepared remarks, one thing is helping the teams get back to the basics of traffic and conversion and delivering the acceleration that’s implied in our guidance. So there’s going to be a part of it which is helping the team focus on execution in the short term to deliver our acceleration. And then also sort of listening and learning and figuring out if there are places that we may need to adapt or adjust anything to really deliver on our long-term growth.
So I would say, lots of time with our teams internally obviously, always lots of time with partners and the like, and again, I think, I’m fortunate that we have a really great team here that’s all motivated to want to win. So I’m looking forward to spending time with them in a couple of months to come.
Julie Whalen: And then on the margins question, now going to relatively in line with last year as opposed to margin expansion. It’s really a function of where we end up in the range of possible outcomes on the top line, because we’re still generating cost of sales leverage, we’re still generating overhead leverage. We’re still motivated, obviously, to get back to marketing leverage. It’s just a function of where we see the ramp-up in the back half and what spot on the top line, we end up being at. And so we want to make sure we give ourselves enough room to be able to make the investments that we need to make in Vrbo to reinvigorate that brand, and in our international markets to obviously support our growth initiative to expand outside the U.S. And so that gives us that opportunity.
Tom Champion: Thank you.
Ariane Gorin: Thanks, Tom.
Harshit Vaish: Thank you everybody. I think that’s our last call. Appreciate it. Thank you operator, I think we’re finished.
Operator: That concludes today’s call. You may now disconnect your lines. Have a nice day.
