Expedia Group, Inc. (NASDAQ:EXPE) Q4 2023 Earnings Call Transcript

Expedia Group, Inc. (NASDAQ:EXPE) Q4 2023 Earnings Call Transcript February 8, 2024

Expedia Group, Inc. beats earnings expectations. Reported EPS is $1.72, expectations were $1.67. Expedia Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: 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.

Harshit Vaish: 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.

Peter Kern: 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 say that what started in an unlikely and difficult way turned out to be one of the most compelling and challenging opportunities of my career.

Now I’m not going anywhere yet, and I intend to sprint through the finish line on the way out. Among my important tasks between now and then is ensuring an absolutely seamless transition to Arianne and making sure none of our team misses a beat. I just want to say that I’ve had the pleasure of working with Arianne closely for the last four years, and I believe she is a terrific choice to take the company forward and build on what we have created. She is a seasoned leader with a very successful track record at Expedia Group, including most recently as head of our market-leading B2B business. I look forward to working with Arianne over the next few months, and I will not be going far as I return to my perch as Vice Chairman. Now that I’ve addressed that, let’s move on to our results.

I was generally very pleased with our performance in 2023. We met our guidance despite what was a year of tremendous change. It is really difficult to fully appreciate the breadth of change and the volatility that such change can create. We’ve discussed this many times, but when you have to willingly take steps backward to go forward, you create a lot of inherent unpredictability. And yet despite that, we delivered and landed the year. In the fourth quarter, we saw strong revenue and EBITDA performance, but we did see some softness in gross bookings, driven primarily by AIR, which in turn was largely driven by a reduction in average ticket prices. As you all know, AIR does not impact revenue or profitability very much, but it does have an outsized impact on our overall gross bookings.

While AIR has been showing some signs of macro softening, we continue to improve our AIR product with new AI-driven features and pricing capabilities. And like many areas of our business, we see significant opportunity to grow, regardless of any macro headwinds. Our lodging business held up very well and had yet another record quarter, with our hotel gross bookings growing 13% year-over-year. Vrbo finished its planned front-end migration in Q4 and suffered expected conversion, degradation. But it now has more tests running than ever in its history, and we are clawing back conversion at a breakneck pace. We also cut back last year on Vrbo marketing in concert with the expected conversion degradation, but are now really excited about our new brand work that is designed to punch our main competitors squarely in the nose, and we are leaning back into spend.

There’s a bit of lag effect as we ramp back up, but we are excited to get Vrbo back on offense with the product improving every day, the impact from improved and increased marketing, and of course, our secret weapon in One Key, whose effect we’ll only continue to build. We did an awful lot in 2023, from the launch of One Key to the completion of the Vrbo migration, from the plumbing of machine learning and AI into more and more of our customer experience, to the launch of chat GPT-assisted trip planning. But more important than any win in2023 is the sheer magnitude of change we have driven since we embarked on our transformation journey at the beginning of 2020. Over this period, we rationalized investments in over 20 brands to three or fewer in every region.

We eliminated dependency on 76 different agencies around the globe and instead built an entire full-service marketing, creative, and media buying team internally. We consolidated all performance marketing into one group, with unified data and tools, allowing us to optimize across brands and bring programmatic approaches to everything we do in meta-search, social, SEO, and everywhere else. And we fundamentally shifted the business from transactional web arbitrage to app-first, focused on acquiring and retaining the customers with the highest LTV and return on investment. On the tech side, we decommissioned 17 CRM systems and built one universal messaging platform linking all brands. We went from seven different loyalty stacks to one key. We consolidated from 13 machine learning platforms and four experimentation platforms to one.

We converged 300 million customer data profiles into one common identity platform. We have meaningfully reduced the number of developer tools and optimized our IT footprint. And most importantly, all our brands are now on a single front-end stack with a unified test-to-learn platform that gives us the ability to rapidly launch tests and features across brands, platforms, and geos. It is hard to fully conceptualize how much we have changed, but perhaps one simple way is to double-click on how all these elements allow us to massively accelerate our test-and-learn capability and drive faster feature deployment and better performance in the product. Our unified front-end now allows us to deploy features around the globe and on any brand at a pace we could not contemplate just a couple years ago.

What used to take months, even years, now takes weeks and sometimes just days? Our recent launch of cars on Hotels.com in the U.S. is a perfect example of something that never made the cut list because of the massive engineering lift. But post-unifying the front-end stacks, it took literally weeks to deploy. That same unified front-end allows us to massively increase the breadth and impact of our test-and-learns, while our single test environment, along with ML and AI woven throughout the customer experience, now allow us to run many multiples of the tests we used to and call them much faster, the combination of which will allow us to effectively 8X our test-and-learn impact in 2024. It cannot be stated strongly enough. We are just at a completely different place technologically, and the effects we have seen so far are only just scratching the surface of what is possible.

And while there are endless achievements to be proud of in our transformation, it is equally remarkable that even while swapping out our engine mid-flight, we were able to deliver consistently solid financial performance. We grew our business throughout our transformation, notably reaching record levels of lodging gross bookings and revenue, despite having sold off and shuttered a number of businesses along the way. Our continued operating discipline has driven EBITDA margins to the highest levels in over a decade. We have used our strong free cash flow to aggressively buy back our stock at attractive prices, and as a result, our share count today is down to 2015 levels. We have closed over 100 office locations, and we have 30% fewer heads than our 2019 peak.

And meaningfully, we have gone from approximately 30% of people working in product and tech in 2019 to 50% today. Again, we are at a truly different place as a company as we launch into 2024, which does not mean that it’s all just linear improvement from here, that learn and test-and-learn is a big part of our journey, and we will still get things wrong in our tireless effort to improve the customer experience. But we can afford to get a lot more wrong as we, in fact, get a lot more right. Ultimately, more at-bats, the sheer power of going fast and simplifying our ability to innovate is what puts us in a position to once again lead our industry technologically for the next decade. So what does all that mean for 2024? On a macro level, we expect travel demand to remain relatively healthy, but we expect growth rates across the world to decelerate, especially early in the year as we lap the post-Omicron tailwinds we saw last year.

We are still expecting much faster growth internationally outside North America and Western Europe, though we expect the gap to continue closing. We may also see some softness in prices across categories. This past quarter, both hotel and vacation rental ADRs grew very slightly, but the mixed effects led to overall lodging ADRs declining year-over-year. And as I mentioned earlier, air ticket prices have declined, particularly in the U.S., and we are seeing some continued pressure on car rental rates. Against this backdrop, though, we are well-positioned to go back on offense, gain share against competition, and ultimately grow our top and bottom line meaningfully this year. Our strategy will remain largely unchanged, but we can finally stop doing surgery on ourselves and instead execute without the numerous distractions we have faced in recent years.

We will be laser-focused on five strategic priorities, which broadly translate to all parts of our business. First, we will continue our focus on acquiring and retaining high ROI travelers. We’ve become much sharper about measuring customer lifetime value and targeting who to go after and which channels. With a greatly improved product driven by the latest ML and AI capabilities, and One Key, which now has over 100 million members, we will continue to drive greater retention, repeat, and direct business, all of which underpins our shift towards more loyalty in app members. In fact, we ended the year with our highest-ever percentage of business coming from the app, up nearly 600 basis points year-over-year. We will be scaling One Key internationally this year and expect to see our mix of app members continue to increase in those markets, With better customer targeting, constantly improving a stickier AI-driven products, and One Key, we feel really good about continuing to build momentum and value in our member roles.

Our second priority will be to increase our share of wallet with our travelers and partners. Again, with a product that uses AI and ML to predict a consumer’s best next action in order to sell complimentary items, be it in the booking flow, post-booking, and in CRM communications, our core experience will continue to drive more items and more dollars into the consumer’s basket. We will also drive more cross-brand and cross-product engagement through One Key, which enables cross-earn and redemption across all our key brands and encourages consumers to stay in our ecosystem for all their travel needs. We are already seeing early signs of this with an increasing number of customers who cross-shop our brands in the U.S. since the launch of One Key.

And as we continue to roll out One Key outside the U.S. and now have the ability to roll out new lines of business on different brands, we expect all of these moves to allow us to capture more wallet share from our consumers. Our third priority will be to accelerate our global market expansion. We’ve talked before about how we retrenched back to the U.S. during the pandemic while we were overhauling our tech platform and marketing model. We pulled back in certain countries where we did not have the right product market fit and had been spending more but losing share. Now, after changing virtually everything from how we market to how we retain customers to our entire product experience, we have what it takes to go back on offense. In the back half of 2023, we were able to hold or build share in most of our core markets, and now we have the opportunity to be more aggressive.

In 2024, you will see us spend up in a number of markets to reclaim real share where we believe we have the right to win. Our fourth priority will be to continue cementing our leadership in the B2B segment. Revenue in this segment grew a stellar 33% in 2023 versus 2022. While it benefited from the APAC reopening, and we expect those geo tailwinds to moderate somewhat this year, we are still expecting very strong growth given our differentiated capabilities and a huge TAM to still penetrate. As I have explained before, our B2B business benefits from all the work we have done in product and technology to win in B2C, along with all the B2B specific innovations we have rolled out over the last few years. We are seeing a strong pipeline of new customers globally, and we continue to find ways to gain wallet share in our accounts.

And beyond just offering supply, we have achieved good early results in externalizing components of our technology to our partners as well. Overall, I’m very enthusiastic about reinforcing our leadership in powering the travel industry. Our fifth strategic priority will be to drive efficiency and effectiveness across our business. As I mentioned, we have grown our EBITDA margins to their highest levels in a decade, growing over 300 basis points since 2019. But we are capable of much more. All of our transformation work was not only to enhance our consumer experience, but also to allow us to do more with less. We have significant opportunity to run more efficiently across the company, to eliminate redundant systems, to keep optimizing in the cloud, and utilize the latest productivity capabilities from AI.

In addition, we will keep leveraging our technology leadership to find opportunities for decreasing costs while increasing customer experience. The work we have done in improving our customer service operations is a great case study. By building better technology and self-service tools, we have both improved our NPS and created massive efficiencies, all while maintaining our best-in-class service. And generative AI will only accelerate this trend. So in closing, I’m incredibly pleased and proud of everything we have accomplished over the last few years, and I’m really excited about our path forward. Thanks to our massive transformation, we are now a very different company than we were four years ago. We are set up to out-innovate our competition for the next decade and efficiently deliver the best experiences for our customers and partners.

And if we do that, the business and shareholder returns will take care of themselves. While you have to kick me around for one more earning cycle, let me just say that in addition to the gratitude I feel for the team and all that we have done to foster our collective interests, I’m also grateful to our chairman, our board, and our shareholders for supporting the ambition we had and helping us get to this point. And with that, I will hand it over to Julie.

Julie Whalen: 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 at 18%.

We drove $12.8 billion of revenue, growing 10%, and we also generated $2.7 billion of EBITDA, with EBITDA margin of 21%, which grew faster than revenue at 14%, and resulted in year-over-year margin expansion of almost 75 basis points. In addition, our B2C business saw meaningful sequential acceleration in year-over-year revenue growth in the back half of the year, and generated marketing leverage for the full year. And our B2B business went from strength to strength, having its most successful year in our history, with both top and bottom line growth of over 33%. And this overall strong financial performance resulted in us meeting our full year guidance of double digit top line growth with margin expansion. Now I will discuss more of the details regarding our fourth quarter results.

Total gross bookings of $21.7 billion were up 6% versus last year. Gross bookings were impacted by some pressure in our air bookings in the quarter, primarily driven by lower average ticket prices as more capacity came online, as well as overall gross bookings pressure at the beginning of the quarter from the crisis in the Middle East, as we called out on our last quarter’s earnings call. Gross bookings for lodging, our largest business, had another record quarter growing 8%, relatively in line with our third quarter growth rate. And we saw even faster growth in our hotel business at 13%. We also continued to gain or maintain share in our hotel business across our key markets around the world, consistent with last quarter. Moving to the key financial metrics in the P&L, starting with total revenue.

Revenue of $2.9 billion was the highest on record and grew 10% versus last year. This was an approximate 160 basis point acceleration from the third quarter, driven by both our B2C and B2B segments. Revenue growth is primarily driven by the continued performance of lodging, which grew 14%. Total revenue margin also increased by approximately 55 basis points versus last year, primarily driven by the continued mix to lodging, which has higher margins. Cost of sales was $336 million for the quarter and $72 million or 17% lower than last year, which combined with our strong top line growth drove approximately 390 basis points of leverage as a percentage of revenue versus last year. We were pleased to see that our ongoing initiatives to deliver an improved customer experience and increased automation are resulting in continued operating efficiencies, resulting in lower costs year-over-year, despite higher top line growth.

Direct sales and marketing expense in the fourth quarter was $1.4 billion, which was up 14% versus last year, largely due to an increase in commissions in our B2B business to support its ongoing strong revenue growth of 28% year-over-year. As we have stated previously, commissions paid to our B2B partners are in our direct sales and marketing line and are more expensive as a percentage of revenue than our B2C business. However, because they are generally paid on a state basis to contractually agreed upon percentages, the returns are more guaranteed and immediate. In our B2C business, our marketing spend as a percentage of gross bookings was flat. Overhead expenses were $654 million, an increase of $64 million versus last year or 11%. As we have stated previously, this increase is a result of our investment and talent across our product and technology teams to support our strategic initiatives.

With our strong revenue performance and expense discipline, with expenses overall growing slower than revenue, we delivered record EBITDA of $532 million, which was up 19% year-over-year, with an EBITDA margin of 18.5%, expanding over 130 basis points year-over-year. Both EBITDA growth and margin expansion accelerated sequentially from the third quarter. This strong earnings growth enabled us to generate another year of robust free cash flow at $1.8 billion. Free cash flow year-over-year would have been even higher, but was impacted by timing changes within working capital. Last year as the business emerged from the pandemic, we saw meaningful year-over-year increases in our deferred merchant bookings balance, which has since normalized this year.

These strong free cash flow levels enabled us to complete our largest ever level of share repurchases at $2 billion, or over 19 million shares. Moving on to our balance sheet, we ended the quarter with strong liquidity of 6.8 billion, driven by our unrestricted cash balance of $4.2 billion, and our undrawn revolving line of credit of $2.5 billion, which provides us with plenty of cash to operate the business. Our debt level remains at approximately $6.3 billion, with an average cost at only 3.7%. Our gross leverage ratio, at a further reduced 2.3 times, continues to make progress towards our target gross leverage ratio of 2 times, driven by our ongoing strong EBITDA growth. As we look ahead towards 2024, we anticipate that market growth rates will moderate in 2024, given the absence of COVID-driven tailwinds that were prominent last year.

But despite this backdrop, given the operational changes we have made to our business over the last couple of years, we expect to have another strong year with top line year-over-year growth, relatively in line with what we saw in 2023. On the bottom line, we believe we have further room to optimize our cost structure, and therefore improve margins. We expect to continue to drive operating efficiencies and cost of sales across our customer support and other operations. And with overhead expenses, as we have said, we expect to drive savings this year as we deprecate systems and redeploy resources, now that the bulk of our replatforming is in the rearview mirror. These efficiencies and overhead will also translate over to reduced CapEx levels.

Overall, we are taking a very close look at streamlining our cost structure to align with the next phase of our journey. And based on our initial estimates, these actions are expected to result in approximately $80 million to $100 million in one-time GAAP expenses on the year, heavily weighted towards the first quarter. We are still finalizing the details, but we expect to have more to share this quarter. As far as marketing, we are investing behind our global expansion efforts to reignite our international growth and drive further market share gains. This will naturally drive some shorter-term pressure on marketing efficiency for our B2C business. But despite this incremental investment, we expect to still drive overall B2C marketing leverage on the year as a percentage of gross bookings, as we continue to improve direct transactions, retention, and conversion with more scale.

Putting this all together, we expect to deliver another record year of EBITDA with EBITDA margin expansion at levels relatively similar to what we saw in 2023. This EBITDA growth and some possible early repayment of debt should enable us to hit our target leverage ratio of approximately two times this year. We also expect this EBITDA growth, combined with the benefit we expect to see from the CapEx efficiencies I mentioned earlier, to drive strong free cash flow growth. And we aim to leverage the strong free cash flow to further maximize shareholder returns. While our stock prices increased in recent months, we continue to believe that it remains undervalued and does not reflect our expected long-term performance of the business. As such, we will utilize the strong cash-generating power of our business and our new $5 billion share repurchase authorization announced last quarter to continue buying back our stock opportunistically.

As it pertains to our first quarter outlook, last year our first quarter was very strong, and we therefore are facing some tough comps in the first quarter of 2024. Additionally, to start the year, we have seen continued pressure in air due to reduced pricing levels from increased capacity and the grounding of the Boeing fleet, as well as some pressure in our Vrbo brand, as Peter alluded to earlier. As a result, we expect our gross bookings growth in the first quarter to be in the low to mid-single digits, and our revenue growth to be in the mid-single digits. In addition, we expect some EBITDA margin compression consistent with the levels we saw in Q1 last year. As we move throughout the year, we expect our growth rates will increase due to conversion gains from product improvements, the continued stacking of high ROI customers accelerated further by momentum building in our One Key Loyalty Program, and higher traction in our faster growing global markets.

So in closing, I am really proud of what our team has been able to accomplish to the successful execution of our multi-year initiatives, which enabled us to deliver one of the strongest financial years on record here at Expedia Group. Yet it feels like we’re just getting started. With most of the heavy lifting behind us, we are now better positioned than ever to go on the offense, and this combined with our strong financial position should enable us to continue to deliver long-term profitable growth and shareholder returns. And with that, I would now like to open the call for questions. Thank you.

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Q&A Session

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

Naved Khan: 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?

Peter Kern: 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 expected to happen.

It’s just you’re seeing it on our numbers now. As far as One Key goes, I think you said, am I satisfied with what we’re seeing? I’d say I’m satisfied. It’s still early days. I mean, we’re seeing a lot of the indicators we want to see, as I alluded to, cross shopping is good. We’re seeing one of the things we hope to achieve was getting Hotels.com customers who had fewer than 10 stamps, people who hadn’t gotten to earn anything yet, to be more engaged with the product. And we’re seeing their repeat rates improve and their business improve. We’re starting to see Vrbo customers earn and now burn their one key rewards not only on Vrbo, but other places. But again, those cycles are a bit long. So it will take longer for the millions of people who have now earned One Key cash on Vrbo who didn’t used to, to come back and spend it because they may not rent a house for six months or a year.

But that is where we’re laying in that opportunity with our customer base, and then we’re crossing that opportunity across the brands, and we’re seeing good signs across shopping and people starting to use more brands. So that’s all consistent with what we hoped, but this isn’t, it’s not a switch you flip. When you talk about travel timing, many people only travel once or twice a year, so it takes a little time, and we’re building that in. So all good so far, but looking forward to it being even much more impactful over time. And then international expansion. We’re not detailing which countries we’re doing exactly when for competitive reasons, but One Key will roll out, we will push back into a number of markets that were historically pretty strong for us, and have stayed reasonably strong, but we just think we have a lot of opportunity.

And then we will have some tests into some markets that we haven’t been as invested in historically, where we think there’s opportunity with the new product, new marketing approaches, etcetera. So a lot of exciting opportunity on the international front. It’s not all dependent on One Key. We think there’s opportunity regardless, but in the markets where it’s relevant, where we have multiple brands that have high brand awareness, we will be launching One Key there, and we think it will only enhance that.

Naved Khan: Great, thank you, Peter.

Peter Kern: Thank you.

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

Kevin Kopelman: 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?

Peter Kern: 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.

Kevin Kopelman: 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?

Peter Kern: 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.

Kevin Kopelman: Great, thanks Peter.

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

Eric Sheridan: 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.