Expedia’s ‘buildup of high-value members’ should drive growth inflection: CEO

Expedia CEO Peter Kern sits down with Yahoo Finance's Brian Sozzi at Goldman Sachs' Communacopia & Technology Conference to discuss fall and winter travel expectations, the company's second-quarter performance, expanding the loyalty program, and more.

Video Transcript

RACHELLE AKUFFO: Well, let's check back in with our Brian Sozzi over at the Goldman Sachs Technology Conference in San Francisco today. Now, he's going to take a deep dive into the state of travel with the CEO of Expedia, Peter Kern. Brian, over to you.

BRIAN SOZZI: Thanks, Rachelle. Appreciate it. Peter, good to see you here. Tough day for the markets. Take us through what you're hearing from investors, customers, especially after a day like this.

PETER KERN: Yeah, well, I think most of the time if you don't watch the news, customers are traveling, people want to be on the road, everybody's excited about traveling. This conference has thousands of people. And everyone thought business travel would never be back.

So I think the actual consumer market, the travel market, we're seeing pretty robust demand and continuing out of summer. So we're feeling pretty good about things. So I think as long as you don't watch business news, you feel pretty good about--

BRIAN SOZZI: Peter, I need people to watch business news. I need to stay employed. Come on. Help us out here

PETER KERN: Well, you clearly have plenty of people watching because we're all sweating it.

BRIAN SOZZI: All right, good recovery.

PETER KERN: But I think from a consumer standpoint, luckily for us and many businesses like ours, there's still plenty of demand out there.

BRIAN SOZZI: Does it feel recessionary to you?

PETER KERN: It doesn't right now. I mean, listen, we see the same economics news that everybody else sees. And we wonder about Europe, and the winter, and all the things that people are talking about. But it certainly doesn't feel like there's a consumer recession happening right now.

Now, we saw a lot of consumption of goods during COVID. There was this whole story about people over-buying goods and that they'd moved to services, like ours. I think we're seeing that. Restaurants are full. Travel is busy.

So I think how long it sustains and what's coming, you probably know better than me. But so far, so good.

BRIAN SOZZI: You're seen as a change agent inside of Expedia. You're doing a lot of new things inside the company, turning the company around. What are some of the moves you're making?

PETER KERN: Yeah, well, we felt we had a big opportunity during COVID, particularly, to reassess what we were and, particularly, bring all our businesses together in a more efficient way, our technology together in a more efficient way so that we could innovate faster, move faster, create better products for consumers. So we've been changing virtually everything.

We brought all our brands together under one roof. We brought all our technology together, and product, and data science under one group. We brought our B2B businesses together, our supply businesses. So we've reorganized.

We've also sort of retargeted our intent of where we want to go, how we want to build our business, with a real focus on creating true customer value, not just a transactional site that people come to, and move through, and move on, but one where there's real features that are sticky, that help customers make good choices, a membership program that's really sticky, and something that allows us to keep customers coming back and really satisfied in a way that really hasn't been present in the travel.

BRIAN SOZZI: Are you just willing to let lower quality customers go?

PETER KERN: Yeah. Well, it's not so much that we don't want all customers, it's that we really want to focus on the customers that have the highest propensity to be high value. And to do that, we've got to give them something that they remember, right? They've got to have a great product to be in and find features that are cool, like our price tracking feature for air, which we're going to roll out on hotels soon.

And there's other cool things they can get with discovery. There's our loyalty program. All of those moves make them higher value over time. So we're looking for the right customers, the best customers, and we want them to stick around. But we want them all and we want to service them all. We just don't want to chase customers that are just going to go back and shop price all the time and not care about the product, or the benefits, or anything else.

BRIAN SOZZI: Where do you think you are inning wise in the turnaround?

PETER KERN: I'd say we're in the middle. I mean, we've done a lot of the hard work. But the hard work has yet to sort of show the benefits. I think that's coming fairly soon. We have been building up this membership base of ours. App usage is way up. Vrbo was the number one app on iOS during most of COVID.

Expedia's the number one app on Android right now. So we're getting more adoption there. All of these are important steps in our journey, and they all build on each other.

But in terms of what we're capable of long-term, I think we're only halfway through. And the rest of this year and into next year, we'll start to see the benefits start to build. And then they'll just build on each other.

We have personalization is going to come. Our big new loyalty rollout that's going to cover all of our brands is coming next year. We'll move more stacks, we'll deprecate more old technology. It's just going to get faster and better.

BRIAN SOZZI: So the folks on the Yahoo Finance platform watching you and saying, you know what? I like what Peter is saying. It sounds like there's a turnaround brewing. What should they be looking for over the next two quarters? Is it sales acceleration, is it earnings acceleration? How do they grade the turnaround?

PETER KERN: Yeah, well, I think, look, during COVID, we took a lot of cost out. We got a lot more efficient. We're generating more cash flow on a relative basis than we used to. Our margins are up.

So all of the, I'll call it, the easier stuff that at least is easier to control has kind of come. The great stuff that is coming will be in the form of acceleration in the business, we believe, because we think the features, the loyalty, the build-up of high value members and high value customers is sort of going to drive an inflection.

So I think you're going to see it in both-- we should see it in both places. We should see it in accelerating growth-- again, putting the macro side. There's some things we all don't know about the macro environment-- but acceleration and growth and expanding margins.

BRIAN SOZZI: Of course, Expedia is plugged into all things air travel. Holiday season is approaching. These airlines have taken a lot of capacity out of the skies. It's been tough to travel. How do you think things will shake out here? Is this going to be a holiday nightmare?

PETER KERN: I think we're going to have some struggles, for sure, during the holidays. It doesn't appear that the airlines are going to put a lot more volume back into the market. I think they're basically playing the trajectory of if the economy is slowing and it's super expensive to add crews and people, maybe we just ride this out until it all normalizes to the same level.

BRIAN SOZZI: Encouraging.

PETER KERN: Yeah. I think it's going to be tough. But you know, planes will be full. People may drive to more places. But on the other hand, the dollar is highly valuable against other currencies.

We'll probably see Americans traveling more to European cities or Asia, if it opens up. Japan just got some good news on opening up. So I think we'll see pockets of goodness, you know, where things got better. And we'll see some struggles, for sure.

BRIAN SOZZI: What about pricing?

PETER KERN: I think hotel prices have been up a lot. During COVID, everybody's talked about it. Same for vacation rentals, you know, everything-- even restaurants. We're all seeing it. And I don't think that's going to change a lot.

I think, by and large, the suppliers have been willing to be less full, and maintain price, and drive their business that way. We may see it a little bit in air. It's coming down, but seasonally, it always comes down in the fall, so it's hard to tell how much is which. But you know, it feels like prices are going to stay pretty high for a while.

BRIAN SOZZI: Before I let you go, I will say please continue to watch business news. Watch Yahoo Finance. It's on our app. Thank you.

PETER KERN: I will. Even if it depresses me.

BRIAN SOZZI: I appreciate it. Expedia CEO Peter Kurn, good luck on the turnaround. We'll talk to you soon.

PETER KERN: Thanks a lot.

BRIAN SOZZI: All right, back to you in New York.