Expedia Group’s strategy of focusing on the long-term retention of high-value customers is accelerating improved performance across the company.
During the online travel agency’s fourth-quarter and full-year 2022 earnings call, Expedia Vice Chairman and CEO Peter Kern said for the fourth quarter of last year, the number of new customers who became loyalty members grew more than 60% compared to the same quarter in 2019.
“We entered ’23 with a record number of active loyalty members, which is 10% higher than any prior year,” he said. “And just as importantly, our quarterly active app users increased by approximately 40%.”
Those two factors are the most important metrics Expedia uses to gauge the progress of this strategy, Kern said. The company’s loyalty members each drive two times as much gross profit and repeat business over an 18-month period compared to nonmembers. App users drive 2.5 times the gross profit and repeat business.
“When you combine these two and have a loyalty member who also uses the app, this drives the highest production of all, and that group represented the fastest-growing customer cohort for us in 2022,” he said.
When looking at the business-to-consumer numbers, the accelerating performance of Expedia U.S. was offset by the company’s intentional de-emphasis of smaller noncore brands and its pulling back in certain geographies where it didn’t have the right model. There was also its technical migrations of platforms within Expedia, causing some short-term friction.
Even with those challenges, the results of the high-value customer strategy is proof of its success, so the company will start rolling it out more aggressively to its other brands and non-U.S. markets, Kern said.
Expedia’s direct sales-and-marketing expense during the fourth quarter was $1.2 billion, up 20% compared to 2019, said Julie Whalen, executive vice president and chief financial officer. The primary driver for this increase was both Expedia’s business-to-business and business-to-consumer businesses. The accelerated growth of its B2B business is driving the increase in commissions paid to partners, and those commissions fall into the direct sales-and-marketing line.
The company increased its marketing spend in business to consumer to support its accelerated growth during the quarter, Whalen said. The storm-related cancellations and lost transactions meant the company did not fully realize the anticipated return on this investment.
Expedia is using its marketing to build a base of customers, and as that base of direct business gets bigger, it can drive more business from direct bookings, Kern said. The company will gain leverage as the base of loyalty member and app users grows, and it will focus on retaining those customers.
“That is how we get bigger direct business that we’re driving on top of adding new people to the funnel, but that spend is now on top of just a bigger and bigger base of customers to keep coming back,” he said. “That’s where we believe long term we get that leverage from.”
In the fourth quarter, total gross bookings were down 12% on a reported basis and down 2% on a like-for-like basis compared to 2019, Whalen said. Those numbers were the result of a spike in cancellations and lost transactions from Hurricane Ike and the winter storms at the end of the year.
Growth came from total lodging gross bookings, which were the highest for a fourth quarter in the company’s history at plus 4% on a reported basis and plus 6% on a like-for-like basis compared to 2019, she said. By month, lodging gross bookings on a reported basis grew 3% in October, up 7% in November and 2% in December.
In January, Expedia saw a steep change in its lodging gross bookings, growing more than 20% compared to 2019, Whalen said.
“While it is still early in the quarter in 2023, we are pleased to see strong lodging demand continue, including total lodging bookings for stays expected to occur in the first half of 2023, continuing to meaningfully outpace 2019 and 2022 levels,” she said.
According to its earnings release, Expedia reported full-year GAAP net income of $352 million compared to a net loss of $269 million in 2021. The full-year adjusted net income increased more than 300% compared to 2021. Expedia also reported record adjusted earnings before interest, taxes, depreciation and amortization of $2.3 billion.
For the fourth quarter, Expedia reported gross bookings of $20.5 billion, up from $17.4 billion in the fourth quarter of 2021. It reported full-year gross bookings of $95 billion, up from $72 billion in 2021.
As of press time, Expedia’s stock was trading at $117.71 per share, up 34.4% year to date. The NASDAQ Composite Index was up 12.6% for the same period.