Last week, as part of its Q2 2017 earnings call, Expedia provided an update on HomeAway activity.

According to Expedia CEO Dara Khosrowshahi, “We recently introduced the new closed system for owner and traveler communications and also require that all new and renewing subscription properties be online bookable.

Khosrowshahi continued, “These changes represent industry best practices and serve to improve the overall experience and protection of our travelers, homeowners and property managers.”

 

8 Takeaways from Expedia CEO Dara Khosrowshahi’s comments on Q2 2017 performance

1. The Numbers
2. Introduction of Closed System
3. Integration of HomeAway Inventory on Expedia’s Sites
4. Conversion Rates
5. UI Testing
6. Acquisitions
7. International vs US performance
8. Customer Acquisition

 

1. The Numbers

Dara Khosrowshahi (DK): The HomeAway transition continues according to plan, with gross bookings up 45% and revenue up 31% year-on-year. We’re systematically improving the online booking experience as well as supply-side tools and taking deliberate steps to move more of our bookings on platform.

DK:…we’re pleased to end the quarter with nearly 1.5 million online bookable listings and over 60,000 HomeAway properties available for booking on 11 Brand Expedia points of sale. Expect the number of integrated properties to continue to grow as we move through the year.

DK: HomeAway gross bookings grew 45% while revenue grew 31% to $224 million. Stayed property night growth was a robust 42%. Transactional revenue grew approximately 130% year-over-year, decelerating somewhat from Q1 as we began lapping over last year’s launch of the traveler service piece. As expected, subscription revenue was down around 35% year-over-year, as we continue to see the impact of having eliminated the tiered subscription model in July of last year. We also saw an increasing number of subscription listings moving to lower online bookable pricing and also, the transition of properties from subscription to the pay per booking model.

 

2. Introduction of Closed System

DK: For example, we recently introduced the new closed system for owner and traveler communications and also require that all new and renewing subscription properties be online bookable. These changes represent industry best practices and serve to improve the overall experience and protection of our travelers, homeowners and property managers. We continue to put the vast majority of HomeAway’s revenue growth right back into the business with significant investments in product and technology and marketing. In particular, we’re making good progress implementing world-class performance marketing capabilities with the right people, process, and technology.

 

3. Integration of HomeAway Inventory on Expedia’s Sites

DK: We’re pleased to end the quarter with…over 60,000 HomeAway properties available for booking on 11 Brand Expedia points of sale. Expect the number of integrated properties to continue to grow as we move through the year.

DK: I think you will see the number of HomeAway properties ramp up on the Expedia sites. We’ve seen some promising early signs, especially as we’ve gone from kind of the 20,000 to the 60,000. There’s still a bunch of testing that we have to do around sort order, around trying to detect signal from the customer as to when is that a particular customer will be more likely to be searching for vacation rentals, et cetera. So lots of testing and learning to do. Good early signs, but off of a very small base and we hope to build that base as the year moves on.

DK: The trick with this type of inventory, though, is that it’s different. So when you have travelers that are shopping on a site, you don’t know right out of the gate whether they’re looking for a four-bedroom home our whether they’re looking for a single bed. So now you just have to start to understand the traffic you’re bringing in, whether it comes with some sort of purchase intent, how do you match them up with a landing page that may be tailored to that intent to be vacation rentals, you have to start thinking about your sort filters. You have to start thinking about sort order, and there’s a lot of different testing you have to do to try to again match the purchase intent with what you show them. It’s a science, but there’s also some art to it. The great news is, is that we’ve got a team at Brand Expedia and across our leisure brands. So, this is what they do for a living and this is the machinery. So, we’re confident that we’re going to get there, but it will take some time.

 

4. Conversion Rates

DK: As far as conversion for HomeAway goes, the conversion rates are very healthy and increasing on a year-on-year basis. There are a number of factors that are benefiting conversion, clearly adding to the breadth and depth of supply and getting more of that supply to the instant bookable is a positive factor on conversion. So that’s affecting conversion.

Sort

DK: Second positive factor for us is sort. And we have some terrific data scientists down at HomeAway who now have more freedom as far as their sort experimentation goes and are now sorting properties who have a higher online booking success rate, for example, whose response to consumers as far as the request-response model, is higher, whose experience reviews are higher, etcetera. So the sort team has many more degrees of freedom to sort the stuff that is able to convert online as well.

 

5. UI Testing

DK: We are very, very early on the development of the site of the optimization of the consumer experience. We have some terrific UI and product folks. And I think the ideas, while flowing, are just starting to show up on the site. We’ve consolidated the back end of many of the sites out there of the various brands so that when we drive improvements and experience, they can be propagated through all of our sites on a global basis very, very quickly. And then I think the recent moves to move communications to our internal secure channels, for example, is also going to be a conversion tailwind. So, we see conversion going up and we see that continuing and frankly, we need it to continue. We expect it to continue in order for us to hit our plans, but so far so good.

 

6. Acquisitions

DK: While Mark and I are ones never to say no to acquisition, we do believe that the majority of our growth on a go-forward basis, as it relates to HomeAway, is going to be on an organic basis. We just think the service can get so much better.

 

7. International vs US performance

DK: In general, what I’d tell you is that, obviously, with VRBO and the HomeAway brand, those two brands are very, very strong domestically and are not as strong internationally. And one of our very significant growth opportunities over the next five years with HomeAway is to extend internationally. As it relates to the order of operations, our focus has been mostly domestic this year. And you can expect our focus to turn from domestic to growing the international markets. We think there’s a lot of potential, but there’s also a lot of work ahead of us. So this year is about domestic and next year is about global for the HomeAway team.

 

8. Customer Acquisition

DK: As far as the customer acquisition of alternative accommodations, listen, I think the formula is no different than the hotel formula or frankly any other travel product formula that we’ve established. And we’ve got some experience here. We’ve got some data here. So I think it’s just applying the same formula. In general, searches for alternative accommodations, the number of searches are lower, let’s say, for vacation rentals than for hotel terms. So the kind of availability for customers out there to acquire through variable channels is somewhat less.

Sometimes consumers don’t really know about the category. I think consumers are becoming more aware of the category. But we think that even a consumer who, for example, is looking for a hotel in Orlando and has a family with them will be delighted at the kind of inventory that HomeAway has available, certainly on a price per head basis, have a living room, et cetera.

So I think for us, as far as customer acquisition goes, the formula will remain the same. I think what we bring to the pie, which is different, is that we are also able to take customers who are looking for lodging or are looking for hotels and then introduce them to the alternative accommodation segment. And when we look at our Net Promoter Score for HomeAway users and people who experience alternative accommodations is superb. It is over 70.

So it’s our highest NPS-scoring product. And we will continually kind of test and learn ways of introducing this product to our consumers on a global basis because they are certainly delighted with it and certainly love it.

For background, on a direct basis, we are investing very aggressively in sales and marketing at HomeAway. It’s up 45% on a year-on-year basis. So we’ll continue to be aggressive both on a direct basis and on an indirect basis.