During the last two weeks, investors heard from CEOs at both Airbnb and Expedia/Vrbo about 2021’s first quarter performance. For those who smartly opted to watch paint dry rather than listening to Expedia’s earnings call, here are some of the highlights and takeaways about Vrbo and the vacation rental industry. According to CEO Peter Kern, “We have benefited greatly in our vacation rental business and our domestic US business, but other parts of the business still remain challenged.”
Expedia does not share Vrbo’s independent performance; Kern and CFO Eric Hart told investors repeatedly during the call that it is not going to break Vrbo out separately. “I would say Vrbo is doing great,” said Kern. “The US is particularly strong; but as I said, in all our strongest markets, we are showing share gains. And Vrbo is clearly―and vacation rentals in general―in very positive territory, and that is helping bring up all our numbers, no doubt. But, we don’t break them out separately.”
During the first quarter, Expedia’s gross bookings were down 48 percent compared to the same period in 2019. Room nights were 54 percent below 2019, and lodging revenue was down 46 percent. According to Cleveland Research, the US represented 80 percent of total revenue in the first quarter of 2021 compared to 57 percent in the first quarter of 2019.
Expedia CEO Peter Kern (Kern): Travel remains a study in contrasts. As for different geographies, some are still shut down, some like the US are quite open now. And equally, it is a study in differences between vacation rentals, domestic travel versus international travel; business travel is more challenged; and conventional lodging, particularly in big cities, is more challenged. So, it’s really a study in contrasts. . . . The summer looks strong, particularly in the US and in other markets where vaccinations are well along the way. We are already seeing booking trends well above 2019 levels for leisure destinations, beach, mountains, etc.
Trepidation from Expedia about travel
Kern: I would just keep in mind, while summer looks great and we are ambitious and feeling good about the overall recovery, that calendar is still a question mark. We don’t know what seasonality will look like, as long as COVID is here. And the usual trends that might come in the fall and winter are still unknown. So, while we’re extremely excited about summer, it’s a little too early to predict how those trends with work-from-home, whether school is in session, et cetera, will change travel behavior going into the following quarters.
Vrbo is looking for more supply
Like Airbnb, Vrbo is looking for more supply in the markets in which demand is high (beach, lake, mountain). Expedia also is addressing this consumer demand by pushing travelers to hotels.
“But the reality is that Vrbo hosts on balance make more than Airbnb hosts on average.”
Kern: We are seeing some compression in summer. People ask about that frequently. And I’ll just say so far, we have seen replacement as a pretty good solution. Most people look for something they can’t find it, they’ll find something nearby. And increasingly, as more people are vaccinated, they are willing and happy to stay in resorts and in conventional lodging. And I would say some portion of them would actually prefer it that way. And we’re seeing in those leisure destinations for the summer, very strong conventional lodging numbers.
Campaign to Increase Supply with “Fast Start Program”
Vrbo initiated an aggressive campaign to increase supply from homeowners, which it is now calling “hosts,” emulating Airbnb.
Kern: So, we’ve amped up our investment in marketing and attracting Vrbo hosts, if you will, or owners. It has been successful. We are driving it as fast as we can. There is a lot of demand, and we’re focused, as you would imagine, in the most high-traffic areas where we need and can sell as much new inventories we can get. We introduced a new product, which we called the Fast Start Program, where we essentially take successful hosts that are highly rated from other platforms, and we launch them quickly into our platform; and instead of having to rebuild their stature as a highly reviewed host, we sort of take as a proxy, their experience elsewhere. And we put them, if you will, very high in the sort and allow them to start up their business with us.
But the reality is that Vrbo hosts on balance make more than Airbnb hosts on average. And it’s a great opportunity for people to monetize their assets. We think it’s better than any other similarly situated one. And we think owners of properties are increasingly becoming aware of that as our brand becomes more ubiquitous and as people become more used to the products. So, all our stats make for a great sales story. We just have to get it out there, and we’re spending more to get that story out there.
Bigger Push for Brand and Direct Marketing
Expedia is investing heavily in branding and direct marketing and is still not listing its vacation rentals with meta products including Google. Kern’s comments about branding are interesting for VRMs as they think about their own direct marketing efforts.
“Can you get them in the door? Can you make them love you? Is the experience great? Does it help them find what they want?”
Kern: We believe we can do better and do more on the brand building side and to create that direct customer relationship. Then, that bleeds all the way down through, of course, the importance of doing the product right, getting the engagement right, improving the apps, improving the technology, using AI to improve the customer experience. So, all of those things are the classic sort of virtuous cycle of: Can you get them in the door? Can you make them love you? Is the experience great? Does it help them find what they want?
Brand marketing is somewhat art not just all science, and it does take time to pay its rewards. We do believe though that by being more a funnel―by being more efficient in performance and allowing us to put more money upfront―we can drive greater long-term returns. Now, it’s not a quick twitch muscle. As I said, brand marketing is not like you run a great ad and tomorrow everybody books. It takes repeat. It takes sinking in of that brand proposition and getting everybody focused on your name, and then it starts to pay rewards in performance. It starts to pay rewards in direct. It starts to pay rewards across a lot of things.
So, we believe in that opportunity. We will invest in that opportunity, and it will take some time to pay out. It’s not like performance [marketing]. It’s not like you’re buying the transaction every time you do it.
We have a great new summer ad campaign coming for Vrbo that we think will be really impactful. . . . We’ve talked before about going up funnel, creating that brand love, pushing for direct interactions, direct consumption. But keep in mind, it’s not a quick twitch tool, like performance marketing. So, we have to invest over time to build that.
We mentioned last time on our last call that we went off the Google meta products for vacation rentals. And actually, over this last quarter, we have we have pulled back from other vacation rental meta players. And so far, the results have been excellent, and as good or better than we could have hoped for in terms of the returns we have seen in getting more direct traffic and traffic other ways, more efficiently. So, that has been a great move. And we will continue to focus on that. But again, we will be upfront more, we will be focused and leaning into the wave ahead. But, it could be bumpy and we may be a little early, but we believe now is the time to lean in and we will be leaning in, accordingly.
Revenue per Room Night Is Up
CFO Eric Hart: Revenue per room night was up 10 percent. That is due to two primary factors, mix to Vrbo and then mix to the US as well, where there’s typically higher ADRs. . . . Vrbo is obviously seeing some nice ADR improvements, just given the demand in that sector.
On the “Revenge Travel” Trend
Kern: I’m rooting for revenge travel, whatever that is. Whatever kind of travel people want to do, we’re happy to accommodate it, revenge or otherwise. . . . And I would say that revenge or otherwise, places like Miami demonstrate that there is huge pent-up demand to go to places where people can experience a relatively normal travel experience. And I don’t know if you’ve been to Miami recently, but it is packed. The hotels are full. People are out everywhere. Restaurants are full. . . . So, if you just think about that in a macro way, you say, okay, where people can travel, where they can have a normal experience, where they feel like they’re comfortable free, whatever your words are, there is a huge amount of demand for that.
Kern: Finally, I’d just say we are clearly benefiting from our relative strength in some of the best markets, VR, the US, etc. But it’s a bumpy ride, and we’re hoping for reopenings. . . . We still don’t know what’s happening in many markets. Anything could happen. Things could get worse before they get better, but we are optimistic. We are seeing a lot of improvement across the globe. And we are feeling good about the work we’re doing at the company.