Expedia Group Inc (EXPE) 2012 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Expedia third-quarter 2012 earnings results conference call.

During today's presentation, all participants will be in a listen-only mode.

Following the presentation, the conference will be open for your questions.

(Operator Instructions).

Today's conference is being recorded October 25, 2012.

I would now like to turn the conference over to our host, Alan Pickerill, Vice President of Investor Relations.

Please go ahead.

Thanks, Alicia.

Good afternoon and welcome, everyone, to Expedia Inc.'s financial results conference call for the third quarter ended September 30, 2012.

I'm pleased to be joined on the call today by Dara Khosrowshahi, Expedia's CEO and President, and Mark Okerstrom, our CFO.

The following discussion, including responses to your question, reflects management's views as of today, October 25, 2012, only.

We do not undertake any obligation to update or revise this information.

As always, some of the statements made on today's call are forward looking, typically preceded by words such as we expect, we believe, we anticipate, or similar statements.

Please refer to today's press release and the Company's filings with the SEC for information about factors which could cause our actual results to differ materially from these forward-looking statements.

You'll find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in our earnings release, which is posted on the Company's IR website at expediainc.com/ir.

I encourage you to periodically visit our Investor Relations site for important content, including today's earnings release.

Finally, unless otherwise stated, all references to cost of revenue, selling and marketing expense, general and administrative expense, and technology and content expense exclude stock-based compensation.

And all comparisons on this call will be against our results for the comparable period of 2011.

With that, let me turn the call over to Dara.

Thanks, Alan.

Expedia's third-quarter results continued to build on what's shaping up to be quite a good year.

We saw ongoing strength in our hotel business, with room night growth accelerating across all major regions, especially in the Asia-Pacific regions and Europe.

In fact, for the first time in our history, our international points of sale delivered an impressive 50% of our total room nights for the quarter.

Global room night growth of 27% was faster than Q2 as Brand Expedia's growth continued to accelerate nicely, with hotels.com and the rest of our brands continuing to grow at very healthy rate and executing well.

Our technology projects remain on track, with rapid innovation on Brand Expedia's standalone hotel path and more fundamental changes coming on our standalone air path.

At this point, we can tell you two things -- one, that we are delivering predictably on our technology roadmaps; and two, that the Expedia Hotels end-to-end program has been a success.

Expedia standalone room nights are growing again at a materially faster pace.

What we don't know yet is specifically how we will perform in air packages, both of which are battling macro headwinds.

At this point, though, we are optimistic about our team's ability to deliver a great platform and hopefully sustainable growth as a result.

Separately, we have been really pleased with the new Expedia FIND YOURS advertising campaign, which is much more inspirational than you typically see in the category.

Honing in on the transformational nature of travel as told by real-life actors -- real-life travelers, not real-life actors -- no characters, no actors.

The campaign is extremely powerful, and if you haven't seen any of the ads or vignettes, I would encourage you to take a look.

In fact, a recent viral video of ours, Find Your Understanding, exceeded a record 2 million views in about one week.

Last quarter we introduced you to an innovative new program called Expedia Traveler Preference, or ETP.

As a reminder, we've built the technology that allows us, along with participating hotels, to offer consumers a choice of whether to pay Expedia in advance or pay the hotel at the time of their stay, which we believe meaningfully increases the likelihood that customers will book.

While it's very early in the rollout, we are pleased with the progress to date.

And we can see already that participating hotels are outperforming hotels who have not yet signed up for the program.

Not surprisingly, European customers are favoring Hotel Collect, while US consumers seem to be favoring Expedia Collect.

From an international perspective, we recently signed a new agreement with eLong that improves cooperation between the companies and allows us to bring more of our assets to bear as we compete aggressively in that growing market.

[Cord focus right], the annual travel market in China, is close to $100 billion, of which only 13% is online.

With eLong's consistent share gains, we believe that we are one of the few global e-commerce companies that have established a significant and lasting position in China.

As the Chinese middle class grows and those consumers continue to travel more and increasingly book that travel online.

We continue to make significant progress in mobile.

Hotwire just launched its new iPhone app and is now getting about 20% of its hotel transactions through mobile, including tablet.

In addition, Hotels.com released an updated version of its app for Android and iPad tablets and now has surpassed the 10 million mobile app download milestone across all mobile platform.

We continue to view mobile as an opportunity to access new market segments as well as potentially drive a higher percentage of our bookings directly to our sites, especially through app downloads.

Lastly, from a macro global economic perspective, the environment doesn't appear to have changed significantly since we spoke to you last quarter.

Obviously we don't know what will happen with the so-called fiscal cliff or the elections in the US, and we can't predict the outcome of sovereign debt and other global economic issues.

While we do see clear signs of caution surrounding managed corporate travel spend in the US, we haven't felt an incremental effects on the rest of our brands.

Our focus will continue -- will be to continue executing on our playbook, with a goal of innovating and making continuous improvements across our products and businesses that will drive growth in all geographies over the long term.

Mark?

Mark Okerstrom Thank you, Dara.

The third quarter came in slightly ahead of our expectations.

Hotel revenue grew 20% year over year on room night growth of 27%, with domestic room nights up 17% and international growing 38%.

Revenue per room night was down 6%, while average daily room rates were down just under 3%.

The decrease in revenue per room night was again driven by mix shift, the impact from foreign currency, and the loyalty programs.

We talked to you in the past about the impact of an increasingly larger and fast-growing hotel business in the Asia-Pacific region.

In fact, if you exclude the APAC region, as well as foreign-currency headwinds, we estimate that revenue per room night would have been flat year over year on ADR growth of 2%.

Our hotel business represents a large strategic global growth opportunity, and we will be happy to take volume growth, even at lower unit economics, to continue to drive the size and scale of this business.

Revenue from our air business represented 7% of total revenue for the quarter and was down 10% year over year.

Ticket volume grew 11%, largely due to the VIA Travel acquisition, without which tickets would have grown in the low- to mid-single-digit range.

Revenue per ticket was down 19%, due primarily to significantly lower net supplier economics arising from new carrier deals negotiated over the course of last year.

We think that revenue per ticket trends will start to normalize next year, after we have lapped most of our newer supplier agreements.

Other revenue, representing 16% of the mix, grew 23% for the quarter on growth in corporate travel fees and advertising revenue.

Note that we did benefit in Q3 on the top line from lapping the Air Asia joint venture, which launched in Q3 2011 and had been a headwind until now, as well as the inclusion of VIA Travel in our results.

Running through key expense categories, cost of revenue grew faster than revenue in the quarter due to the addition of VIA Travel.

Excluding the new business, cost of revenue would have leveraged significantly.

As expected, selling and marketing grew faster than revenue due to three main factors.

Firstly, as we've mentioned on prior calls, as Brand Expedia has been rolling out its platform enhancements, it's been quite conservative in its overall marketing spend.

With significant product enhancements now in production, Expedia is becoming increasingly more aggressive in its marketing efforts.

Secondly, we have also made discrete decisions to increase our marketing investment in APAC and other emerging markets so that we continue to position the business for the excellent long-term growth opportunities we see in those regions.

And lastly, as we mentioned last quarter, we did have some delayed spending that moved from Q2 to Q3.

Looking ahead to Q4, we continue to expect deleverage in selling and marketing expense.

Technology and content grew 27%, which was actually lighter than we had anticipated.

Given a variety of factors, including the addition of VIA Travel, along with some difficult comps for capitalized labor and bonuses, we expect full-year tech and content expense to grow at a rate just north of what we saw in Q3.

General and administrative expenses grew 8%, primarily on increased personnel costs.

Shifting gears, I also want to mention briefly that our effective tax rate was quite low this quarter, primarily as a result of the release of some previous valuation allowances and, as was the case in last year's third quarter, some adjustments arising from our annual provision to return reconciliation.

Lastly, in terms of capital allocation, since our Q2 call we have repurchased an additional 1.9 million shares, and on a year-to-date basis, we have repurchased 10.7 million shares for $397 million, representing an average price of just over $37 per share.

In total, so far this year, we have deployed almost $640 million against a combination of share repurchases, M&A, and our dividend.

In terms of our financial expectations for full year 2012, we are now expecting adjusted EBITDA growth to be in the low-double-digit range.

We are currently in the process of planning for 2013 and as usual would expect to give some insight on our expectations for next year on our fourth-quarter earnings call.

With that, let's turn to questions.

Operator, would you please remind listeners how to ask a question?

(Operator Instructions).

Ross Sandler, Deutsche Bank.

Great.

Guys, just two questions.

First is, you've historically, if we go way back in the day, been hesitant to move into the agency business in the US.

Can you talk about why you think now is the right time?

And obviously, the new program is working well at improving conversion rates, but can you talk about how that might impact your cash flow as the mix of hotel shifts from merchant to agency?

And then, if we look at Expedia.com, can you guys strip out what the acceleration in the hotel business is?

So what would be the room night growth for Expedia this quarter versus last quarter or two quarters ago?

Thanks.

Sure, Ross.

As far as the reason why now, to some extent we've taken our time in observing the agency model.

Then we acquired Venere a couple of years ago in Europe, where the agency model is strongest.

And we have seen the consumer preference, especially Europe, in Europe for agency.

And I think we've told you for a long time that we are a marketer of hotel rooms; whether it's merchant hotel rooms or agency transactions, we don't particularly care.

We want to market rooms to our global audience in whichever way that they want to consume them.

The challenge for us was a pretty significant technology project that would allow us to have the flexibility to allow hotels who signed up for the ETP program to transact either in a merchant model or an agency model.

The technology there is not simple.

No one really has done it at scale before.

And we wanted to do it in a way that could scale on a global basis.

And kind of scale global technology projects like this are by no means simple.

So to some extent, the timing was driven by the platform and by the technology.

And once we thought it was ready, once we had discussions with partners and hotels who are quite interested in it, we thought we were ready to roll it out.

This comes with -- the model comes with lots of other stuff.

Your customer service has to change.

Your collections for commissions is completely different for agency versus merchant.

So a lot went into this effort, which is really invisible to the customer and invisible to the hotel here.

But a lot of work had to go into the back end in order to make this available on a scale basis.

Mark, do you want to talk about the cash flow?

Listen, I'd just remind you that it's still pretty early on, so it's pretty difficult to predict.

It will depend on the adoption rates of the hotel collector agency model versus the merchant model.

And what we've seen so far is that in, as Dara mentioned, in domestic market we've seen people continue to prefer the merchant model, and outside of the US a preference for the agency model.

And we also have a pretty strong or pretty large packages business that we hope will become even stronger as we roll out the packages end-to-end product on Expedia.

So, again, it's difficult to predict.

I would just say that the merchant model we believe is going to continue to have a pretty material role for our business going forward.

But to the extent that we do shift more to the agency product, of course that will have a negative impact on our working capital.

But of course we've got a strong balance sheet.

We've got significant liquidity.

We have been obviously working on this, as Dara mentioned, for a long time.

And we think this is a great investment to the extent that we have to make an investment off our cash flow and balance sheet to make this possible.

And Ross, as far as your question on the acceleration in the hotel business, we want to get out of kind of disclosing every quarter the room night growth for each brand.

I think it's safe to say that the Expedia brand room night growth continue to accelerate materially, and the other brands continue their excellent execution as well, the Hotels.com brand, [E-In], etc.

So for us to be able to accelerate our room night growth from 22% to 27% on a stay basis means that everybody played their part.

Mark Mahaney, Citi.

If I could just stick with that hotel room night growth, please, to what extent do you think that's still being tacked down by macro conditions in some of these markets?

I would assume there's maybe a -- maybe it's impossible to quantify, but a couple of points.

And then if you think about the other levers that are actually leading to that, I know it's very hard to call out market share gains, but do you have any commentary on what could be happening to that?

Seems like you've got a mix of much better execution, possibly some market share gains, and still tacked down by macro.

Is that the right way to think about it?

So it's hard to say what impact the macro conditions are having on our business.

As Dara mentioned in his prepared remarks, we haven't seen a material change from what we've seen over the last quarter, which was isolated pockets of weakness in Southern Europe.

More or less, that continues.

But, listen, we are accelerating more or less in all regions, Europe included.

We think that, based on what we think the market is doing, we are taking share in most of the regions, including the US.

And what's driving that, I would say it's really we believe us executing on the playbook that we have worked out across our business, which is a combination of great technology, great online marketing, and a great hotel business, and pulling that all together.

So I think it's a combination of everything.

Yes, I think, Mark, I would just add that I think that for the next year or so, the trends that you'll see from our business are going to be based more on our own execution and the playbook that Mark talked about than macro.

And I think in addition, you've seen online travel agencies in general during good times and bad times, and we as a group tend to perform pretty well during difficult macro conditions.

This is a pretty, quote/unquote, recession-resistant type of business, and we don't expect that to change going forward.

Brian Fitzgerald, Jefferies.

Thanks.

Can you give us any update on mobile, what trends you're seeing from your mobile apps, and maybe what percentage of your mobile traffic is transactional versus just browsing or comparison-shopping?

The trends are unambiguously positive.

We see more of our traffic across all of our brands coming mobile.

The most significant and popular use case for mobile is for last-minute type bookings.

60% to 70% of our bookings are for hotels 24 hours out.

Mobile is truly a global phenomenon for us.

The Expedia Hotels app was downloaded around 5 million times in 220 different countries.

So we are building very, very global solutions on the mobile space.

In general, our mobile conversion tends to be a little bit lower than our desktop conversion, but that's to be expected.

But I think that the delta that you hear with media company monetization between mobile and desktop is not nearly as much of a delta for us.

And we think the other benefit of mobile for us is it's a different use case.

These are -- we were not highly penetrated in the, quote/unquote, walk-in traffic, in last-minute type business.

This allows us to penetrate into that business in kind of a new market that we hadn't been in previously.

I think the other factor that's pretty interesting for us is that tablet behavior is pretty different from iPhone or phone behavior.

So when we talk about mobile, we are kind of putting tablet into its own category.

And I think the challenge that it gives to us is it creates lots and lots of different form factors that we essentially have to build designs around.

So while it is a great kind of business opportunity to us, we do think that it provides some challenges on the development and the design side, and it's going to be a challenge for everybody.

Great, thanks.

Tom White, Macquarie.

Great.

Thanks for taking my question.

I just wanted to drill down on the acceleration in the hotel room nights a little bit more.

I guess is there any way you can sort of parse out what the impact is from improving conversions on the Expedia platform and your other brands versus an uplift from -- in traffic from the marketing and advertising campaign?

And then on the Asia-Pacific opportunity, I think last quarter you guys mentioned it was high teens of your total room night mix.

Any update you could give us there?

That would be great.

Thanks.

Sure.

So there are a few things going on with the room night numbers.

In Q3, I would say the only one-timer that I would call out was we did lap over the Air Asia joint venture being excluded from our results, which we have been disclosing separately.

But that's probably a 200 to 300 bp impact on the room nights.

But even with that, when you take that out, you still have an accelerating case.

And I would say that one of the big drivers of that is, indeed, the acceleration of the Expedia business.

We have been in a period for a fairly long time where we had all of the businesses led by hotels.com putting in pretty consistent room night growth.

And really the big delta here is Brand Expedia.

And, listen, to parse it out between conversion and marketing, it is a difficult thing to do.

Generally, what I tell you is that in the variable marketing channels, such as search engine marketing, conversion allows you to drive more volume and allows you essentially to spend more money on marketing and produce bookings.

And if you look at our marketing spend this quarter, and in fact the acceleration of our marketing spend this quarter, and look at the growth rate compared to our merchant gross bookings, you'll see a pretty tight correlation.

And that's driven by a combination, really, of great performance of the product, backed up by good marketing spend to drive more growth.

In terms of the APAC mix, it is under 10% of gross bookings and revenue and is mid- to high-teens percent of room nights.

Great, thank you.

Heath Terry, Goldman Sachs.

Great.

This might be a little bit of a follow-up to the last one, but I was hoping what you could do is give us an idea of how the advertising leverage is really breaking down between the cost of advertising impressions increasing versus lower conversion rates after click-through.

Maybe you could put it another way, whether or not what's driving it is macro weakness versus increasing competition for traffic.

I'd say it's more the mix issue than anything.

Kind of relating to what Mark talked about, to the extent that you build a better product that can convert better, and the Hotels.com team has been doing that pretty consistently, the Expedia team is a little newer to it but is clearly doing it as well, you can then go out in the variable channels, especially where you can get instant reaction with the Googles of the world, with the MetaSurf players of the world, and you can essentially afford to bid more for a transaction that -- call it the last quarter or last year you couldn't bid as much for.

And you can still make the same amount for that transaction.

So it's not an issue of accepting a lower profit margin for that transaction.

You can still get a similar efficiency; you can just get a higher position.

So what you're seeing with us right now is a shift into some of the more expensive channels because we can afford to pay for some of those expensive channels when last year we couldn't, rather than call it a macro shift in competitiveness one way or the other.

And the other factor that Mark talked about is a timing factor, which is we obviously pay for the marketing costs up front.

And we recognize the room stays later.

So to the extent that you've got a business that's accelerating, as you see ours is, you might see a heavier marketing load up front before you start recognizing all the revenue.

Yes, I think the other thing I would add is that we are making marketing decisions on a by-brand, by-geography basis.

And so there is a fair bit of mix that you will see on our P&L.

And in general, as we continue to grow more aggressively international in areas like Asia-Pacific, for example, which can be generally less profitable markets for the first few years, and that could drive deleverage on the P&L as well.

And again, that is great volume.

The opportunity is very significant in those markets.

And it's something that we believe very strongly we need to invest in.

But it can result in mix shift impacts on our P&L that makes our sales and marketing look a little bit less efficient than actually on a like-for-like basis it may actually be.

Great, thank you.

Douglas Anmuth, JPMorgan.

Thanks for taking the question.

I just wanted to follow up on the ETP, in particular just trying to get an understanding for what types of hotels are signed up at this point.

It looks like it's I guess around 8% of total properties.

What types of hotels, and then if you have any target for the timing and sort of how quickly you think this can be rolled out.

And then also just curious if those hotels are specially promoted on the site in some way.

Thanks.

Sure.

So we do have about 13,000 hotels signed up so far.

About 9000 of those are hotels that we would classify as chain hotels or are strategic accounts, with the remaining being independents.

We had a great reception from our chain partners, and we're pretty excited to be working with them on this.

In terms of the rollout plan, we've got about 3000 of those hotels actually live right now.

It takes some time to actually get them trained up and converted over to the new platform.

And we will plan by the end of the year to have significantly more live.

We have the functionality essentially rolled out on the majority of Hotels.com websites now, either with 100% of traffic or 50-50 in testing.

And I would say the same for Expedia.

They are a little bit behind in rolling it out just because of the technology.

And by the end of the year, we expect to have the functionality live on both Brand Expedia and Hotels.com globally.

In terms of how fast we'll roll out new properties, again, we've kind of got the flexibility here to see some of the trends that we see and accelerate or decelerate.

But so far, we like what we see, and we're going to continue to roll out according to our plan.

We have not done any special promotion of participating hotels.

But we have seen that hotels that are participating are generally getting significantly more volume than those that don't.

And really, that's driven by the fact that consumers really like this product.

And so they are just more likely to book with those hotels that they've got the choice of versus those they don't.

And the other thing we are seeing is that hotels that participate generally get bookings on average of longer lengths of stay, which is a great result for our hotel partners.

More volume bookings with longer lengths of stay is a good thing.

And then the last thing I would note is that, again, it's early, but so far we're seeing this model be significantly more attractive to consumers outside of the US than it is in the US.

European consumers really like that.

And then we think that will be a great thing for our hotel partners, driving more international business into the US hotels.

And then we think it will be a great thing for our business in terms of giving us more opportunity to expand internationally.

But, again, it's very early to tell.

We are excited with what we see.

We'll update you when we know more.

And I'd just add that at this point ETP is not a significant factor in our results one way or the other.

And as it rolls in, we will tell you more about it.

But this quarter really wasn't about ETP.

The next couple of quarters hopefully will be.

Naved Khan, Cantor Fitzgerald.

Thanks for taking the question.

Just on the conversion rate improvement, I just wanted to get a sense of where you are in the improvement cycle.

And are you continuing to see more gains on the Hotels.com brand?

That's one of the brands, obviously, you sort of started to roll out earlier.

Just give us a sense on that one.

Yes, Naved, the gains continue, both on Hotels.com and on Expedia.

This is a -- it's not a one-year thing.

It's setting up long-term processes where you can optimize your site, where you can experiment at very fast rates.

And we have not seen the conversion gains at Hotels.com stop.

And having the two teams, having Hotels.com and Expedia, the Hotwire teams, even the Egencia teams, all experimenting faster based on agile technology, allows the different teams to compare notes.

We're comparing notes with our great friends in eLong as well, and we think it creates a pretty interesting environment as far as getting better and better at selling hotels on a global basis as a family of brands.

Okay.

And then can you talk about China and comment on what kind of trends you're seeing there in terms of the level of promotional activity and the level of discounting that might be going on there?

I'll leave eLong to get into more commentary as far as China goes, [both dedicate a hold, hold call to it].

But we have been very, very pleased with our progress in China.

eLong has been gaining share in that marketplace against the top player for some period of time.

We don't believe that those trends are going to stop anytime soon.

And there has been very aggressive discounting in that marketplace, which, while difficult for short-term profits, we think is driving a lot of consumers to book online.

And we think over the long term, in addition to the share gains, we think that's just a benefit.

The more people come online the faster in a market like China, the better for ourselves and even our competitors in the Chinese market.

So we're pretty pleased with where we are there, and we expect eLong team to keep competing and keep executing effectively.

Okay, and then one last question.

Was there any impact from the Olympics, positive or negative?

There was a slight impact, but I think that the Olympic impact in general is not one that is large enough to -- that wasn't large enough to really affect our numbers.

We did observe a healthy UK market post-Olympics.

So the UK really picked up, and that's certainly a good thing.

Herman Leung, Susquehanna.

Great, thanks.

Great quarter, guys.

Two quick questions for you.

I guess on the take rates, when you think about the agency side, I was just wondering if you can talk about the difference between the agency take rates in the US versus agency take rates you might be seeing in the different regions that you're seeing out there.

And the second question is, there's obviously been a lot of chatter about a potential 355 exchange with Liberty.

Wondering if that is something that you guys are thinking about with a cruiseship center or maybe another property combined with cash.

And I have a very quick follow-up.

Sure.

So with respect to take rates, we are not going to get into the specific details.

I would just point you generally to some of the pressures that you've seen on our revenue per room night over the course of the last few quarters.

We've called out mix into non-US regions and mix into chain hotels.

So to the extent that ETP as a product drives greater mix into chain hotels or greater mix outside of the US, you could expect that to put revenue per room night pressure on the business.

But again, that's pressure that we like.

That's pressure that is driven by volume-related mix shift.

So it's an investment that we are very happy to make.

And as far as Liberty goes, we've read some of Liberty's comment publicly.

They have been a great partner for us.

They have been terrific Board members, very, very constructive.

And we are quite happy to have them as investors.

Liberty is obviously very active on the transactional front.

But at this point, I think there's nothing really to say.

Our philosophy on our own balance sheet is that we want to put our considerable cash flows to good use.

And over the long term, we have been shrinking our capital base for some period of time, and that's not going to change one way or the other.

But to the extent that Liberty is interested in different structures, we will talk to them.

But at this point, it's nothing more than the comments that we've heard.

And you also talked about, earlier in your comments, you talked about the international POS systems up about 50%, or 50% of your total transactions.

Is there a way you can give us a breakdown between the drivers of that, between affiliate and Expedia brands?

Thanks.

You know, pretty strong across the board.

The Brand Expedia has been getting stronger in general.

Hotels.com has been doing incredibly well internationally.

The private-label business has been doing very well internationally as well.

So it's been pretty broad strength across our various brands and businesses.

Thanks again, guys.

Michael Olson, Piper Jaffray.

Good afternoon.

This is Andrew Connor in for Mike.

Just at the risk of beating a dead horse, wanted to really understand the outperformance specifically in Europe, and just wondering if really Europe is a situation in which Expedia is out-executing its peers in an otherwise deteriorating macro, or if the Europe macro is maybe a bit more resilient than you had thought and adding a modest tailwind to your business.

Thanks.

Sure.

So, it's really hard, again, for us to comment on the overall impact of macro on the market.

And the reason is that we are still fairly small in Europe.

And Europe is a very attractive market and one where we have had for some time, I would say, less than best-in-class execution.

So as we've rolled out the new platforms and been executing on our playbooks, we have considerable headroom to grow in Europe.

And so to some extent, we end up being less hit by macro conditions, at least less hit than we can see, because we are in a share gain mode.

Now, if the economy there was really booming, perhaps it would be higher.

But again, that's very difficult for us to tell.

Thanks.

Congratulations on a great year so far.

Tracy Young, Evercore.

Just a question on VIA Travel.

Since you've already touched upon the overall travel, if you could talk about any impact that you have seen on corporate travel in Europe, and if maybe that could've been a bigger contributor to your bottom line, top line and bottom line.

You know, VIA Travel is actually executing really well.

We are getting to know the team.

We are really impressed with the talents of the team there, [excellent] group.

And Northern Europe in general, as you look at Europe, Northern Europe, where quite a bit of VIA Travel's business is concentrated in, seems to be outperforming the rest of the continent, so to speak.

And as a result, VIA is overperforming versus at least the deal case that we had out there.

And we are quite positive on the business, and we are quite positive on that team.

Great, thank you.

[Janice Enkin], Credit Suisse.

I'm on for Stephen Ju.

I have two questions.

One, can you share anything with us in terms of the cadence of the quarter, whether things deteriorated or improved as the quarter went on for the various regions?

And two, just to turn to air ticket growth, it accelerated significantly from the previous quarter.

I was hoping you could provide some color on the drivers of that.

Thank you.

Sure.

So I would say the quarter was fairly consistent.

We did see, I would say, strength build a little bit as the quarter progressed.

So that was a good sign, but nothing super-significant.

It was pretty steady improvement as it unfolded.

With respect to the air ticket growth, the real driver there was VIA Travel.

It's a big corporate travel business which is pretty air-heavy, and so that drives really the bulk of that growth.

And without VIA Travel, the growth would've been closer to the lower-single-digit range.

And for the cadence in the quarter, it was pretty consistent across all geographies?

Yes, I would say the impact was pretty consistent across all geographies, slight acceleration as we moved through the quarter.

Okay.

Thank you.

Michael Millman, Millman Research Associates.

Thank you.

I was wondering, considering the quick impact, relative quick impact, of mobile and the innovation taking place, does this give you some pause regarding longevity of your platform's technology spend?

Also just a housekeeping -- seem not to have the transaction numbers.

Maybe you can give them to us, and hopefully it will be back in the future.

And then the usual US car-rental update as to third- and fourth-quarter outlook on fleet, price, opaque availability, and maybe what's creating the pricing disruption.

Thank you.

Michael, a call without you asking about cars would not be and Expedia call.

So we are happy to tell you all about that.

Mark is going to answer cars.

But as far as platforms go, I think it's a great question.

The challenge for us now, as we build out technology and as we build out designs for our various sites, is to build those designs in an adaptive way.

That means that they can adapt to the form factor that the user chooses.

So if the user is on a PC, the site adapts to the size of that PC.

If they are on an iPad mini, the site also adapts to that iPad mini.

It creates more upfront work as far as the kind of design that you do, decisions on what's really important to present on a page versus what's not important to present on a page.

In general, our sites are not adaptive at this point in general.

And as we are building out new feature sets, as we are redesigning pages, we'll look to design them in an adaptive way so that they can adapt freely to the various devices that the user wants to use.

And, listen, we think this is an opportunity for technology companies out there, for technology leaders out there.

There's going to be a challenge to build out adaptive designs in general.

It's something that we think can differentiate us, but it is an upfront cost.

Just the fragmentation of the devices on a worldwide basis is going to make our jobs more complex, but I think that that allows us to differentiate ourselves and to add value in the general travel value chain.

Mark is going to take on the other questions.

So transactions, that's a metric that we just actually don't look at internally anymore.

There's so much in our business that's driven by product mix shift that that metric itself has become much less meaningful than room nights and air ticket and car days, which are what we look at internally.

So we are striving to basically give you guys metrics that we use to understand the business and help you understand the business.

And transactions was increasingly becoming less so, that type of number.

With respect to what we are seeing in car, we did see some compression in the summer, and that of course made opaque inventory a little bit more scarce.

We are not expecting a meaningful change in that situation as we move into Q4.

We are expecting still some compression.

And for our business, there wasn't anything materially that changed in the quarter.

Again, we did have some weakness in our paid inventory, but that also ultimately got offset for us, anyways, in terms of some uplift that we saw from some Brand Expedia improvement in the car product.

Thank you.

Justin Post, Bank of America.

This is Ryan calling in for Justin.

I guess first, given what you guys talked about regarding the timing of the marketing spend versus when you book, how do you think that we should begin to measure, really, the marketing efficiency for you guys?

Is it better to look at it on a percentage of bookings or revenue?

Just kind of want to get your thoughts around that.

And then secondly, you talked about the trends for the Expedia room nights.

I'm wondering if you're also willing to break out that for hotels.com.

Thanks.

Sure.

Listen, given the best way to model marketing efficiency is by brand, by geography, but of course you don't have that.

So the next closest thing you've probably got in quarter is specifically merchant gross bookings and our hotel spend.

Of course, Expedia Traveler Preference could make that a little bit more difficult to track over time, so it may be a temporary fix.

But that's probably the closest.

It is not perfect, though.

Of course, we've got multiple products that are in merchant and multiple things that we spend our marketing money on, including brand marketing, which can generally move the numbers, because it's less tied to specifically in-quarter activity.

But hopefully that gives you a little bit of guidance.

In terms of trends for room nights for hotels.com, I would say the hotels.com and the rest of the brands, the trend has been pretty consistent.

They continue to perform at a healthy level, healthy growth rates.

We haven't seen anything materially change in that.

And as Dara said, a lot of the changes that we have made in the hotel platform and really the way that we are executing on this playbook should be things that we believe give continued growth in that business.

And that's -- in all those businesses, and that's certainly what we are seeing.

And Ryan, the only thing I would add on the relationship of marketing to our other metrics is, don't judge us by our marketing spend versus revenue or bookings on a quarterly basis.

We don't run the business on a quarterly basis.

We obviously -- it's really important to keep track of your trends and make sure that you're keeping operational execution discipline.

But we are building this business for the long term.

And sometimes, if we invest in one quarter, it may not pay off until a few quarters down the road, or a few years.

And that's not going to stop us from making that investment.

Very helpful.

Thank you, guys.

Kevin Kopelman, Cowen & Company.

Thanks a lot.

Could you give us more color on how customers are engaging through smartphones and tablets?

You disclosed the 20% of Hotwire transactions.

Are mobile devices also a meaningful driver for Expedia as a whole?

Yes, they are.

They're meaningful.

Expedia is over 10% right now in mobile.

If you look at Expedia and its product, right now Expedia really has a hotel product available on its iPad app.

We are coming up with pretty soon with an air experience on our iOS app, which really, really looks beautiful.

But in general, when you look at Hotels or Hotwire, they are ahead.

And with Expedia, as we add on more products, because Expedia is a multi-product business, we expect our mobile transaction penetration to increase.

The hotel experience is great, but we think the air experience is going to be very, very good.

And is that still primarily last-minute, or are you seeing users branch out?

On tablets, it looks very much like PCs.

On the phone, it tends to be more last-minute activity.

Thanks a lot.

Scott Devitt, Morgan Stanley.

This is [Nishan] for Scott.

Just wanted an update on the impact of, I guess, Google's initiatives in travel, how you're seeing that in Expedia in terms of both I guess Hotel Finder and then the other products that they have.

The quick update is that we are not seeing it affect our overall business.

We -- obviously, Google is a valuable partner of ours.

They're a long-term partner, and we do a lot of business with Google, and that business in general is increasing.

The Hotel Finder product hasn't been a significant producer for us.

We participate in Hotel Finder.

But I think at this point, Google is doing lots of experimentation.

On the air side, initially, when they launched the air product, it hurt our free traffic to our sites.

And Google obviously has huge market power to the extent that they are sending traffic to their own sites.

That really hurts any third parties, and it hurts kind of the general environment.

But over the last quarter, I think that trends haven't changed significantly one way or the other.

Thanks.

Could you also -- just one more thing.

Could you talk about maybe the marketing spend ROI on Google versus maybe a TripAdvisor and Kayak, just to give us an understanding of the differences between the channels for Expedia?

We consider that pretty competitive data, so that's not data that we are willing to share.

Thanks.

Thank you.

I'm showing no further questions in the queue at this time.

I'd like to turn the conference back to management for final remarks.

Okay.

Thanks, everyone, for joining us on the call today and for all the questions.

We'll post a replay on the IR website shortly.

Appreciate your interest in Expedia, and we'll look forward to talking to you again next quarter.

Dara, any closing remarks?

No, just a special thanks to the Expedia employees who do all the hard work behind the results that we talk about during these calls.

Especially a big thanks to the LPS team for ETP.

It's been a huge rollout, and special thanks to that team.

Thanks very much.

Ladies and gentlemen, this concludes our conference for today.

Thank you for your participation.

You may now disconnect.