Expedia Group Inc (EXPE) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by.

Welcome to the Q2 2013 earnings call.

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

Following the presentation the conference will be open for questions.

(Operator Instructions)

This conference is being recorded today, Thursday, July 25, 2013.

I would now like to turn the conference over to Alan Pickerill.

Please go ahead.

Thank you, Katya.

Good afternoon and welcome to Expedia Inc's financial results conference call for the second quarter ended June 30, 2013.

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

The following discussion, including responses to your questions, reflects management's views as of today July 25, 2013 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, 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 revenues, selling and marketing expense, general and administrative expense, and technology and content expense excludes stock-based compensation.

All comparisons on this call will be against our results for the comparable period of 2012.

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

Thanks, Alan.

We expected the second quarter will be a tough one with a number of factors stacked up against us and it was.

Mark will get into the details, but I wanted to lay out some of the issues that affected our performance this quarter.

From a year-on-year perspective, we had difficult revenue comps in Q2 due to Easter falling earlier this year than last.

In addition, the challenges of Hotwire we called out last quarter, were particularly acute in Q2.

In fact, Hotwire's performance in the quarter was worse than we expected.

Lastly, on the expense side, we had a particularly difficult comp for sales and marketing.

In addition, we saw some incremental factors that affected our second-quarter results and our trends moving forward.

First, we've continued to face a challenging competitive environment especially in the US, with three major travel players entering the brand marketing space.

Booking.com, TripAdvisor Going Forward, and our very own trivago.

This translated into weaker growth in Q2 for some of our highly profitable direct channels.

The impact was more pronounced for Hotels.com and Hotwire, since Brand Expedia was able to offset the impact with strong performance in variable channels as its conversion rate continued to improve.

Second, we saw broad negative impact of TripAdvisor, one of our largest marketing channels, moving to the metasearch model globally, impacting traffic, revenue and profitability.

The transition has been difficult and the environment is quite dynamic relative to our past history with them.

We continue to work with TripAdvisor, and are beginning to see signs of improvement in the channel, relative to early results.

Something we would expect to continue over time as we move beyond the initial transition.

Although making us incrementally more cautious, we haven't let these pressures affect our desire to make smart investment decisions to drive long-term growth.

And we continue to push very hard at both eLong and trivago.

eLong continues to aggressively compete and gain share in China, affording us a unique and sizeable position in our Asia-Pacific operations.

In it's first quarter as an Expedia business, trivago continued its international push and grew its revenue nearly 80% year over year.

trivago is continuing its global expansion and is currently focusing ramp-up efforts in some very key markets, including the US-Canada and Australia-New Zealand.

Based on a strong consumer response in these markets, we've increased our marketing investment, relative to our initial plans.

Combined, eLong and trivago investments drove a $13 million year-on-year reduction in adjusted EBITDA compared to the second quarter last year, the bulk of which represented incremental spending relative to what we described to you on our last earnings call.

We remain optimistic about just how big these businesses can be over the next few years and are allocating capital accordingly.

Let me turn it over to Mark to take you through some of the numbers before I give a few closing remarks.

Thanks, Dara.

Despite the headwinds in incremental pressures that Dara described, our consumer travel brand, Expedia, Hotels.com, EAN and Hotwire, taken together delivered adjusted EBITDA broadly line with our expectations, as did Egencia, our corporate travel business.

Now as Dara said, the brand marketing and metasearch dynamics are such that our top line is a bit lighter than we expected.

And we do see those trends extending into July, but we believe we have sufficient cost levers to size the business for a changing environment, should these conditions persist.

Despite top line pressure on our consumer travel brands, we did make selling and marketing investments in both trivago and eLong, which were incremental to what we had anticipated at the time of our first-quarter conference call.

trivago's progress thus far in the US and elsewhere has been impressive and we decided to pour a bit more fuel on the fire.

Similarly, we were happy to put more marketing weight behind eLong's continued share gains in the Chinese market.

We continue to see strong results for Brand Expedia with very robust room night growth, along with some promising early results from our packet migration.

AD testing of new functions and features on the hotel, air and package paths continue at a very strong pace and conversion continues to improve.

Helped by one last month of inorganic growth from VIA, Egencia grew gross bookings 27%, revenue 26% and room nights 32% for the quarter.

Overall we are quite pleased with the performance of Egencia, as they continue to take share in the global corporate travel market.

In total, hotel revenue grew 12% for the quarter with 19% room night growth and a decrease in revenue per room night of 6%.

Domestic room nights grew 11% and international room nights grew 29%.

Room night growth decelerated this quarter compared to Q1 2013 due primarily to Easter timing, TripAdvisor's metasearch transition, and eLong channel disruption, as well as our private-label business comping over significant growth on some big partners in the prior year.

As Dara mentioned, we also saw some impact particularly towards the end of the quarter, from increased competitive brand marketing in the US.

As a reminder, as we move through the year we're facing increasingly difficult comps, as we lap over the room night acceleration of Brand Expedia last year.

The decline in revenue per room night was driven by a number of factors including ongoing impact of fast room night growth in China, the impact of competitive discounting and couponing and share shift to bigger hotel chains with lower margins.

In addition, the shift to ETP is also having an impact as we transition over to the new model.

Notwithstanding the positive conversion benefits we are seeing with ETP, we expect that the migration will have a negative impact on hotel revenue margins as we expand the program.

More broadly on ETP, we now have more than 30,000 hotels under contract, with over 70% of those hotels live in production.

Consumers continue to love the product and our supply partners are learning more about how this program can drive their room night growth.

Air revenue grew 8% in the quarter on ticket growth of 7% and advertising and other revenue grew 37%, driven by hotel metasearch revenue at trivago.

Now turning to key expense categories.

Cost of revenue grew slower than revenue in the quarter and would have generated more even more leverage had it not been for the one last month of inorganic impact from the VIA acquisition.

In addition, we do continue to see more credit card fraud that we have seen historically and this is having a negative impact on cost of revenue.

As we expected, selling and marketing expense grew faster than revenue, primarily due to our marketing spend at trivago, difficult comps for certain of our other brands, as well as our continued expansion in key international markets.

It's worth noting that a significant majority of trivago's operating expenses consist of selling and marketing.

And in the near term we plan to continue investing for growth at an aggressive pace.

In total, trivago added roughly 11 percentage points of growth to this line item for the quarter.

Technology and content grew 21% year-over-year, marking the slowest rate of growth in more than two years and the second consecutive quarter of deceleration.

We expect this trend to continue and the relationship between the growth of tech and content expense and revenue growth should continue to get better in the back half of the year.

General and administrative expenses grew just under 14%, with three percentage points of this growth driven by one month of inorganic impact from the VIA acquisition, as well as the addition of trivago.

In terms of capital allocation, year-to-date we deployed over $700 million towards the combination of acquisitions, buy backs and our dividend.

In addition, we are pleased to increase our dividend to $0.15 per share for payment in the third quarter.

Turning to our financial expectations for full year 2013, given the environment we have described today, we now expect full-year adjusted EBITDA growth in the mid to high single-digit range that we will work very hard to do better than that.

Regarding the shape of the year, the back half in particular the fourth quarter, is expected to generate significant adjusted EBITDA growth, primarily because our selling and marketing and tech and content expenses are expected to grow at slower rates than the first half, and because we expect trivago to deliver healthy adjusted EBITDA in the back half of the year.

With that, back to Dara for some closing remarks before we move to Q&A.

Thanks, Mark.

Although we're facing some near-term challenges, our core consumer travel business is one that we believe can grow at healthy sustainable top- and bottom-line rates over the long term.

We're excited about the global growth opportunity, the growth of our mobile business and the conversion upside from our ETP program.

With the bulk of our re-platforming efforts behind us, we're now transitioning this part of our business from a phase of technology and platform investment to a phase of leveraging those investments and positioning the business so our overhead costs are growing more slowly than our revenue.

In addition we have three important businesses that we consider to be future growth drivers in Egencia, eLong and trivago, where we're very focused on global growth, size and scale, rather than on growing near-term profitability.

We believe these businesses represent huge long-term opportunities and we'll continue to drive them aggressively with an eye on a significant payoff in the future.

Finally, Expedia Inc is a business with strong balance sheet and strong annual cash flows, we strive to be smart allocators of capital, investing in acquisitions opportunistically while returning cash to shareholders through dividends and share repurchases over time.

We think the combination of strong-based OTA business built to grow in scale globally, three very big growth drivers and huge categories in Egencia, eLong and trivago, and strong cash generation along with smart capital allocation, put us in a great position to grow shareholder value going forward.

Now let's turn it to questions.

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

(Operator Instructions)

Ross Sandler, Deutsche Bank.

Thanks, guys, two questions.

Mark, can you talk about the cadence of EBITDA growth in 3Q and 4Q?

I think most investors are struggling to get back up to the mid to high single-digit growth rate, given the current trajectory and the comments about July.

What gives you the confidence?

And then, Dara, it seems like Booking.com is getting more aggressive in every marketing channel in the US, not just TV but within KAYAK, within TripAdvisor, within Google.

What can you do to offset some of these dynamics in the medium term?

Thanks.

Thanks, Ross, so with respect to EBITDA growth for the rest of the year, as a reminder our expense comps get significantly easier throughout the year.

Cost of sales, the VIA impact basically disappears.

Sales and marketing, the first half is very difficult comps as last year Brand Expedia was ramping up.

We'll be comping over that in Q3 and Q4.

G&A gets a lot easier and then also technology and content starts to slow as well.

So the expense comps get particularly easier.

And then revenue is something that is, as we said, we think is sustainable over time.

And I will remind you too, that at the time of our last conference call, we spoke about the Hotwire organic forecast takedown being replaced by trivago.

And just a reminder that Hotwire is much more of a normal seasonal business and therefore had particular impact in this quarter.

trivago, given the phase they're in right now, is mush more back-end loaded.

So the organic business was already back-end loaded and trivago basically accentuates that.

Ross, as far as Booking.com and their competitiveness, they have been competitiveness in those channels for some period of time.

It is nothing new.

And we've talked about the global travel opportunity being a trillion-dollar opportunity.

And even in the US, our business represents close to 6% of the US room nights.

That leaves plenty of growth for many, many players.

And I would say that we haven't seen any particular change in Booking.com's competitive activity within the trip channel or SEM.

Where we have seen a change is definitely the off-line channel.

And an off-line channel with Booking coming in, with TripAdvisor coming in and with trivago advertising as well, it is tougher for some of our brands to get the kind of share or voice that we've had in the past, even if we up our spend.

So from that standpoint the direct channel, the brand marketing, is definitely becoming more competitive.

One of our own brands, trivago, is one of the entrants there and we're seeing really, really good success in the US.

But in the other channels the real issue for us, and TripAdvisor was a switch from pop-up windows to metasearch, and that hurt us in the near term.

Although we're seeing some good constructive trends as we optimize that channel.

And in search engine marketing if anything, for example, for Brand Expedia, the SEM channel has been a significantly positive channel, as we have increased conversion and as a result were able to market more effectively.

So it's really the brand channel where we're seeing the competition and the change in the marketplace.

Next question, operator.

Tom White, Macquarie.

Great, thanks for taking my question.

I'm trying to reconcile the acceleration in the marketing spend a bit more with the deceleration in the hotel revenue.

You guys talked a little bit about the impact of trivago, but the spend on TripAdvisor was down year-over-year.

Can you guys talk a little bit more about where you are spending or where you're shifting dollars if they're not going to Trip.

Maybe comment on the relative ROI differentials you're seeing between some of the key variable marketing platforms, be it traditional search or metasearch?

Thanks.

Sure.

So, you know, generally the Trip spend was a significant takedown this quarter and it really evolved throughout the quarter.

We are positive year on year in April, and went significantly more negative through May and June.

That spend essentially was replaced with increases in both trivago, as well as increases at eLong, that essentially filled the gap there.

And that spend, at least in-period revenue, is a little bit less efficient.

That is probably the biggest story.

I would also say that again, towards the end of May and into June as we saw more pressure in the brand marketing channel, again with TripAdvisor, trivago, Priceline, Hotwire, all of the players in the marketplace, that did impact a bit our direct type-in traffic which is really is the most efficient traffic.

So that creates a bit of a mix shift, if you will, into more expensive channels.

Just to give you a little bit of the numbers, I said in my script, that trivago itself added 11 points of growth to sales and marketing this quarter.

Naved Khan, Cantor Fitzgerald.

Yes, thanks.

Just trying to understand the -- Dara, you already spoke about the US and the fact that it's slowed down.

I'm trying to understand the international performance.

Can you talk about the different geographies outside the US and how they performed?

And what are you seeing there in terms of competitive pressures and if anything has changed there?

Yes, I would say from an international basis we've seen a couple of factors.

One is southern Europe continues to be, on balance, weaker.

Spain, for example, for trivago, was in a particularly strong market, although Germany was a very strong market.

So there seems to be a difference between Northern Europe and Southern Europe.

And those trends have been continuing for some period of time.

We did see with Hotels.com some slowness in the UK and Ireland and especially towards the June time frame.

Some people chalked it up to the warm weather there, and we talked to some of our search partners and they talked about searcher volume for travel being pretty weak, especially during the summer season.

From a Brand Expedia standpoint the European regions look pretty good.

Expedia last year was weaker in the European regions.

We have invested in product.

We have invested in increasing in some of the brand marketing and also invested aggressively in variable channels in the European regions.

And Europe has gone from being, let's say, a weak point last year for Brand Expedia, to gaining positive momentum and we're hoping to build on that momentum.

And then we look at the APAC regions, Asia-Pacific, we're seeing continued competitive environment in China.

eLong continues to gain share but that does come with a significant investment on the marketing side and we don't see that competitive environment easing up.

We see it continuing.

And we're going to continue to invest in that marketplace because we really do think that we are building a scale operation and securing possibly a leadership position in that marketplace.

And, Naved, I'll also give you just some color on the international room night growth deceleration story.

Last quarter it was 43%, this quarter about 29%.

The big drivers there and the biggest driver, was the disruption that eLong had with Kuxun in China, that started at the beginning of the quarter and ended in a more or less in the middle of the quarter.

Next would probably be Easter which was a big factor, as well.

And then, TripAdvisor is another brig driver for us internationally.

So those were probably the three biggest drivers.

And then we did see some tougher comps for a number of our businesses internationally, as well.

That sounds good.

And then on Hotwire, you guys did say that it performed worse than, or below your expectations.

Is that primarily on the hotel side or is that also, is it car rentals, or what are you seeing there?

It was a combination of both hotels and cars.

That business, it continues to be fairly weak and we talked about the competitive factors.

And in an environment with rising occupancies and rising ADRs, we continue to see inventory pressure, so to speak, on the Hotwire front and that hasn't eased up.

We are working through some initiatives to hopefully regain some momentum in that business, but at this point it is not operating the way that we want it to.

Thank you.

You're welcome, next question.

Eric Sheridan, UBS.

One of the comments from the call I wanted to talk about a little bit more was, they mentioned that since the last earnings report you had made decisions to put more capital to work in the business as part of the longer-term business plan.

Understanding what drove those decisions and what assurance you can give investors about whether there will be additional decisions like that as we mover through the year, or whether you feel fairly comfortable with the budget as it is now laid out in the new EBITDA guidance for the full year.

And then the follow-up question would be about capital.

Raising the dividend today but in terms of longer term and using the balance sheet to possibly return capital to shareholders, as you move through this investment cycle.

Like to understand your thoughts on that as well.

Thank you.

Sure, Eric, as far as the investments that we made in some of these growth areas, listen, we want to have flexibility as a Company going forward.

We think that these are good investments that are going to pay off, and there is significant markets that we think if we win in can give outsize return to our shareholders.

The assumptions that we've made on the second half of the year are that trivago is going to go into a bit more of a profit mode.

trivago's profitability is almost all second half from investment mode in the first half.

We're pretty confident that's going to happen.

And then we're assuming that eLong continues to invest heavily in the China market, both in variable channels and off-line channels, as well.

And also continues to gain share into grow their room nights at accelerated rates.

We don't see that changing.

We think we're in a pretty good spot.

And what we will do is, we'll make sure just like this quarter when we talked about the $13 million of incremental costs, we'll make sure that we break out the emerging investments that we are making so that you can track the core OTA business as against some of these emerging areas.

As far as our balance sheet goes, and our cash allocation strategy, I would say nothing's changed.

We have brought in a significant number of shares of over a long period of time.

We believe in reducing our capital base.

And I think on a go-forward basis you can expect the same, although we're not going to talk about exactly when or how we're going to do it.

And we will look to make acquisitions on an opportunistic basis.

And we have started our dividends and we just announced an increase of dividends, as well.

So, this is a Company that produces a lot of cash flow and we believe in a balanced strategy as far as capital allocation goes.

And I would expect the same going forward as what you've seen in the past.

Great, thanks.

You're welcome.

Next question.

Douglas Anmuth, J.P. Morgan.

Hi, this is Don for Doug can you discuss a little bit about the your trivago marketing strategy, and why you've decided to push trivago more aggressively into the markets that you mentioned, US, Canada, Australia, New Zealand.

Are you talking more cross border travel there or domestic travel within these regions?

And does trivago help your position in Europe for any of your core brands?

And then, secondly, want to see if you're seeing any trends or any differences from the supplier direct channels, like are hotel direct sites any more competitive now than they have been in the past?

Thanks.

With respect to trivago's marketing strategy, trivago has a very strong track record of entering new countries using predominantly television advertising to build strong brands with which they back up with a great product.

And over the course of their expansion, and they're now at 39 countries around the world, they have developed a pretty sophisticated formula on how they do that.

And it goes along, like I said, you spend up, you build a strong brand and generally over time these markets become profitable, and you can move on and reinvest into greater expansion.

We saw, based upon the historic track record of multiple country launches, great traction in the countries we mentioned, US, Canada, Australia, New Zealand, including a number of other countries.

And we liked what we saw, the team liked what they saw, and we decided to pour a little bit more fuel on the fire.

Again, it is all very measured investment based upon metrics and they've got a strong formula.

With respect to competition from supplier-direct, we're not seeing any material changes.

It's been fairly consistent for us over the course of the last number of years, and nothing different to report.

Great.

Thank you.

Ken Sena, Evercore.

Can you share a little bit more about the level of confidence that you have in terms of restoring your TripAdvisor meta-channel the efficiency in terms of traffic, revenue, profit, where it was previously?

And also could you break down the incremental deterioration you saw on the Hotwire business in a little more detail?

Thanks.

Sure, as far as TripAdvisor goes, we're seeing good early signs.

The move initially off of the pop-ups into meta for us created a significant headwind as far as the both the revenue and profitability that we saw from that channel.

And the great thing about these variable channels is that you can optimize, you can gather data, and you can respond pretty quickly to the trend that you see in the near term.

So over the past month we've been working with the TripAdvisor team, who have been great, as far as optimizing the channel, working our CPC buckets, et cetera.

And the early results that we're seeing are encouraging.

They haven't gotten to the same levels that we were with in TripAdvisor earlier in the year, last year.

But the results have been improving on a week-on-week basis and we don't anticipate any reason for that to change.

Thank you.

You're welcome.

Mark, you want to talk Hotwire?

Sure.

I would say the Hotwire situation, as we mentioned on the last call, Hotwire was responding to what they saw.

They ran a big May sale, and that caused incremental spend above and beyond that which they were able to recover through revenue.

And that really drove the situation.

So beyond that there not much more to comment on.

Brian Fitzgerald, Jefferies.

Thanks.

A couple of competitive questions.

Are you seeing any impact from Trip extending further down the funnel into the transaction area?

And then, you talked a little bit about your SEM trends and what you're doing there.

Are you seeing any impacts from Google rolling out its Carousel product in the core search?

Thanks.

Sure, Brian.

As far as Trip moving further down, I think it's much too early to tell.

The difference that we saw with Trip was a pretty substantial decrease in the number of clicks that we got from Trip.

And we've been working to optimize our click share, so to speak, within the Trip marketplace.

And again, the early results that we're seeing are encouraging relative to the first couple of weeks.

So we're working to optimize that and we're pretty optimistic that we can.

As to Trip going more downstream, et cetera, I think it is too early to tell.

Trip has always been a very significant traffic generator for us.

It is, as you know, one of the leading travel brands and we don't see that changing.

We do think the meta product is a better product for them.

We'll keep an eye on it, but we haven't seen anything fundamentally different now.

As far as Google goes and the Carousel product goes, we've taken a look at it.

Google is a company that experiments constantly.

We have not seen any material change in either our paid or our free traffic from Google as a result of the Carousel, but it is early and it is something that we will keep an eye on.

Great, thanks, Dara.

You're welcome.

Next question.

Justin Post, Merrill Lynch.

This is Paul Beaver for Justin, thanks for taking my question.

I just wanted to clarify a little bit your comments about the demand environment in Europe.

I was wondering if this softness that you mentioned is isolated to Hotels.com?

Or did you see some weakness also at Brand Expedia in Europe?

Are you talking about the comments on Southern Europe or UK?

Well, I think you said UK for Hotels.com.

Yes.

So I think in the UK, the weakness that we saw was more Hotels.com, but we definitely felt, in the last couple of weeks with brand Expedia, some weakness as well.

I think that the Hotels.com and Brand Expedia are a little bit different, in that Brand Expedia, because of the platform changes that we've made, because of the re-platforming and especially because of the package business, we just moved on to the new packages platform, was able to mitigate some of that weakness.

But I would say that the last month or two in the UK has broadly been weaker from a market standpoint.

Brand Expedia was able to offset it a little bit because of the packages platform.

And then can you give us some more around Booking.com on Expedia in the US?

I think you mentioned that you're seeing a little bit less direct traffic.

Is it possible to put some numbers around that or give us some more color?

As far as the effect on the Brand Expedia, Brand Expedia has been actually quite strong in the US over the past couple of quarters.

I think the effect we're seeing with Booking.com is just a share of voice effect.

And again, the brand marketing that we're out there with, both for Brand Expedia, Hotwire and Hotels.com, on average has a lower share of voice than we've had in the past.

Brand Expedia, because of the platform investments, I think is mitigating some of those effects.

We're possibly feeling some of those effects with Hotwire and Hotels.com, although it is tough to tell whether it is specifically booking or if it's the environment or if it is generally a number of competitors in the marketplace.

Okay, thank you.

You're welcome.

Next question.

Michael Millman, Millman Research Associates.

Thank you.

First question is one, hotel companies talked about a drastic shortening of the booking window in Europe.

I was wondering A, are you seeing that?

And if you are, who are the winners and who is getting hurt by it?

And what the impact of this may be on occupancy and pricing?

And to what extent that is helping or hurting your ETP?

Also on the US rental car business, I think last quarter you said that year-over-year prices were rising.

Is that still going on?

Are fleets still short?

To what extent are the deep discounters affecting your opaque market?

And what are you seeing on the retail reservations, any offset from the retail reservations?

Sure, Michael, as far as the booking windows in Europe, I wouldn't say that we've seen a drastic shortening of booking windows one way or the other.

We're seeing a couple of factors.

One is that the Brand Expedia package business is growing quite nicely.

The beach vacation package business is growing again, and we think that's to some extent, or to a large extent, the result of the re-platforming that we have been working on for some period of time.

We are also seeing significant strength on the mobile channel.

On a global basis we now have over 50 million mobile downloads across our various brands.

And the mobile channel, especially as it relates to handset, tends to be much more last-minute than the desktop channel or the tablet channel.

So I think that the increase in mobile bookings that we're seeing, both in the US and in Europe, would probably indicate a second-order shift to shorter booking windows.

Other than those two factors we're not seeing very, very big movements one way or the other.

And I would say on the ETP standpoint we haven't seen ETP being affected one way or the other as far as booking windows go.

As far as the trends that we're seeing in the rental car market, we do continue to see prices being fairly strong.

Revenue per day looks good, and we think that's a result of the ongoing consolidation in the industry, and that consolidation continues.

In general, we did see some of the weakness that we saw Hotwire offset by a bit more strength on the retail portions of our other businesses.

Some strength in EMEA and the Asia-Pacific regions, but that wasn't enough to offset the weakness that we saw in core Hotwire, so to speak.

Thank you.

You're welcome.

Next question.

Mark Mahaney, RBC Capital Markets.

Thanks, guys, it's Kevin on for Mark.

I'm wondering as you roll out ETP, is that widespread enough that it's starting to be material to conversion rates for the Company as a whole?

Thank you.

I would say it is starting to be material to the Company with respect to our rev margin.

And of course we are seeing conversion uplifts if you take ETP in isolation alone.

But of course, there are a whole host of other factors that go on into conversion rates, and so it is difficult to isolate the impact and expect that you would see broad-stroked acceleration across the business directly as a result of ETP.

You have got the TripAdvisor transition going on, you have got some brand pressure, you've got continued overall improvements in conversion in across really all of our brands.

So we certainly think that ETP is a product that opens up the aperture to us in a huge way in terms of Europe and international, to some extent domestic.

We think it is overall long term going to be a great thing for this business.

But I think in terms of expecting acceleration on the back of ETP as it grows to be more material, we are optimistic but it is not something that we would urge you to expect.

Just to add two points to that.

We are absolutely seeing ETP hotels, hotels that we convert to ETP, perform better than hotels that have not converted ETP.

We see a higher length of stay.

We see average higher ATPs and we see those hotels gain share in our marketplace, which is broadly as a result of higher conversion.

There are higher cancellation rates with ETP agency transactions, but overall the hotels that convert over to ETP do materially better in our marketplace than hotels that haven't converted.

We do think that based on the pace of our ETP sign-up, by the end of the year, we're going to have a pretty significant percentage of our hotel volume over ETP.

And I think at that point, going into next year, especially, you should see ETP become more of a driver for the overall business that shows up at the metrics.

Thank you.

You're welcome.

Next question.

Ron Josey, JMP Securities.

Thank you, and thanks for taking my questions.

I wanted to follow up, Dara, what you're saying with ETP.

And specifically, I want to understand a little bit more of why hotels are performing better if you're on a platform or not.

Also, given I believe you said, there is a negative impact on hotel margins despite positive conversion rates.

Wondering how ETPs could be more of a driver next year, overall volume.

And then last questions with ETPs, and there's three of them so sorry for the long winded questions, how is it trending with 30,000 hotels relative to your expectations?

Thank you.

Sure.

As far as the hotels, listen, the hotel performance is a function of conversion, and when we tested out ETP with our consumers and we gave consumers the choice of either buying merchant or having a choice, or even buying pure agency, ETP was the choice that won out.

The beautiful thing about our business is that we can experiment, we can run experiments against each other.

So clearly ETP has been -- consumers have voted and we built the product based on the consumer vote, so to speak.

And we're seeing the result of that within the marketplace.

And as a result, the hotels that have transferred over to ETP, are producing more than they did and are producing more than their comp sets.

So from that standpoint we're very pleased with the product.

Really now what we want to do is roll it out so that it becomes a higher proportion of our overall revenue on a global basis.

As far as it matched our expectations, et cetera, I would say, broadly, yes.

You know, there are always operational pains that you're going through, et cetera.

But the team has done a great job working through those operational issues.

And we're seeing really good momentum now with some of the big brands, as well.

The Marriotts of the world, et cetera, are signing up.

Those hotels are being converted.

I think everyone's happy with the early results that we're seeing.

Right, thanks a lot.

I appreciate it.

You're welcome.

Next question.

Kevin Kopelman, Cowen & Company.

Hello, thanks.

Could you just talk at a high level about how traffic on your site has been in July?

Just given that TripAdvisor's commented on traffic headwinds in the month.

Sure, we have seen some traffic headwinds in general, but some of those headwinds for us have been really a question of mix.

So, for example, you had a situation with TripAdvisor, where if you were advertising on TripAdvisor and you were one of the top three advertisers, consumers would be popping windows every single time every time they clicked on show prices.

As TripAdvisor has moved a meta-model, all those windows aren't being popped up.

And that will translate into lower traffic to our sites, which you probably have seen some of the comp score metrics.

We are also cleaning up some of the lower-converting traffic with pop-ups, et cetera.

And in general, I would say we're moving more away from that kind of traffic than we have been in the past, as we have looked into consumer behavior and whether that traffic really converts or not, and the lifetime value of consumers coming in through those channels.

That said, we have seen in the US with some of our brands, particularly Hotels.com, a bit of a slowdown with direct type-in traffic.

And we have observed that really in June and July, and it's something that we're watching closely because that kind of traffic is pretty valuable traffic, both in terms of the kind of customers that are loyal to you and in terms of the profitability of those customers.

In the meantime we are investing in variable traffic generators, et cetera, to build up our traffic base and build up a loyal customer base, which we're hoping to keep with our loyalty program.

So that program continues, but we have seen some short-term headwinds.

Okay.

Thanks for the color on that.

And, also, just a follow-up on mobile, can you give us an update on what kind of -- how the activity has been on mobile devices?

Or maybe what percentage of transactions are coming from mobile now?

Yes, the activity continues to increase across the board.

We are seeing very, very strong app trends across the various brands.

We got over 50 million apps downloaded across our brands right now, and it is broad.

It is in the US, it is in Europe, it is in Asia-Pacific, eLong is doing a terrific job as far as driving app downloads.

And I think the quality of our mobile product is second to none.

Expedia has won a [wavy], et cetera, for the quality of those products.

And Hotels.com, if you look at them in the app rankings, they're consistently on top of the app rankings in many, many countries.

So we're very, very happy with our production on mobile and our growth in mobile.

It is in the 20% range on many of our brands and in many of our countries.

And it continues to increase in share on a global basis.

So it's a very positive trend for us and we certainly see no loss of momentum there.

Thanks.

You're welcome.

Thank you.

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

I'd like to turn the call over to Mr. Pickerill for his closing remarks.

Thank you very much.

Thank, everybody for joining us.

The replay will be up on the IR site shortly after the call.

Dara, do you have any closing remarks?

No, just thank you, everyone, for joining us.

We know it was a tough quarter.

We know that we have got our work cut out for us for the balance of the year and we're certainly up for the challenge.

Thank you.

Ladies and gentlemen, this does conclude our conference for the day.

Thank you for your participation.

You may now disconnect.