EXPE 2025Q2

Good day, everyone, and welcome to the Expedia Group Q2 2025 Financial Results Teleconference. My name is Alex, and I'll be the operator for today's call. For opening remarks, I'll now turn the call over to SVP, Corporate Finance, Dan Semo. Please go ahead.

Good afternoon, and welcome to Expedia Group's Second Quarter 2025 Earnings Call. I'm pleased to be joined on today's call by our CEO, Ariane Gorin, and our CFO, Scott Schenkel. As a reminder, our commentary today will include references to certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in our earnings release. Unless otherwise stated, all growth rates are on a year-over-year basis, and any reference to expenses excludes stock-based compensation. We will also be making forward-looking statements during the call, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions, which are subject to risks and uncertainties that are difficult to predict. Actual results could materially differ due to factors discussed during this call and in our most recent Forms 10-Q, 10-K, and other filings with the SEC. Except as required by law, we do not undertake any responsibility to update these forward-looking statements. We are also webcasting an earnings deck while going through prepared remarks. A copy of this deck will be posted to our website after the call. Our earnings release, earnings deck, SEC filings, and a replay of today's call can be found on our Investor Relations website at ir.expediagroup.com. For today's call, Ariane will begin with a review of our second quarter results and an update on our progress against our strategic priorities. Then Scott will provide additional details on our second quarter financial performance and guidance. After our prepared remarks, we will turn the call over to the operator to begin the Q&A portion of the call. And with that, let me turn the call over to Ariane.

Thank you, Dan, and thank you all for joining us today. Our second quarter results exceeded both our top and bottom line expectations. We grew gross bookings by 5%, grew revenue by 6%, and expanded adjusted EBITDA margins by nearly 2 points. We delivered these results in the context of a soft U.S. travel market, reflecting our focused execution and continued progress on our strategic priorities. The U.S. travel market was muted in the second quarter. Consumers at the higher end of the market remained resilient, with those at the lower end taking a more cautious approach to discretionary spending. That said, since the beginning of July, we've seen an uptick in overall travel demand, particularly in the U.S. Based on our solid first half performance and these current trends, we're raising our annual guidance, and Scott will cover this in a moment. In the second quarter, our booked room nights grew 7% overall, and we maintained our leadership in the U.S. with low single-digit growth. We grew room nights mid-single digits in EMEA and mid-teens in the rest of the world, including nearly 20% in Asia. B2B and advertising continued their strong performance. B2B bookings grew 17%, outpacing the market and delivering our 16th consecutive quarter of double-digit growth. Advertising revenue grew 19%, with a record number of active partners and momentum across both sponsored listings and display ads. Brand Expedia was once again our largest and fastest-growing consumer brand with multi-item attach rates at their highest level since the pandemic. Hotels.com bookings declined slightly, but room nights accelerated from the first quarter, helped by our brand relaunch in April. Vrbo grew room nights roughly in line with the market in the U.S., though bookings declined in a softer environment with lower daily rates, shorter lengths of stay, and higher cancellations. Our second quarter performance was underpinned by progress on our three strategic priorities: one, deliver more value for travelers; two, invest where we see the greatest opportunity for growth; and three, drive operating efficiencies and expand margins. AI accelerates all of these priorities, and I'll share how we're leveraging it in each. Let me start with delivering more value to travelers through our supply, loyalty program, and products. On supply, our recent partnership with Southwest Airlines has delivered fantastic results, bringing new customers to both Expedia and to Southwest, and delivering approximately 5% of Southwest's total passenger volume in the second quarter. This contributed to us outpacing total U.S. air ticket sales in the quarter. In EMEA, we've added Premier Inn, a leading European hotel chain and combined with adding Ryanair earlier this year, strengthened our value proposition to travelers in Europe. In May, we launched new vacation rental promotions capabilities. And in just a few months, nearly 10% of Vrbo bookings are on our new promotional rates. When we bring on more relevant supply, we drive more value for travelers and in turn, more growth for our supply partners. Our loyalty program showed continued momentum even as we calibrate the program. Active loyalty members grew high single digits with the fastest growth from our Silver members and above. As a reminder, higher-tier members receive better member rates from our supply partners and earn accelerated rewards, which together create another powerful flywheel for retention and repeat. Turning to our products. We're continually improving the foundations of our user experience like performance, scalability, and configurability; basics that we know drive conversion and repeat. At the same time, we're using AI everywhere, leveraging our vast first-party data to create better, more personalized experiences. Our AI filters help travelers find what they're looking for faster, resulting in higher conversion rates. And our insurance products now personalize coverage, resulting in our highest insurance attach rates ever. In customer service, AI is contributing to record high Net Promoter Scores while helping us reduce costs. This leads me to our second priority, investing where we see the greatest opportunities for growth. B2B is growing fast. We're excited about it, and we're investing behind it. We're onboarding new B2B supply and making it easier for partners to identify and surface the right deals for their travelers. We're also expanding our product portfolio. Last quarter, we launched our first partner on our Car API. And later this year, we'll roll out additional lines of business. B2B is large outside the U.S., and as we grow, it creates another powerful flywheel for our supply partners as well as benefiting our consumer business. On advertising, we're making it simple and cost-effective for advertisers to reach their goals. Our new ad formats like video are driving higher engagement and conversion rates. We're rolling out more automation, and about half of our partners now use our automated campaign optimization tools. We're a high-return channel for our advertisers. And while the space is getting more crowded by continuing to innovate, both on the ads themselves as well as advertiser tools, we believe there's a lot of growth potential ahead. In our consumer business, we're making progress growing outside the U.S. and capitalizing on new traveler behaviors. We grew bookings outside the U.S. by high single digits with Brand Expedia growing 13%. The U.K. and Northern Europe grew particularly well, in part fueled by the new supply I mentioned earlier. We continue to see opportunity to grow as we bring together marketing, product, supply, and servicing in a way that's relevant to travelers in each of our focus markets. We're also capitalizing on new traveler search behaviors, in particular with social, GenAI searches, and agentic AI. Traffic from GenAI searches is small but growing fast, and it's converting into bookings at higher rates than other traffic. We're working with all the large tech players, Google, OpenAI, Meta, and Microsoft, to name a few, to make sure that our brands appear prominently, and their value propositions are clear. It's a fast-changing space, and having the right integrations and partnerships enables us to stay ahead while optimizing our own sites, apps, tech, and marketing for the future. Moving to the third pillar of our strategy, operating efficiencies and margin expansion. For the past three quarters, we've been flat or leveraged against direct marketing spend in our consumer business. There's still work to do in this area, and we're taking a rigorous approach, refining our measurement and leaning in where we see the greatest returns. As our product gets better, as we drive more direct and better retention, we will see improved marketing leverage. AI is a key enabler of productivity and effectiveness. It touches every function across our company, and all our employees have AI goals. Our engineering teams, for example, have broadly adopted AI-powered developer assistance, and we're seeing reduced cycle times by more than 20% in some teams and faster feature delivery. We expect the impact to compound as we integrate AI deeper into our workflows, and that this work, alongside our cost discipline, will underpin our continued margin expansion. To conclude, even as the U.S. travel market was tough in the first half of the year, we made tangible progress on our strategic priorities. We have much work and opportunity ahead as we continue to execute on our strategy and deliver value for all of our stakeholders. With that, over to you, Scott.

Thank you, Ariane, and good afternoon, everyone. I'm pleased to share our second quarter performance, which exceeded our bookings and revenue guidance by one point and our adjusted EBITDA margin expansion guidance by one point. In summary, for Q2, our booked room nights increased by 7%. Gross bookings rose by 5%, and revenue grew by 6%. Our B2B and advertising businesses showed strong double-digit growth, at 17% and 19%, respectively. On the bottom line, we achieved an EBITDA margin expansion of approximately two points. We booked room nights totaling $105 million, up 7%. As Ariane mentioned, this growth was primarily driven by B2B, with strong international performance. Notably, Asia grew almost 30%, particularly in our Rapid API product. Rapid connects Expedia Group's extensive lodging supply with our travel partners. In B2C, Brand Expedia's booked room nights rose by 5%, also benefiting from international growth, though this was partially offset by a softer U.S. consumer spending and travel environment. ADRs of $209 remained flat compared to the previous year. The U.S. travel market continued to face pressure on inbound travel, characterized by shorter booking windows and higher cancellation rates. Despite this, we believe our company outperformed the market in both air and hotel sectors, while vacation rental room nights grew in line with the market. Gross bookings reached $30.4 billion, a 5% increase, benefiting from foreign exchange. Revenue of $3.8 billion grew by 6%, equating to 8% on a currency-neutral basis. International revenue growth was 13%. We outperformed our guidance for bookings and revenue due to strength outside the U.S., especially in B2B. Our international bookings growth was further supported by foreign exchange, and Brand Expedia enjoyed strength from growth in air, advertising, and attach. Both lodging bookings and revenue grew 6%. Moving to our segments, B2C gross bookings were $21.6 billion, a 1% year-over-year increase. We achieved high single-digit growth outside the U.S., which was partially offset by weakness in the U.S. market. B2C revenue reached $2.5 billion, a 2% growth driven by increased hotel demand, particularly from Brand Expedia, which reflected growth in advertising and additional stays from previous bookings. B2C EBITDA margins improved to 29.4%, up nearly three points from last year, propelled by volume growth in higher-margin products like advertising and disciplined cost management, particularly in direct sales and marketing. Turning to B2B, we are optimistic about the business momentum and growth opportunities as we unlock more of our supply and launch new APIs for our partners. This segment builds on the same supply and technology used in our B2C business, enabling us to broaden our reach and enhance global travel. B2B gross bookings were $8.8 billion, up 17%. This segment continues to benefit from increased volume due to solid execution and a higher concentration of business outside the U.S. B2B revenue grew 15%, driven by strong growth in Asia and Europe as well as a timing shift from Easter. B2B EBITDA margins reached 27.3%, a more than two-point increase year-over-year, supported by volume leveraging in the cost of sales and overhead. We reported a second quarter adjusted EBITDA of $908 million, representing a margin of 24%. The two points of adjusted EBITDA margin expansion were driven by revenue growth in both segments, particularly from our advertising business, along with about a 0.25 point benefit from foreign exchange. Adjusted earnings per share of $4.24 grew 21% compared to the prior year, fueled by higher revenues and cost leverage along with share repurchase activity. For the costs of revenue totaling $373 million, this represented 9.8% of revenue, marking a 0.25 point improvement from the previous year due to ongoing efficiencies, particularly in customer service. Direct sales and marketing expenses reached $1.9 billion, a 7% increase and roughly flat as a percentage of gross bookings, with leverage seen in our B2C business offset by B2B. Commissions paid to our partners are included in the direct sales and marketing expenses for B2B. Overhead expenses totaled $637 million, or 16.8% of revenue, also showing nearly a 0.25 point improvement. Please note that our cost-reducing actions had not fully impacted Q2 and are expected to deliver further benefits to our expense base in the second half of the year. Our balance sheet remains robust with total liquidity of $9.2 billion at quarter end, which includes $6.7 billion of unrestricted cash and short-term investments alongside $2.5 billion in our undrawn revolving credit facility. Our leverage ratio stands at 2x, consistent with our target, and we are committed to maintaining debt levels aligned with our investment-grade rating. Free cash flow over the trailing twelve months was $2 billion, showcasing the strength of our asset-light operating model and disciplined execution of strategic priorities. At the end of the quarter, we had $2.3 billion left in our share repurchase program, having utilized $627 million during the quarter to buy back 3.8 million shares of common stock. This brings our total shares repurchased in the last three years to 42 million, reducing our share count by 21%. For the outlook in the third quarter, we anticipate gross bookings growth of 5% to 7% and revenue growth of 4% to 6%. This forecast includes an estimated one-point benefit from foreign exchange on bookings and revenue growth at current exchange rates. Adjusted EBITDA margin is expected to expand by 50 to 100 basis points, with no material impact from currency at current exchange rates. For the full year, we are projecting gross bookings and revenue growth between 3% to 5%, which is a one-point increase from our previous guidance. For bookings, this includes about a 0.5 point benefit from foreign exchange, and for revenue, it includes an approximate one-point headwind at current rates. We expect an adjusted EBITDA margin expansion of a full point for the year, which is at the high end of our previous guidance of 75 to 100 basis points provided in May. The first half of the year has started well with adjusted EBITDA margin up over 1.5 points. In the second half, we will benefit from the cost actions we announced with our first quarter results. Additionally, we aim to achieve further EBITDA margin expansion from our B2C marketing leverage. We remain focused on optimizing our current expenditures across the enterprise while continuing to invest in our growth areas. Regarding capital allocation for the remainder of 2025, we plan to continue repurchasing shares at levels consistent with recent years. Finally, our guidance for 2025 indicates a slowdown in Q4 growth compared to Q3, driven by two factors. First, we are comparing against last year's significant strength when bookings and revenue growth were 13% and 10%, respectively. Secondly, there’s ongoing uncertainty regarding U.S. consumer behavior and travel to the U.S. I'm encouraged by the momentum we're observing across our strategic priorities, and I want to echo Ariane's enthusiasm about the progress we've made year-to-date, especially in light of the challenging U.S. consumer spending environment. Now, I will open the call for questions.

Our first question for today comes from Eric Sheridan of Goldman Sachs.

Thanks for all the detail in the prepared remarks. I think honing in on some of the bigger themes in what you said, when you guys think broadly and where this company is going over the next couple of years, how do you think about aligning some of your key strategic priorities and growth investments against traffic dynamics, conversion, and thinking about scaling various forms of inventory and go-to-market strategy over the medium to long term?

We are pleased with the mix of our portfolio between consumer and B2B brands. While our consumer business is mainly focused in the U.S., our B2B operations are quite diversified globally. We are keeping an eye on how AI develops and believe we are well positioned to incorporate it into our consumer products and applications. As consumer behavior changes and traffic shifts, we are collaborating with various partners in the AI space, such as OpenAI and Microsoft, to capture that traffic effectively. Our aim is to drive as much direct traffic as possible to our brands through our supply efforts, product development, and loyalty program, while also working with partners to draw in external traffic. The B2B segment is diverse both geographically and through the range of partners we engage with, as the travel industry has various purchasing pathways, from corporate programs to offline retailers and loyalty programs. Reflecting on our three main strategic priorities—adding value for travelers and partners through our products, supply, and loyalty program; investing in growth areas like B2B, advertising, and international consumer markets; and expanding our margins—we feel optimistic about our current position.

Yes. I'd add to that, Eric, a couple of things. First off, maybe to double-click on the direct traffic point that Ariane brought up. We continue to see strength in the traffic we get from direct, and we are very closely working with AI providers as well as monitoring our own traffic and conversion to make sure that we are seeing the uplift we think we should and holding our strength in direct, which we feel good about. The second is for app traffic, our app traffic continues to grow, and conversion continues to get better. So as we think about the mix of where our traffic is coming from, we feel very strongly about those two. The other traffic channels, broadly speaking, we're seeing more strength in social, which we feel good about and continue to invest behind. And as we make trade-offs between the other channels to balance our returns and our growth, that's where I think you'll see particularly out of B&B, some productivity going forward.

Our next question comes from Anthony Post of Bank of America.

I think I'll ask again about Hotels.com. You've mentioned some improvement. Maybe give us some things that are working there and how your outlook is for that brand for the next 12 months. And then, Scott, maybe you could talk about how you thought about Q4 comps in your full year guidance.

Yes. I'll take the Hotels.com question. And I'd start by saying, look, I talked about it a year ago, Hotels.com was our most disrupted of all of our brands from the platform migrations and the change in the loyalty program and the fact that we pulled back on international for a period of time while we were going through big re-platforming. And as I said, I feel good about where we are right now. I'll start with the brand relaunch in April. We're seeing brand awareness and direct traffic move in the right direction from that, and so that gives us a lot of confidence. Next, in the product, we introduced new capabilities like price alerts and insights that really reinforce the value proposition of this brand as a hotel specialist. So there are things that are specific to Hotels.com, and it also benefits from some of our underlying platform improvements, for example, like our checkout path. And finally, as we've been leaning back into international markets with the Hotels.com loyalty program of 10 for 1, we're seeing some really nice results. And Hotels.com is actually a brand that's quite exposed to international markets. So I'd just say, look, it's been a road to get here, and we have a full road map for the second half, and we feel good about the progress that we've made.

Yes. Specific to your second question, as I said in my prepared remarks, there's a fair amount of market uncertainty combined with tougher lapping. We're up 6 to 7 points in Q3 to Q4 of last year, and that dynamic is going to make, we think the comps a little tougher in Q4. But effectively, we're not updating Q4. So when you guys do the force out for Q4, it's going to show roughly flat for GMV and revenue. And I think we feel strongly that we'll be on the upside of the higher end of that range and that we'll get to Q4 when we get to it.

Our next question comes from Lee Horowitz of Deutsche Bank.

I think I heard you talk to marketing leverage in your B2C business in the second half of the year. I guess what has evolved in your business over the last year or so to sort of reach that elusive goal? It's been something we've been talking about for a while. Just curious what you're seeing to have confidence in that outlook and how you think about that perhaps going forward into '26.

I will begin, and then Scott can add if he wishes. Marketing leverage is primarily derived from improvements in our product. We need to assess whether the traffic we attract is coming in more directly, whether our paid traffic is efficient, and if we are converting that traffic into bookings and repeat customers. Our focus on enhancing traveler value—through product enhancements, supply improvements, and our loyalty program—aims to increase repeat business, direct bookings, and customer loyalty, which should naturally enhance our marketing leverage. Additionally, I have discussed our efforts to refine the value proposition for each brand; the clearer it is that Expedia offers a one-stop shop with great package deals, the more effective our marketing will become. Finally, there is the essential work in marketing to ensure we have the right partnerships and measurement strategies in place. I am confident in the advancements our team is making in these areas.

Our next question comes from Naved Khan of B. Riley Securities.

Could you share your thoughts on the current promotional environment in light of the sluggish U.S. market? Are you relying more on promotions to boost bookings and conversions compared to previous periods? Additionally, how does this shift impact your marketing efforts? Also, I'd like to know about the all-in pricing strategy you're implementing across your platform. What has been the effect of that on conversion rates?

Okay. On the promotions, I sort of split the answer in two. The first part is supplier-driven promotions. And in the second quarter, we saw more of our bookings come on promotional rates that were provided by supply partners. And I think that's both a reflection of supply partners participating more in the promotions and the U.S. consumer being more price-sensitive. And look, we partner with our supply partners to help them get more reach. So that's what we're seeing on promotions. And then regarding our own promotional activity, whether it's around packaging and the like, we look at it in a very, I would say, methodical way, both marketing, loyalty, and promotions and pricing together. And wherever we see the best returns, we'll sort of optimize around that. So that's the answer on the promotions question. In terms of all-in pricing, any time you change the UX of an e-commerce app or site, there's obviously some adjustments, but there was not any more impact than what we had expected. And we think it's a good thing for the traveler.

And then I'd also call out that I think we talked about this before, but just for clarity, the loyalty and pricing go into contract. So it doesn't show up in marketing, just so we're clear on that.

Our next question comes from Jed Kelly of Oppenheimer.

Just in AI and how it benefits the B2B and how you're using your agent, is that something you can use with your agent to generate new business by potentially letting them use AI agents to get more inventory? And then just on Vrbo, I see that bookings were down year-over-year. You called out slower ADRs. Can you just talk about the mix shift? And are you still seeing the mix shift to the higher-value homes?

Yes. Okay. Let me start with Vrbo and then I'll get to B2B and agent. Look, what I would say on Vrbo is we are still filling some of the foundational gaps that we had, in particular, around supply that during the period that we were going through those big migrations, we hadn't been able to get to. An important part of those gaps in supply came from promotions like I described. We actually just unlocked the last-minute deals, which we didn't have before. And as we look to get more trip types to be able to serve more than the once-a-year large vacation, we need to unlock the supply and product to do that. So last minute was a big part of that for weekend trips. Six months ago, I talked about the multi-unit vacation inventory in urban. So we are on the path to be able to cater to more trip types, whether it's, as I said, short booking window, longer booking windows, whole homes or apartments. I'd also just call out on Vrbo, last quarter, we launched categorical recommendations on the app home screen, which helps people more easily find their match. So there are some good things happening there in Vrbo. In terms of your B2B agent question, I would say it's early days between us and supply partners in figuring out how will agents help, whether it's onboarding inventory, whether it's helping with customer support issues. But the travel industry, despite all of the technology we have in it, still has servicing needs for the supply partners and a distributor like us to have to do a lot of back and forth with the customers. So I think it's exciting to see what agentic will allow in that area.

Our next question comes from Conor Cunningham of Melius Research.

You had a pretty big acceleration in the point of sale outside the U.S. And I'm just trying to understand the opportunity set there, maybe a little bit longer term. I realize that you're going to start investing a lot more internationally. But historically, I think the split has been like 55 to 45. And I realize the business has changed a lot, but is that a potential goal that we could get back to at some point? And then if I could just ask another one within that, is the booking curve now starting to elongate a little bit with all like the uncertainty kind of passing out in the market in general?

Yes. I'd say that the booking windows, particularly for Q2 started to shorten. And then we've seen kind of a pivot little bit as we've seen re-bookings happen from the cancellations that happened in Q2 as we entered Q3, but we're not going to get into Q3 in too much detail here today, but that's the dynamic I'd call out there. I don't know if you had anything to add on that...

No. Regarding the growth outside of the U.S., I'll address it in relation to our consumer business since the B2B segment is primarily outside the U.S. Unlike in the past, we are adopting a more targeted approach. Each brand is concentrating on specific markets to enhance brand awareness, product offerings, marketing, supply chains, and customer service. Instead of spreading ourselves too thin, we are focusing our efforts strategically. I believe this will allow us to achieve significant growth in these targeted markets. For instance, in Japan and Brazil, we experienced growth exceeding 20%. In Northern Europe, our growth is in strong double digits. It's about understanding the preferences of travelers in those regions and executing accordingly.

Our next question comes from Kevin Kopelman of TD Securities.

Could you touch on the key growth drivers in B2B and the latest trends you're seeing there? And also, if you could help us strip out the FX impact from Q1 to Q2? And then secondly, on B2B, could you touch on the rev share rate and trends there and what we should expect going forward?

Yes. On FX for Q2, let me just go back to our original guide was 2% to 4% on GBV. We reported 5% and FX neutral was 4%. So that was roughly about 1 point quarter-to-quarter. So point or 2 quarter-to-quarter, but that's kind of the ranges that we're talking about.

And then I'll say the drivers of growth. Scott talked about the fact that in Asia, we're growing 30%. And this is a business, one, as I said, that's geographically diverse, but in particular, is quite exposed to Asia, which is a fast-growing market. Two, from a segment perspective, powers offline retailers, corporate travel, and the like. And we believe that in most of our partners, we're actually winning share with them. So their businesses are growing. And then as we create more value for them, we're able to capture more of their travel spend. And as we look forward on rev share rate, I mean, certainly, to the extent that there are more entrants in the space, that can put some pressure on revenue rate. But this is why we're constantly looking to iterate our product to bring more value and more stickiness to our partners. I talked about the work we are doing in merchandising to make it easier for our partners to understand when there are good deals and good rates. And we're constantly working with them to optimize the tech integrations that we have with them so that all of the conversations are not just about what's the revenue share.

Our next question comes from Doug Anmuth of JPMorgan.

This is Dae on for Doug. I have two. First one, on Brand Expedia, could you just unpack that a little bit more and talk about how that's performing within the broader B2C segment? And it's growing faster than the overall, like is it fair for us to think that Brand Expedia is taking share from other players in the space? And then secondly, on the guide, I think in your full year guide, when you exclude the impact of FX, you have a bigger raise for the revenue than for gross bookings. I'm just wanting to understand some of the drivers behind that.

Sure. Let me start with Brand Expedia. So yes, we believe Brand Expedia is taking share in a number of markets that it's in. It's got a great value proposition. As I said earlier, as a one-stop shop bundle and save. To be able to do packages where you have your selection of flights with hotels, and to do it dynamically is very powerful, and we believe we have the leading solution there. As a result, we have record attach rates and great growth in packages. We're bringing on new supply. I talked about Southwest and Ryanair, but there are a lot of airlines that as we work for better connectivity with NDC with them, we're able to unlock additional rates that travelers want. So we're excited about it. It's taking share. And at the same time, there are under-penetrated opportunities with this brand. We aren't as big in vacation rentals as we would like to be. We're not as big in activities. These are areas that despite the fact that we're growing well, we see as our future growth drivers in addition to international.

Yes. Specific for total year foreign exchange, there's not a material difference between the deltas on our ranges for foreign exchange and revenue versus GBV. But we can tie that out offline, if you'd like.

Our next question comes from Deepak Mathivanan of Cantor Fitzgerald.

Ariane, you mentioned that the traffic from AI assistance is converting at a higher rate. Can you elaborate on what is causing this increase in conversion? Is it because this traffic has a higher intent compared to other channels, or are users engaging more deeply in the booking process? Any thoughts you have on this would be appreciated. And now for Scott. Scott, please go ahead.

No, no. Go ahead.

No, I was just going to ask a quick one for Scott. Scott, can you talk about the B2B business in Asia, specifically in the context of Rapid API product? How should we think about the opportunity to grow this further maybe in the next few years? What specifically is the value prop that consumers are finding with this product and where the penetration is in terms of that? Any color would be great.

Let me start with AI. The traffic we are receiving from these GenAI search engines may be small, but it is converting well. My hypothesis aligns with your observation that this traffic is further down the discovery funnel, making it more qualified for our brands. We are collaborating extensively with AI companies like OpenAI and Google to ensure our brands are prominently displayed when travelers interact with their platforms. This involves various technical, marketing, and integration efforts. Additionally, we want to capture the context of the traveler’s journey so we can provide a more personalized experience when they reach us. It is still early days for AI search and for agents interacting with our sites and apps. We are closely working with these partners, experimenting and testing, and it is an exciting area for us. What remains crucial is that our brands offer strong supply, an excellent loyalty program, and a simple user experience paired with high-quality service to foster loyalty, regardless of whether travelers start with us or from these AI experiences before coming to us.

Great. I think that's a great summary. And I think with regard to B2B, I think the way we think about it is with a significant amount of their GBV and revenue coming from international, Asia included, obviously. We feel very good about the mix of those markets and the growth dynamics that come with them. As it relates to API, it's just a way for us to bring our total supply and our technology to those customers in those regions. And so we feel very strongly. We've had a great history of continuing strong double-digit growth. And I think as we look forward, we expect to continue that.

Our next question comes from Mark Mahaney of Evercore ISI.

I would like to ask two broad questions, and I apologize for missing some details earlier in the call. Ariane, since you’ve been CEO for about 12 to 15 months now, which areas do you believe have seen the most improvement over the past year? Conversely, where do you feel there are still significant gaps that require attention? Scott, you've been with the company for just over six months now. Considering the cost structure you inherited, what insights have you gained regarding potential cost optimization strategies that could help increase our margins closer to those of other industry players? I appreciate your understanding of these high-level questions, but I think they are quite crucial.

Thank you, Mark. I believe it is crucial to sustain and even enhance the momentum we have in B2B, advertising, and Brand Expedia. A year ago, when I assumed this role, I recognized that while we had made significant platform improvements, they had not yet translated into growth within our consumer business or delivered the exceptional traveler experiences we aimed for. We are progressing on this journey, particularly with Vrbo and Hotels.com, by clearly defining our value propositions, understanding their market positioning, addressing any key gaps, and executing our plans. Some of this involves finalizing the platform capabilities we developed. I often remind the team about excelling in fundamental areas. Our focus is on attracting traffic, converting it, encouraging repeat visits, and enhancing retention. This may not always seem glamorous, but ensuring our sites are fast and that we offer excellent configurable technology is essential. We have made considerable strides in these areas, although I wish we could see more immediate results in the consumer numbers. We are on the right track with our progress. Regarding areas to focus on, I am eager to see improvements in our consumer business. Additionally, I think it's important for our culture to prioritize speed. Major migrations and platform changes can sometimes slow us down, but what excites me right now is how we are leveraging AI internally to be more efficient and agile. That is definitely an area to emphasize and explore further.

Yes, Mark, regarding your question about costs and margins, the margins reflect some dynamics in the first half that indicate trends as we compare the first half to the second half. The team quickly took action in early Q2 to restructure some of our costs. As a result, along with our marketing efforts, our margin rate has increased by 150 basis points during Q2 and the first half, even without fully realizing the benefits of cost restructuring or making significant changes to marketing, which we plan to do. In the first half, we observed strong performance with opportunities to reduce costs and rebalance our portfolio while considering long-term growth investments. Looking towards the second half, as I mentioned earlier, we need to balance our marketing investments by redeploying resources across channels, brands, and different types of spending to maximize growth while responsibly reducing costs and reinvesting in the business to achieve solid margin expansion. That’s the context as we look forward.

Our final question for today comes from Thomas Champion of Piper Sandler.

Ariane, it sounded like your comments around the loyalty program were positive and maybe there was an inflection there. Just curious if you could elaborate on that and discuss what underpins that. And then, Scott, for you, just as you think about sales and marketing discipline in the second half, what does that entail? I'm just curious if you can elaborate on that? And what do you do more of and what less of?

Sure. On One Key, as mentioned earlier, we saw our member growth in the high single digits. The Silver members and above are increasing at a faster rate than base and nonmembers. Importantly, we haven't experienced any negative effects from reducing the Vrbo earn for Blue members. It’s working well, and we're seeing nice growth, particularly among our top members. A year ago, we paused the rollout of One Key outside of the U.S. and U.K. due to its significant impact on Hotels.com. Although it was promoting some cross-selling among the brands, I wanted to ensure the program benefited each brand individually when I took over. Our goal is to leverage the technology and common currency that work across the board while customizing them for each brand. This is what you can expect to see from us in the upcoming quarters.

Regarding marketing costs, Tom, it ultimately comes down to enhancing productivity from the direct sales and marketing sector in B2C. As we examine cost deployment across countries, brands, and channels, you can anticipate some adjustments and reallocations in these areas to balance growth and improve productivity.

Thank you all for joining the call today and thank you for your questions. We delivered solid results ahead of our guidance. Despite softer travel demand in the U.S., the recent trends we're seeing reinforce our fundamental conviction that people want to travel, and we will continue to prioritize it. I want to thank our team for their work on behalf of our travelers and our partners. Thank you.

Thank you. That concludes today's call. You may now disconnect your lines.