Expedia Group, Inc. (EXPE) Q4 2021 Earnings Call Transcript

Expedia Group, Inc.  (NASDAQ: EXPE) Q4 2021 earnings call dated Feb. 10, 2022

Corporate Participants:

Jon Charbonneau — Director, Investor Relations

Peter Kern — Vice Chairman and Chief Executive Officer

Eric Hart — Chief Financial Officer

Analysts:

Kevin Kopelman — Cowen Inc. — Analyst

Naved Khan — Truist Securities — Analyst

Eric Sheridan — Goldman Sachs — Analyst

Lloyd Walmsley — UBS — Analyst

Justin Post — The Bank of America Corporation — Analyst

Deepak Mathivanan — Wolfe Research, LLC — Analyst

Stephen Ju — Credit Suisse Group AG — Analyst

Mario Lu — Barclays — Analyst

James Lee — Mizuho Securities — Analyst

Jed Kelly — Oppenheimer & Co. — Analyst

Thomas Champion — Piper Sandler — Analyst

Richard Clarke — Sanford C. Bernstein — Analyst

Presentation:

Operator

Good day, everyone, and welcome to Expedia Group Q4 2021 Financial Results Teleconference. My name is Emily and I’ll be the operator for today’s call. [Operator Instructions]

For opening remarks, I will turn the call over to IR Director, Jon Charbonneau. Please go ahead.

Jon Charbonneau — Director, Investor Relations

Good afternoon, and welcome to Expedia Group’s financial results conference call for the fourth quarter ended December 31, 2021. I am pleased to be joined on the call today by our CEO, Peter Kern; and our CFO, Eric Hart. The following discussion including responses to your questions reflects management’s views as of today, February 10, 2022 only. We do not take any — we do not take 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 plan, we expect, we believe, we anticipate, we are optimistic or confident that, or similar statements. Please refer to today’s earnings 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 will 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 Investor Relations website at ir.expediagroup.com. And I encourage you to frequently visit our IR website for other important content. Unless otherwise stated, any references to cost of revenue, selling and marketing expense, general and administrative expense, and technology and content expense exclude stock-based compensation.

And with that, let me turn the call over to Peter.

Peter Kern — Vice Chairman and Chief Executive Officer

Thank you, Jon. Good afternoon, everybody, and thank you for joining us. Let me start off with a few broad comments about what we experienced in the fourth quarter, which I would say, even though we had to deal with a meaningful Omicron wave and a bunch of disruption in travel and, of course, that would not create more travelers worldwide, it was encouraging in many ways. And I think, what we observed, most notably, is that the issues that it brought were really issues of inconvenience.

There were border shutdowns, there were planes out of service because pilots and crew were sick, things of that nature, but there was far less consumer fear over traveling, and really it was an issue of the convenience of the health issues. What we believe will come from this, presuming the next waves continue in ever lightening way, is that the world has essentially gotten accustomed to the pandemic. It will enter perhaps an endemic phase and governments and industry, etc. will adapt much more new easily as the next waves come, and in turn, this will continue to disrupt travel less and less. And certainly, the consumers have — remain willing to travel throughout. And with the return of staff for the air and the relief of border issues, we are seeing a solid return to travel.

Eric will take us through the numbers and the trends, but suffice it to say that we are pleased to see that bookings have strongly rebounded since anywhere that Omicron has stopped out, and certainly, we’re seeing that broadly across our biggest markets.

I’ve talked before about mix effects, and I won’t belabor those except to say, it continues to be real. Certain areas are doing better than others. Air is more challenged than other parts, geos — certain geos are more difficult than others, but in general, we feel good that big cities have not recovered as much yet, and that is a good guide for us. International travel is still yet to return as strongly. That is another good guide for us. So, we feel like directionally the things that are — will be coming back as COVID lightens, generally benefit us and we’re looking forward to the days of those returns.

With that said, I’m not really prone to doing retrospectives, but we are starting to focus much more on the future of our business and what we’re going to deliver instead of how we manage COVID day to day. And I thought it would be useful for us to just reflect on where we’ve been, and where we’re taking the company over the last couple of years since we entered COVID. So, first of all, the things you’ve all observed and really have liked is that we’ve been able to simplify and make the business more efficient. And it’s easy to observe and it’s important. Obviously, there are more important things to our long-term future, but I’ll spend a minute on simplification.

We’ve been able to use our push for new technology solutions, our push to reorganize the company in a more single goal fashion. We’ve optimized third-party spending and tools and many things and we’ve become a much more efficient enterprise. In fact, today — and we — I should mention, as you know, we’ve also shutdown and — or sold off certain businesses that we believed were non-core. As a result of that, we’re running the company now with roughly 10,000 fewer people than we were at the end of 2019, which is a great credit to the people who are here, who have driven a ton of hard work towards that goal of really running the company in a smarter and more efficient, better way. So, that’s been the big push there and I would say that as — we still face challenges with hiring people, we’re like all the tech companies, but we have had a great influx of terrific talent. I think that momentum is increasing and that mix with the great talent we have has really created — put us in a great position as we move forward and as we start to move to really being focused on delivery of new tech, new experiences, and improving the traveler experience as our core fundamental goal.

But as I say, efficiency is not the story here. Efficiency is a great thing we’ve been able to achieve, but the real story of our future is about what we’re doing to drive the business forward. So, just to break that into a few parts, on the demand front, as you know, we’ve combined our multiple brands, working in silos into one unified house of brands with a singular focus on driving travelers to the right product at the right time. This strategy is built on superior creative, making the brands makes sense together, buying together in an efficient way, and, of course, using performance marketing along with brand to really drive a more efficient way of bringing travelers into our universe.

We believe we are well on our way to that journey. Hope you enjoy our Super Bowl ads in a few days. I think they’re terrific. But it is a unified strategy that’s about really delivering end-to-end, a great demand generation strategy that is efficient and we believe can drive better outcomes in the future for us. We also believe, as you know, that loyalty will play an important role, and we are bringing our loyalty programs together, and that will begin to take shape over the course of the year, and I think, pay dividends for years and years to come. And we’re excited about that.

On the technical front, now, this has really been the heart and soul of what we’ve been working on, which is getting to a singular platform, so that we can drive a velocity of innovation for travelers and for our partners, and really take travel to the next iteration for the online app-based travel business. We’ve been on this journey for a while, we’ve talked about how we’re moving multiple stacks into a single stack. That’s more than just the like efficiency story or anything else, it’s really about building it as a set of microservices with APIs that can be externalized and can more easily be used internally to drive these great outcomes for our travelers and our partners.

And when I say travelers, I really mean all travelers because for the first time as we build this out, we will be able to create innovation in our stack that impacts all our travelers, our B2C travelers, our B2B travelers, all in the same moment. So, when we make an improvement in the checkout path or we make an improvement in the app, all those benefits will inure to the traveler wherever they come from, and it will be able to drive real impact instead of the siloed way we used to have to work our way through it. So, I think, it’s a really important step for both how we run our business, how much innovation and velocity we can bring to the travelers and partner experience, and frankly, just generally, how we innovate and drive the entire industry forward. We’re really excited about what’s coming. It’s a big year of delivery for us, but there are amazing things coming we think for the traveler from the discovery elements to the service elements, and everything in between, and again that will inure to the benefit of all travelers in our ecosystem.

And finally, on the B2B side, which is really now an amalgamation of our B2B partners, who drive demand and our partners who bring us supply, and more and more we see that as one universe. We’ve combined those teams into one group that essentially can have a 360 relationship with any partner, and therefore, any partner can benefit not only from selling into our platform, but also taking services out of our platform. And we think that approach is going to be really powerful. We’ve got very close to our partners over the pandemic. Obviously, we’ve had shared challenges and opportunities and we renewed a lot of deals across lodging, air and car. And most of these deals have come with expanded capabilities where we’ve delivered more for our partners and we believe helped them drive their own businesses to better outcomes. We’re excited about this partnership approach. It’s no longer just about supply or just about, can we drive them in, it’s really about, can we make our partners’ businesses better, and we’re keenly focused on that.

So, to close, I’ll just say, we never count COVID out, we’ve dealt with fair number of body blows over the last couple of years, but the industry has proven resilient. I think, demand has proven even more resilient and we expect a significant rebound. And while we’re excited to drive the rebound, the important thing for us is really delivery. We have to deliver on all the promises we made about how we’re going to improve the product, traveler experience, and how we’re going to continue to run an efficient and effective business.

And I would just say, ultimately, we believe in the reigniting of travel, we think we’re going to play a central role in it. We’re not intended to sit back and write it, we want to be important in driving the future of the industry, and we believe, we can bring benefit not only to travelers, not only to our own business, but to the entire travel ecosystem. And that is what we will be focused on this year.

And with that, I’ll turn it over to Eric.

Eric Hart — Chief Financial Officer

Thanks, Peter. And thanks, everyone, for joining the call. I too I’m optimistic around a travel recovery this year. And along with Peter, I’m excited to see us deliver more for travelers and partners. With that, I’d like to start by providing an update on booking trends. While we witnessed a notable pullback due to Omicron in December, which continued into January, I am encouraged by the improvement we have seen in recent weeks.

Overall, in the fourth quarter, total gross bookings for all products net of cancels were down 25% versus Q4 of 2019, a slight sequential improvement versus third quarter. And when compared to 2019, we have continued to see a mix shift towards lodging and more specifically Vrbo versus air. Given the continued volatility of the recovery due to Omicron, again this quarter, we are providing monthly detail on our total lodging bookings net of cancels, which includes hotel and Vrbo.

For October, it was down 4% versus 2019. It was down 5% in November, 27% down in December, now 11% in January. With trends improving throughout January and was up versus 2019 in the most recent weeks. From a geography perspective, this improvement has been driven by the U.S. followed by EMEA while APAC and LATAM are lacking.

Now onto the P&L. Total revenue was down 17% versus Q4 2019, roughly the same level of decline we saw last quarter. As a reminder, we closed the Egencia deal on November 1st. In the quarter, Egencia contributed $29 million of revenue. Note, this does not include revenue tied to the ten-year lodging supply agreement, or EPS business entered into GBT.

Revenue margin for the fourth quarter was 13%, down from 16% last quarter, largely due to typical seasonality. Our sales and marketing direct spend in Q4 was roughly $875 million, down 12% versus Q4 2019 levels compared to 19% decline last quarter. As you know, Q1 is a seasonal low point for EBITDA given the timing disconnect between higher marketing expense that’s ahead of summer travel and lower statement in ’19 Q1. And this timing impacts could be further amplified this year due to lower sales in Q1 due to Omicron and our spending into the recovery based on the recent improvements and trends we saw there.

Moving on, overhead costs, excluding Egencia in both periods was up $23 million versus Q3 2021, primarily driven by the lower ability to capitalized labor in the fourth quarter. Looking ahead to this year, as we continue to progress, we anticipate higher than normal annual compensation increases which take effect on April 1st.

In total, adjusted EBITDA was $479 million up $1 million versus 2019 levels despite revenue down 17%. This marked the third consecutive quarter of positive adjusted EBITDA and our highest Q4 EBITDA ever. And I believe the fourth quarter performance further illustrates how we are running a much more efficient business versus prior to the pandemic.

On the free cash flow which totaled roughly $142 million in Q4 on a reported basis excluding the change in restricted cash was primarily driven by the change in Vrbo’s deferred merchant bookings, free cash flow was $35 million.

Now shifting to the balance sheet. In 2021, our debt refinancing yielded approximately $80 million in annual interest expense savings, and paying off the full $1.2 billion of preferred stock last year, saves us approximately $115 million in annual dividend payment of payouts. More recently we have informed the holders of our EUR650 million bond last week of our intention to pay off the notes at the beginning of March, which is three months ahead of their maturity date. This allowed us to save approximately $5 million of net interest expense this year or $19 million annually, while also improving our leverage ratios. Overall, we are pleased to have maintained our investment grade rating through the pandemic and remain committed to deleveraging while also looking for ways to further reduce our cost of capital.

In closing, despite the continued impact of pandemic in 2021 and most recently from Omicron, I am encouraged by the continued progress made last year to reshape the company further improve our financial position going forward. As mentioned, I am optimistic about travel recovery this year and excited to see how this year unfolds for the company.

With that, Emily. We are ready for our first question.

Questions and Answers:

Operator

Thank you, Eric. [Operator Instructions] Our first question today comes from the line of Kevin Kopelman from Cowen & Company. Kevin, your line is open.

Kevin Kopelman — Cowen Inc. — Analyst

Thanks a lot. First, I wanted to ask about the loyalty program. Can you give us more details on when you expect to rollout the consolidated loyalty program, how that might change? And if you can give us a sense of how important your loyalty programs are today and maybe where that could go? Thanks.

Peter Kern — Vice Chairman and Chief Executive Officer

Alright. Yeah. Thanks, Kevin. Well, I’ll say a couple of things. First, this is an ongoing effort. Recently in this quarter, we just revamped our Expedia loyalty program to create a construct that we think is better for travelers who kind of directionally — in where we’re headed more broadly, for a loyalty program. But there is a lot of migration going on. We’re migrating the whole stack, as I talked about, we’re migrating the brand, front ends into one — until one set of rails and we are rebuilding our loyalty platform to accommodate one broad loyalty construct that can serve all the different brands.

And so the big difference that’s coming it’s really that the loyalty program will cover all our brands, all our products and you’ll be able to earn and burn across all of them, which is a great innovation. All the research shows that the most important thing to customers is having the breadth of products. And so we think it’s going to be a great win for them. Al the details are still being worked out of exactly how that policy and plan will work. Although I think the Expedia construct is more or less in line with where we’re headed in terms of how points work etc.

But it will take — the better part of this year, you get all those pieces lined up and of course, a rollout of the loyalty program including converting loyalty people over from one to another and adding it to front ends that haven’t had it and all of those pieces. It’s not just like we flipped one switch and switch after, switch after switch. So I think it will take us the better part of this year to be — really have the product where we want it and be starting to convert everybody over to it, but, so I think next year will be the big impact year of the whole stickiness in totality of loyalty. But I think it’s a big year for us we build into it, and hopefully, we’ll be moving some of other program over there in the course of this year.

Kevin Kopelman — Cowen Inc. — Analyst

Thanks, Peter. And if I could just ask about the latest trends, you noted that that lodging is now up last week versus 2019. Can you talk about how that might play out given cities haven’t fully come back yet and international travel is still certainly not fully back given the restrictions are not up yet?

Peter Kern — Vice Chairman and Chief Executive Officer

Yeah, sure. Well, I think, look, there’s a lot of benefit in that for us in the sense that historically big cities and international is an area of strength for us relative to some of what we’ve seen during COVID like domestic travel into tertiary markets, etc. had been historically weak. On the other hand, we benefited greatly, Vrbo has been super strong, it’s benefited from the leisure travel and in the longer-term travel of vacation around on people liking that during COVID where they could isolate with their families, etc. So it will be a little tricky to predict, but I would say broadly the stuff is left to come, in many ways favors are our strongest areas. So I think that’s positive, but the mixes have been hard to predict over time. And so I don’t want to get too much into prognosticating, but I think we’ve got some good runway ahead in where puck is going, I just mixed two metaphors there but — and we feel good about that. You never know at the back end unintended consequences are, but I think being positive now with everything that’s left to come is making us feel pretty good.

Kevin Kopelman — Cowen Inc. — Analyst

Great. Thanks so much.

Peter Kern — Vice Chairman and Chief Executive Officer

You bet.

Operator

Our next question today comes from the line of Naved Khan from Truist Securities. Naved, your line is open.

Naved Khan — Truist Securities — Analyst

Great. Thank you. Two questions, please. Maybe just one on on the comeback in travel. As it continues to build in ’22, how do you see the mix of direct versus paid traffic coming to your platform? Can you maybe just touch on the opportunities between the different levers that you had to pull within CRM versus branding versus performance channels?

And then, maybe just another one on capital allocation. So, you continue to deleverage and also, you have kind of gotten preferred out, how do you kind of see the scope for M&A opportunities here and maybe other use of capital like share buyback? Just maybe talk about that a little bit.

Peter Kern — Vice Chairman and Chief Executive Officer

Sure. I’ll go first and be able to come back on travel. I think, Eric mentioned CRM. We have so much opportunity to improve our direct relationship with consumers. We’ve historically fished out of the big ponds of Google and Meta, etc. and brought customers in. And candidly, we’ve not done a good enough job in retaining those customers, and making it sticky, and making sure their experience is good. We are keenly focused on bringing travelers in now, making sure they enjoy all the benefits of what we have to provide, member pricing, loyalty, etc. And they — and that they get a better app experience, better CRM, which we are rebuilding like everything else. And we really focus on retaining them and keep them coming back as often as possible directly.

It doesn’t mean we don’t expect to use performance marketing and all the usual channels, but we want to be able to derive much more long-term value from those customers we acquire, and then, in turn keep. So, we hope very greatly that the denominator will be expanding, we’ll just be bringing in more travelers and that more and more of them will — we will be able to create direct relationships, where they’re coming back, they recognize the benefits we give them in price and service and discovery and everything else. Obviously, there is more to come there because as the products improve and the experience improves, it all gets easier and that’s why we all presumably — churn is faster, but that is our focus, and that is what we hope to derive from this, we’re not projecting what percentage will be what, but it is very closely tied to all the work we are doing to drive the traveler experience.

Eric Hart — Chief Financial Officer

Great. And I’ll take the second part of the question around capital allocation. And I know we’ve talked about in previous quarters, and I think, our message remains the same, we are keenly focused on bringing up our balance sheet, if you will, given the construction that we’ve experienced over the last couple of years that includes delevering the business. We’ve talked about the preferreds that we paid off, we’ve talked about the Euro bond we’re paying off, and we’re going to continue down the path of delevering, which, of course, can take the form of growth in the underlying EBITDA, but also in debt as appropriate. Want to lower the cost of capital as well. In my prepared remarks, talked about a couple of areas where we have, quite significantly, reduced the cash flow required to service, whether it’s the preferreds for different debt instruments, we’re keenly focused on maintaining investment grade and quite proud that we’ve been able to do that over the last couple of years given the amount of disruption that we’ve had.

And then, a slight other link on that as well as Peter was talking about the growth opportunities ahead of us and the opportunity for the company and want to make sure that we are enabling that especially, so that we can go assess as we can in achieving that vision. Specifically, on two components that you mentioned on M&A, we’re always open for business. Even during the heart of COVID, we were open for — to business to a certain extent, but obviously, that wasn’t necessarily the right opportunity or the right time as things coming up, but we are looking at different opportunities opportunistically and a few names that we’re thinking about.

And then, on buyback, I think you can look at our long history. It’s something that we have done regularly and consistently. I fully suspect that we will get back to that at the right time and something that we will think about over the coming months. But again, we’re going to observe COVID, we’re going to clean up the balance sheet, if you will, and all the components that I talked about for your reference right now.

Peter Kern — Vice Chairman and Chief Executive Officer

Yeah. And I would just add just a bit on the M&A front. We’re much more focused and it has to fit with our long-term strategy, our platform strategy, it has to integrate. Well, we’re not going to be just buying things because they’re good deals, we’re going to buy things that fit our long-term strategy to drive where we want to drive things.

Naved Khan — Truist Securities — Analyst

Understood. Thank you, Peter. Thank you, Eric.

Peter Kern — Vice Chairman and Chief Executive Officer

Great.

Eric Hart — Chief Financial Officer

Thank you.

Operator

Our next question today comes from Eric Sheridan from Goldman Sachs. Eric, please go ahead.

Eric Sheridan — Goldman Sachs — Analyst

Thanks so much for taking the question, and hope you’re both well. Maybe just teasing out more on that capital allocation front, but bringing it back to margins, Peter, Eric, can you help frame for us — I know, you’ve laid out before that you’ve exited sort of the efficiency program that you laid out from a couple of years ago, and there’s obviously investments against your ambition you feel you need to make in ’22 into ’23 to capture some of that growth, but how should investors think about elements of where there was leverage driven by volume that can flow through the model over the next 12 to 24 months versus areas where you want to take incremental margin or incremental leverage and invest it back because you’re playing sort of the long game over the next three to five years against the bigger travel opportunity? Just some of the variables that could flex our margin leverage one way or another in the next 24 months. Thanks.

Peter Kern — Vice Chairman and Chief Executive Officer

Sure. Thanks, Eric, and I hope you’re well as well. We — the way I think you should think about it is this, we have — as I mentioned, there is a lot of work still going on into building the platform to get the platform right. When those things are right, they will drive further efficiencies. So, when you say we’ve exited the program, it wasn’t like a program or the goal that we ended, given that we’re finished, this is an ongoing drive for us to create the most efficient enterprise we can, which is not about taking people out, it’s about being efficient in how we work, what we work on, how technology aids us, etc.

There are a lots of places, where — for example, I’ll give you one service. We continue to build the best service technology, I believe, in the industry and scale it consistently. We are building skills across the enterprise, so that customers can service their own issues themselves and easily. It’s an ongoing process, but the benefit of the efficiency borne of those improvements has not really been seen because COVID has had this enormously elevated service demand on the industry. So, as we normalize out to historical propensities for service calls, etc., etc., there is real benefit down the road in how we do that.

Now, you alluded to, there are places we are both investing in. I mean, that is really just our way of saying we are pushing to drive this innovation and drive us across these bridges as quickly as we can. And if we have — if we need to invest more in people and resources to drive some of this innovation, we will do it, but the innovation in and of itself will drive incremental efficiency. So, I don’t think this is a long-term — like this is a long-term sideways to down expect — or I should say, expanding margin story we believe driven by the technical efficiencies that the product will drive. And if there is some bumps in the road as we get there, we have to flex up to drive an innovation faster. We may do that because we think it’s the right thing for the traveler and for our partners, but overall, there is still much more opportunity to become more efficient over time for margins to expand, and we believe that’s what we will continue to drive towards.

Eric Sheridan — Goldman Sachs — Analyst

Great. Thank you.

Operator

Our next question comes from the line of Lloyd Walmsley from UBS. Lloyd, please go ahead.

Lloyd Walmsley — UBS — Analyst

Thanks. Two questions, if I can. First, any update on just the marketing integration, consolidating data and ops into a unified group, like any early learnings there? And then, secondly, can you kind of help us parse out the strong ADR growth, like how much of that is a function of HomeAway growing in the mix? And I guess, more importantly, like what are the puts and takes of how you see ADRs migrating over the course of the year? Like is there still a big tailwind because like-for-like channel pricing is going up or it’s like a shift back to core hotel? Offset that — like how do we think about ADRs in the course of the year? Thanks.

Peter Kern — Vice Chairman and Chief Executive Officer

Thanks, Lloyd. I’ll take the first part. And by the way, watch the Vrbo ad this weekend, so you start saying Vrbo instead of HomeAway. But the — on the marketing integration, we’ve made a lot of progress in moving along on the marketing integration and the data and analytics and measurements, etc. I’d say, we’re virtually all the way there, not quite all the way there, and the learnings have been coming. Eric and I see reports weekly about where we’re winning, we’re learning things, we’re retesting things. There is no like silver bullet, so I go, we found this and it’s going to win everything. It’s really a game of a thousand different little tests across 100 geos, across five product groups, etc., etc.

So, all of it is incrementally getting there. We’re feeling quite positive about a number of things we’ve been testing and learning. We’re pushed heavily into mobile and other areas, where we found out that we’re pushing into new products and social products and other things where we found opportunity that is sort of tantamount to performance marketing in certain ways. So there’s a lot of interesting learnings going. The reality is, until things normalize it’s going to be really hard to measure us on this because, you can’t see what normal is anymore and even for us, it’s hard to see what normal is and a lot of these new tests, new algorithms are learning up these very volatile traffic patterns because of COVID etc.

So I think we feel good about the technical progress the teams are making, about the way they’ve parted out their course of learning and testing, and there is no question it will adhere to our benefit, but being able to identify a single thing or single win or how to quantify is really hard to do at this moment. So I think, you’ll have to wait for the collective good to roll through our P&L and hopefully you’ll see it as things normalize.

Eric Hart — Chief Financial Officer

And on the ADR side — but since for a look back and then look forward, obviously we won’t go into the details but help you frame it. When you think about the historical, core ADRs continue to be strong across both hotel and Vrbo and as you can see that across some of the other industry companies or metrics. And then our mix in particular has benefited from more weight into the U.S., more weight into Vrbo, more weight in the vacation destinations where there are typically are higher ADRs. So it’s — our high ADR performance, if you will, is a mix up of core ADRs and the mix that we have over the last quarter and prior to that as well.

Moving forward, we do expect core ADRs to remain strong. We think this is going to be a strong rebound travel year. We ought to see lots of bookings already going into the summer period where we can see the ADRs are holding up quite well. And — but I do think you need to look at, when you look at that, take the core into the projection of our business. Presuming some of other areas of our business come back, it’s still going to be a mix, we’re going to go into some primary markets that has some higher ADRs. We’re also going to mix into Europe a bit more, potentially APAC when it starts rebounding, LATAM, and so on and so forth. For the hotels and presumably Vrbo, not predicting any degradation in Vrbo but just from a mix perspective. And so as you project on ADR for us,I expect that will normalize to a certain extent over time but again, it’s on the back of — for underlying strong years.

Lloyd Walmsley — UBS — Analyst

All right, thank you.

Eric Hart — Chief Financial Officer

Thank you.

Peter Kern — Vice Chairman and Chief Executive Officer

Thanks.

Operator

Our next question comes from Justin Post from Bank of America. Justin, your line is open.

Justin Post — The Bank of America Corporation — Analyst

Great. Thanks. First question, can you help us at all with summer booking pacings whether lodging or in total versus either ’19 or last year? And then second, I don’t know if you can help us at all but just thinking about Vrbo as a percent of the total, imagine it’s grown a lot over the last couple of years, but if you could help us think about where that could be today. Thank you.

Eric Hart — Chief Financial Officer

Yeah. I’ll take that one. Thanks for the question, Justin. So Vrbo continues to perform well. Overall, we see strength against 2019. We see strength against 2021. Obviously, not going to go into the specific details of those, but the brand and the product category or both doing quite well. When you ask about summer bookings are pacing, we’re seeing ourselves up against both of those time periods that I just mentioned for 2019 and 2021. So it’s not only the category is going up but it continues to win share, if you will in this market. Hotel on the other side is recovering not quite at the levels that we would have seen in the past but we expect that the recovery continues that there’ll be a catch up along — somewhere along the line.

Justin Post — The Bank of America Corporation — Analyst

Thank you.

Operator

Our next question comes from Deepak Mathivanan from Wolfe Research. Deepak, please go ahead.

Deepak Mathivanan — Wolfe Research, LLC — Analyst

Great. Thanks for taking the questions. Just a couple of ones. Can you talk about the hiring plans and headcount levels for 2022? Do you feel like you’re in a good position with respect to headcount right now and generally well prepared for demand recovery across various products? Are there also any notable wage inflationary trends that you’re seeing currently?

And then, second question on variable marketing efficiencies on the direct marketing side. Can you help us maybe in a qualitative way to kind of understand, how much efficiencies you’re seeing on the direct marketing side because of all the brand rationalization efforts and things you have done in the last couple of years? It’s kind of easy to see the fixed cost savings but given the moving pieces of the business, particularly it’s a bit hard due to geographical mix and product mix, it’s a little bit kind of tricky to see the direct marketing efficiencies that you’re seeing. So maybe you can qualitatively touch on that, that’d be great.

Peter Kern — Vice Chairman and Chief Executive Officer

Yeah. Thanks, Deepak. I am glad you find it tricky tooo. We also do, given everything that’s moving around. And as I mentioned, it’s one of the challenges in trying to quantify for you or anyone ourselves exactly how much progress we made in terms of marketing efficiencies because the traffic patterns are so volatile, mix is so different etc. And just take something like Air as an example, the Air market has changed considerably as largely domestic very little relatively international, we’ve historically been strong in international. We’ve improved how we’re approaching it as you say across our brands with consolidated spend. We’ve learned a lot about the multi-brand approach but it hasn’t really paid off yet in, for example, international Air, because there’s just not much of it.

So the short answer is we made huge amount of progress as I said, in terms of tools, in terms of data, in terms of insight, in terms of being able to test and learn across a much broader swath of our enterprise. But being able to quantify really how much better it is in basis points or something that will give you a projectable marketing efficiency is still very challenging. We believe it’s much better. We believe we are much better positioned to capitalize on the future state of normalcy. But there’s no question the tools and the capabilities are in a much better place, but we have to pay that off and demonstrate it to the world and ourselves, and it’s in process, but it’s gone. So I think we feel very good but we acknowledge it’s difficult for you all to see it and we’re just going to have to wait for things to normalize so you can see the benefit.

Eric Hart — Chief Financial Officer

And I’ll take — thanks for the question, I’ll take first part on the hiring plan. And I’m going to expand your questions, so it’s just more overall — from an overhead perspective and just perhaps help a bit on some of the moving parts as you look into next year and help you model it out. I think, first off, in Q4 where we were a bit lighter on expected people costs. We do have plans to continue hiring around some of our initiatives as we go into next year. We want to — do recall that we had one month of the Egencia in Q4, so that’s something that you want to model out, which I discussed in my remarks. Our T&E discretionary etc. continues to be lower than what we start getting back into normal business travel and what whatever form or shape that takes etc. going forward.

On your question on wage inflation, as mentioned earlier, I do expect that we will have higher than expected compensation and increases this year. And again as a reminder, those will go in April 1st. And as we talked about on previous calls, there are some investments that we are making in the business. We are excited about a number of different opportunities to accelerate the growth in a number of different areas. Of course, we’re being prudent, very positive ROIs, we’re going to track those relentlessly along the way, but that could increase overhead to a certain extent as well. Hopefully, that helps you out.

Deepak Mathivanan — Wolfe Research, LLC — Analyst

Great. Thank you so much.

Eric Hart — Chief Financial Officer

Thank you.

Peter Kern — Vice Chairman and Chief Executive Officer

Thank you.

Operator

Our next question today comes from Stephen Ju from Credit Suisse. Stephen, please go ahead.

Stephen Ju — Credit Suisse Group AG — Analyst

Thank you. So I think it’s been some time since we see these types of metrics, but anything you can share in terms of what percent of the Vrbo inventory has now been integrated into Brand Expedia and the other outlets? I mean ultimately you want to present the traveler with more choice and improve the overall shopping experience. I think last time we talked about this, you guys are still kind of in an experimental phase and trying to see how much of a better shopping experience you could drive. But sort of — any sort of perspective on that would be helpful. Thanks.

Peter Kern — Vice Chairman and Chief Executive Officer

Yes, sure. Thanks, Stephen. I would say we are still building to it, it is a core part of our plan. And by the way, it’s not simply so that we can provide it to our own travelers, it’s also so that we can provide it to our B2B partners so that they can provide it to their travelers. So it’s a quite interesting and a substantial opportunity we believe. We do have an integrated, it’s not a great integration, but we do have an integrated into Expedia and Hotels.com. The issue has been it only works among other things not being a great product experience is what the main thing we have to fix, but also it does not have an approach that works for the properties that you have to reserve and then we have to — they’re not instant book, that ones where we have to go owners and see if they are okay for the booking, that is a contract that is not part of what is currently possible in the Expedia brand or hotel that’s on brand, etc. So, it’s kind of a two-part thing. One is we want to improve the product experience for the traveler and make it a better integration, make it easier to book, make the content more usable and easier to understand, so the travelers can make the decisions. And then, we want to expand the universe of the type of properties that can be available through those pipes and that is where the big — where another big expansion and the idea comes. Those are both in the works. They will take some time. I would say, they are not our highest priority, but they’re far from our latest project, they’re a big important thing and we have teams working on it that we will — we expect to continue to see improvement.

We have a lot happening on the front end of the product this year in terms of integrating a number of our brands through the same front end rails, and a lot of opportunity to improve those experiences and rollout new app construct, etc. So, all of those thing — you have to obviously, from an order of operations question, but as those things roll out, this experience will get better and better, and we believe will become a bigger feature to this.

Stephen Ju — Credit Suisse Group AG — Analyst

Thank you.

Peter Kern — Vice Chairman and Chief Executive Officer

Hope that helped.

Operator

Our next question comes from Mario Lu from Barclays. Mario, please go ahead.

Mario Lu — Barclays — Analyst

Great. Thanks for taking the question. First on cancellation rates. I believe, the lodging numbers you provided earlier was part of them. So, I was just curious was it much higher in 4Q and early in 1Q due to Omicron? And if so, do you think those that canceled could potentially be a tailwind to future bookings?

Peter Kern — Vice Chairman and Chief Executive Officer

On cancellation rates, as you read more in the newspaper, generally, the cancellation rates go up. So, yes, we saw cancellation rates go up in particularly, the December time period and the early part of January. Omicron was impacting the businesses, so people didn’t necessarily feel safe and comfortable traveling and we certainly saw cancellations increase.

If I extend to a longer period of time — obviously, if you go back to 2020, cancellation rates went up. Exceedingly, they were coming down over time, still elevated relative to historical levels, just, again, safety concern, people come down with COVID individually and can’t travel, whatever else, again, saw spike up in December, and then, coming back down again following a similar path of what I was just mentioning on that.

On the tailwind of future bookings, I think you were asking a couple. The level of pent-up demand or how many people would postpone, will they rebook? Will they rebook if they cancel? I think, that’s a hard to tell. I mean, but I would say, just generally speaking, and I think everyone feels in a similar way, which is, when people can travel, they are going to travel and they’re going to travel quite consistently throughout the year if they’re able to do so, maybe more than they have in the past to pre-book, if you will, but only time will tell. And I would say, we’re certainly optimistic.

Mario Lu — Barclays — Analyst

Great. And then, just second question in terms of remote work and longer duration stays, the lodging side of the business, have you guys seen that kind of drive bookings already at Vrbo or even the core business? And then, how good of the opportunity do you think that is in the long term?

Peter Kern — Vice Chairman and Chief Executive Officer

Yeah. This hasn’t been a big theme for us. You had probably noticed on our calls. I know some others have a different view of that. It’s an interesting thesis, and certainly, as people have more flexibility to travel, we hope they go up their flexible time with travel. In terms of Vrbo, we haven’t quite seen the distortion. We’ve heard others talk about in terms of long stays or things like that, it’s moved somewhat, but it’s not as noticeable for us, and I think it’s an interesting and good potential tailwind as people have more time to travel, but we’ll see when people get back to work, we’ll see with schools back in, etc. how much flexibility everybody gets. We don’t think it matters, we think there’s tons of pent-up demand, as Eric says, and there’s just more days to being away. Terrific. That will be good for us, and I think that will be selective, but a good general trend on some portion of society and we’re looking forward to that.

Mario Lu — Barclays — Analyst

Great. Thank you.

Operator

Our next question comes from James Lee from Mizuho. James, please go ahead.

James Lee — Mizuho Securities — Analyst

All right. Thanks for taking my questions. So, it looks like everybody is expecting normalized travel trends with a mix shift to urban and international markets. And Peter, I was hoping you could comment on this. If home accommodation continue to gain traction in urban markets, how do you feel about your supply in Vrbo? Any plans to increase ahead of demand? And I guess, my second question relating to maybe additional levers in improving efficiency. I know you guys may have talked about this in the past when you consider consolidating all your hotel brands onto Expedia. Thanks.

Peter Kern — Vice Chairman and Chief Executive Officer

Thanks, James. Appreciate your question. So, as it’s — so, I think, on the first question, which is supply and major cities for Vrbo, it’s never been a great strength of ours, it’s never been a huge focus of ours. We do have some in some big international cities. Again, I think, much less for the one-night stay kind of thing and much more for the family vacation and that sort of thing. We think there’s opportunity there and we will continue to follow the demand trends. And as I’ve mentioned, we’ve been focused on not just sort of buying supply across the universe and everything and really being much more targeted in where the demand is and where we can get return for the homeowner.

So, we’ll continue to do that, but Vrbo is not, in the same way, like some of the other choices focused on being a replacement for hotels and cities. We have a lot of great hotel partners in all the major cities of the world and we see them coming back more strongly, and we think that’s where the business is going to be for now. Of course, we want to continue to expand Vrbo wherever it makes sense, and then, we’ll certainly look at cities where it makes sense. As far as the brands, I would say, this is on the brand team to figure out the best way to consolidate brands in a construct that makes sense for the traveler. This isn’t a contract that makes sense for us or we think is cool, it’s about what makes sense to travelers and why and how they need different product to do certain things.

If over time, we conclude that we need fewer brands, I’m not sure it will be all under one, but we may conclude we need fewer or certainly that we’re going to lean into fewer, if that makes sense, we will do that, but that’s what the brand team is working on now. We’ve got new brand propositions for all our major brands, are rolling out soon and I think over time, we will figure out what is right for the traveler, and certainly, as we integrate our loyalty programs, it is going to bring the brands much closer together and put us in a much more simplified position to decide whether a fewer make sense, etc., and have everybody still caught up in our web of loyalty and all the good things and good products we bring to the market.

James Lee — Mizuho Securities — Analyst

Great. Thank you.

Peter Kern — Vice Chairman and Chief Executive Officer

You bet.

Operator

Our next question comes from Jed Kelly from Oppenheimer & Co. Jed, your line is open.

Jed Kelly — Oppenheimer & Co. — Analyst

Hey. Great, great. Thanks for getting me on, and nice work over the last 20 months. Just two questions, if I may. Just how should we view Expedia relative to the Google risk going into ’22, which is looking like a nice demand environment relative to 2019? And then, Peter, you talked about you really can see nice margin expansion longer term for Expedia, do you have like a long-term margin margin target you guys are kind of shooting for above 25%, 30%? Can you help us there as well? Thank you.

Peter Kern — Vice Chairman and Chief Executive Officer

Yeah. Thanks, Jed. Those numbers sound pretty good, but I would say this, we don’t have a number and that is because candidly, we are getting smarter about what is possible as we continue to roll out unified technology, unified solutions. We don’t yet know the quantum of benefit that you get in conversion and other things that allow you to be more efficient on the marketing side. Because the product is working better, there’s a lot to learn. I mean, I know you all look at the competition and try to reference that but I think, look, we believe all of these pieces add up to benefits that drive more growth and higher margins, and that’s what we’re focused on.

So, as the product improves, as the underlying technology platform improves, as that service more partners, etc., all of those things get better and scale brings efficiency. So, I think, we’re just going to continue to drive it. It’s in our core now to continue to drive it, and I hope those numbers are achievable and when we get there, we get there. So, I don’t think it’s about putting some around the number that we’re guessing. It was possible out there, I think we’re seeing probably that picking up.

As far as the Google risk goes, I don’t — maybe I’m just saying, but I don’t consider it a Google risk. Google is Google. We operate in that market, we do everything we can to optimize that market and we work closely with them to try to figure out better ways to optimize that market, and we have few things that were interesting, ideas percolating at the moment. But ultimately, as I alluded to, when we pull all those people out of the Google market, we have not done a sufficiently good job of retaining those travelers as long-term customers. And that’s on us because of the products, because of competitiveness, because of all kinds of things, and we are literally addressing all of those things at once.

I believe that each of them multiply on each other and make us collectively stay here between a better product and better loyalty and broader loyalty and better marketing that helps their traveler understand the benefits we provide, and getting them to enjoy the benefits we provide more readily, etc. So I think, we believe that Google can stay Google. I always say, Google is a shark. You should expect the shark to be a shark. It will be doing what it does. We operate in their marketplace and we have to do our part of optimizing that marketplace. We have a lot of room to do better and that’s what we’re focused on. And I’m pretty sure they don’t want to be in the business or taking service calls and dealing with travelers and actually, being a customer company. They just want to be a search engine. So, I think, we’re in a pretty good spot.

Jed Kelly — Oppenheimer & Co. — Analyst

Thank you.

Peter Kern — Vice Chairman and Chief Executive Officer

Yeah. Thanks.

Operator

Our next question comes from Tom Champion from Piper Sandler. Tom, please go ahead.

Thomas Champion — Piper Sandler — Analyst

Hi, Peter, and Eric. Good afternoon. I was wondering if I could ask a question around the new customer cohorts. And I’m just curious whether they resemble pre-pandemic behavior or if you’re seeing any newer divergent trends out of your newer customers. And then, maybe, Eric, for you then, to ask the umpteenth question around margins, it looks to me like 4Q margins were up 300 basis points give or take over 2019, I’m just wondering if that’s a good guidance for thinking about the margin potential for the next couple of quarters to kind of the near-term outlook. Any thoughts around there would be really helpful.

Peter Kern — Vice Chairman and Chief Executive Officer

Hey, Tom. It’s Peter. I’ll go first. In terms of cohorts, again, I think it would be a mistake to draw too much from anything that’s going on right now. As I mentioned, patterns are much different, the volatilities and ebb and flow of cancellations and other things are much different. What we’re more keenly focused on is looking at cohorts in terms of engagement with the app. So, how that changes as we make improvements in the product, etc. I think, there we’re seeing a directional. Things we hope to see, we have a lot, lot, lot more to deliver. So, it’s early days, but our focus is really on that. I don’t think we’ve seen any new patterns that are either alarmingly good or bad in terms of how travelers act, how many of them go to — go onto the Google and Meta world versus come directly direct.

Most travel companies benefited from a mix to direct, but that was only because there was less demand in the open seas. I think that as demand continues to rise, there’s not really any reason to imagine that that would be greatly distorted except — for example, we do a good job of again, getting travelers to the app, getting them locked into our ecosystem, getting them understand the benefits. So, that’s what we’re focused on and I think anything else, frankly — it would be wrong to drive conclusions based on the volatile times we’ve been in, so, we’ll see as things normalize, but we’ll let you know if we see it then.

Eric Hart — Chief Financial Officer

Great. On — Tom, thanks for the question on the margin side. I’m not going to go into specifics on the number of beds and one quarter versus another, but of course, we are pleased to see from a Q4 2021 standpoint the margins that we did have relative to the volume where we were down 17% from a revenue standpoint, virtually 19%, EBITDA numbers. So pleased from that perspective, I guess, a few things that I would I urge you to consider is, why is there a significant seasonality in this business that you have to look at Q1 versus Q2, Q3 and Q4, there is a significant different curve from a — both in-state basis booked resorts, obviously, driven by marketing and net expense and then, the state basis from where the revenue comes from, margin perspective.

And so, just make sure that you are keenly aware of that seasonality. I gave some information earlier around overhead and various components that you can model into the business as well. And then, two other quick comments is, on the margin, we are going to be aggressive from a marketing spend perspective as we talked many times in this call already. We are optimistic about this year and that we’re going to return to travel, presuming nothing else comes out of that deal, if you will. And then, we’re going to be aggressive as we’re going straight into that recovery.

And then, lastly, I know we touched on a little bit earlier, but just from a variable cost perspective, we have — every time there is one of these disruptions, there are long duration of calls with customers with complex issues that sort of group and our real cost — our cost savings associated with variable costs really can’t be seen. We are increasingly using technology to solve customer and traveler problems. And we’re consistently using that technology and that’s been crowding the beds because of those more challenging call volumes. And so, I’d suspect that we’ll see some of those savings come in as we get into a more normal period. So, hopefully, that helps you with the modeling.

Thomas Champion — Piper Sandler — Analyst

Thanks for the comments.

Peter Kern — Vice Chairman and Chief Executive Officer

Yeah.

Operator

Our final question today comes from Richard Clarke from Sanford C. Bernstein. Richard, your line is open.

Richard Clarke — Sanford C. Bernstein — Analyst

Thanks very much for taking my question. So, just a question, running into the summer. I guess coming out of the financial crisis ’09, Expedia and the other players probably benefited from a prolonged recovery, maybe too much supply relative to demand. If this summer is very, very strong and we have a lot of demand relative to supply, do you see any danger that hotels or your private rentals play the platforms off against each other a little bit or look to other channels?

And then, second question a little bit more simple, but in Q3, I think, you talked about your marketing costs being quite high because of the Delta variant coming very late in the quarter. If you could sort of say the same pattern happened here. Omicron came quite late in the quarter, so is that distorted the marketing spend in the quarter at all with committed spend earlier on?

Peter Kern — Vice Chairman and Chief Executive Officer

I’ll take the first one and Eric can cover the marketing costs. Thanks for your question, Richard. I would say, you could have made the same argument during COVID when there was compressed demand in a number of places. We did not see, what you’re alluding to, in terms of the buyers buying off. I think, as I said, we are at a common challenge, we were all working together for every hotel in Miami, and there is another one in New York that was suffering, and many big chains, etc. or hundreds of hotels across good and bad markets, I think, we’re all in it together.

As I said in my beginning remarks, we’re in it to try to help them optimize their business as much as optimizing ours, and I think there is definitely, we had a shared sense of we can all build this better together. So, I think, there will be a lot of demand, there will be some compressed places. I think, there will be enough places to go that demand will find to come at. And I think, we provide unique services in terms of people being able to find things, discover where they want to go, find alternatives, etc., and provide a great value for our supply partners, including the many things we do for them beyond just allowing them to supply on our platform, where we’re their partners in demand generation of other products or more technology, etc.

So, I think, it was my sincere hope that I — that our supply partnerships or our partnerships, more generally, are going to get bigger and broader and more beneficial to both sides over time. And this isn’t going to be the classical fight where who has got a little leverage for the last nickel on a given day. So, I don’t think we’ll see that, I think we’ll see everybody trying to benefit from the upward trend, and riding it together, and that some of our partners will get their direct traffic, we’ll get our direct traffic and everybody will do the best they can with those travelers. So, that’s what I expect.

Eric Hart — Chief Financial Officer

And then, Richard. On the second part of your question on marketing cost, we did see a similar dynamic this quarter as well as given Omicron impact towards the latter end of the quarter and in December, perhaps to a lesser extent, but again similar dynamic. And I would split that it into two components; the first around performance marketing and those are about fine tuning machines that ultimately are driven by the underlying search demands and whether that’s across meta channels, Google or wherever else. And so as people stop searching for traffic and we’re booking traffic and the number of clicks and associated marketing expense naturally comes down with it.

On the brand marketing side, we stay the course in Q4 through all the way through December. I see — you are likely aware brand marketing spend becomes much more fixed as you get closer to the time of at the end of the quarter. And then secondly, is we had a hypothesis is that for each variant that comes along, the impact is going to be shorter and it’s going to be shallower, and that’s ultimately what we have seen with Omicron is that we effectively were impacted for approximately amongst, maybe a little bit more than that, where it was more like two, 2.5 months with the Delta variant. So we felt that we should continue to invest in performance that was there, we should go after the demand and we stay the course on the market.

Richard Clarke — Sanford C. Bernstein — Analyst

Very helpful. Thanks very much.

Peter Kern — Vice Chairman and Chief Executive Officer

Thank you.

Operator

That’s all the questions we have time for today. I’ll now hand back to the management team for any concluding comments.

Peter Kern — Vice Chairman and Chief Executive Officer

I guess I’ll just say thank you for joining us. Hope you all travel this summer, and you know where to find us if you need to travel. Talk to you next quarter. Thank you, everyone.

Operator

[Operator Closing Remarks]