Expedia Group, Inc. Common Stock 2026 Q2 Earnings Call

Welcome to Expedia Group's second quarter 2026 earnings call. I'm pleased to be joined on today's call by our CEO, Ariane Gorin, and our CFO, Derek Anderson. 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. Any reference to expenses exclude stock-based compensation. We'll also be making forward-looking statements during the call, which are predictions, projections, and 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. This call is being webcast on the investor relations section of our website at ir.expediagroup.com. A replay will be archived on our site. A slide presentation containing financial highlights has also been posted to our website. Starting this quarter, we expanded the presentation to provide additional context on our performance. For today's call, Ariane will begin with a review of our second quarter results. Derek will then provide additional detail on our financial performance, as well as our third quarter and full-year guidance. After our prepared remarks, we will turn the call over to the operator to begin the Q&A portion of our call. With that, let me turn the call over to Ariane.

Thanks, Rob. Good afternoon, everyone. We had a solid second quarter, delivering strong financial results while making tangible progress on our strategic priorities. We exceeded the high end of both our top and bottom-line expectations for the fifth quarter in a row, growing bookings 12%, revenue 14%, and adjusted EBITDA 23%. We delivered new product experiences, expanded supply across our marketplace, and took an important step in building our one-stop B2B travel shop. Based on our first half results and the ongoing trends we're seeing, we're raising our full-year guidance. Derek will cover that shortly. Turning back to the second quarter, consumer spending was healthy, in particular in the U.S. Consumers continued to prioritize travel with longer lengths of stay and longer booking windows, even as air ticket and hotel prices rose. The World Cup generated modest incremental demand late in the quarter.

A lot of bookings happened after the tournament began, a pattern we anticipated and were well-positioned to capture. Total booked room nights were up 6%, with mid-single digits in the U.S., low single digits in EMEA, and low double digits in the rest of the world. Europe remained pressured, particularly outbound travel, as macro headwinds and reduced air capacity weighed on demand. APAC rebounded from the disruption related to the Middle East. Our market-leading B2B team delivered its 20th consecutive quarter of double-digit growth, underscoring the durability and the momentum of this business. Consumer bookings were up 8%, driven by our fastest U.S. growth in 15 quarters. Active loyalty members increased low single digits with faster growth in our higher tiers. Over the last two years, we've executed on our three strategic priorities. One, delivering more value to travelers. Two, investing in our biggest growth opportunities.

Three, driving operating efficiency and margin expansion. As a result, we've accelerated our consumer business, expanded margins by four points, and more than doubled our trailing 12-month free cash flow over that same period. We continued to progress these priorities in the second quarter. First, delivering more value to travelers. It starts with product experiences that make it easy for travelers to plan and book their perfect trip. AI is unlocking new ways to make these experiences simpler and more personalized. Last quarter, we launched new and updated conversational experiences, introducing natural language search on the Vrbo homepage and updating Property Expert and AI Compare in the hotel shopping flow. Our AI-powered personalization and recommendations keep getting smarter across all three of our consumer brands.

On Expedia, our fastest-growing brand, this translated into another quarter of record attach rates. Travelers are getting even more value from booking their trips with us. Traveler value also comes from having the best assortment and price. We recently achieved a few big milestones. In July, we became the first OTA to distribute Allegiant flights and achieve full coverage of U.S. commercial airlines. This partnership further reinforces our position as the most complete travel marketplace in the U.S. On lodging, we expanded our supplier-funded promotions. More than 40% of Vrbo bookings last quarter included partner-funded offers, and our May sale was the first campaign to exceed $1 billion in bookings for participating properties. These are clear proof points of the strength of our two-sided marketplace, where travelers get better value and our supply partners capture incremental demand across rooms, seats, and cars.

Turning to our second pillar, investing where we see the greatest opportunity to drive growth. In our consumer business, our sharper measurement and targeting capabilities are allowing us to invest in the highest return opportunities and leverage our marketing spend. We're investing in newer surfaces like AI and social platforms, where more consumers are starting their trip planning. AEO and social are two of our fastest-growing channels. While agentic traffic remains small, it's a promising channel with high purchase consideration. We're deepening our partnerships with leading AI platforms. During the quarter, we're an early adopter of ChatGPT's latest ad product and expanded our work across Google's newer AI services. Last week, we announced the acquisition of Layla, an AI conversational planning app, allowing us to capture new types of travelers while bringing learnings into our core business.

In B2B, alongside investing in our existing partnerships, we continue building toward our vision of a one-stop travel shop for partners, in May, announced our intent to acquire CarTrawler, the leading B2B car rental and insurance platform. Moving to our third pillar, driving operating efficiencies and margin expansion. We expanded margins by nearly 2 points in the quarter, driven by tight expense management and the consumer marketing leverage I just mentioned. Importantly, we're continuing to deploy AI to innovate faster and operate more effectively. On Vrbo, we launched an agentic voice solution to support partner inquiries previously handled by human agents. Early results are promising, with faster resolution and lower contact propensity. More broadly, our agentic technology stack is allowing us to design and ship products faster, ultimately unlocking new capabilities for both travelers and partners.

As we scale these capabilities, we're managing token costs thoughtfully while giving broad access to our teams. In closing, we delivered strong second quarter results and are raising our full year outlook. I want to thank our teams for their hard work and our partners and travelers for their continued trust in us. With that, I'll turn it over to Derek.

Thank you, Ariane, good afternoon, everyone. I've had an exciting first quarter as part of the Expedia Group team and look forward to engaging with you all in the quarters ahead. Before I walk through our financials, you'll see that we've expanded the earnings presentation this quarter to provide additional details in an easier-to-access format. I'll focus my remarks here on the headline financials and guidance so we can get to your questions a little faster. Our second quarter performance exceeded the high end of our guidance, reflecting a healthy macro environment, continued momentum in our B2B segment, improved consumer marketing returns, ongoing cost discipline. Gross bookings increased 12% year-over-year, this was driven primarily by 6% room night growth, as well as 5% ADR growth on an FX neutral basis. Revenue increased 14%, which exceeded our expectations entering the quarter.

Foreign exchange was a tailwind for the business, contributing nearly half a point to bookings growth 4 points to revenue growth. Adjusted EBITDA was $1.1 billion in Q2, representing a margin of 25.9%, which is an improvement of nearly 2 points compared to the prior year. The margin expansion was driven by a combination of cost efficiencies, consumer marketing leverage, the flow-through of higher volume. Adjusted EPS grew 36% year-over-year, which reflects strong earnings growth as well as the accretive impact of share repurchases over the past year. We continue to generate strong free cash flow, which reached $4.5 billion on a trailing 12-month basis, this has fueled the return of capital to shareholders. During the quarter, we repurchased roughly 880,000 shares for $200 million at an average price of $226 a share.

This brought our year-to-date share repurchases to $900 million, which is roughly in line with the first half of last year. Our capital allocation priorities remain unchanged, including investing organically in the business, pursuing disciplined M&A in support of our strategic priorities, and returning cash to shareholders in the form of dividends and opportunistic share repurchases. For our third quarter outlook, we expect gross bookings of $32.2 billion-$32.8 billion, representing growth of approximately 5%-7% year-over-year. This assumes that growth in bookings and room nights moderates relative to Q2, reflecting tougher comparisons as we lap faster growth in the second half of last year and an estimated one point FX headwind at current rates. We expect revenue of $4.65 billion-$4.75 billion, representing growth of approximately 5%-8% year-over-year, including an estimated one point FX benefit at current rates.

We expect adjusted EBITDA of $1.51 billion-$1.56 billion, implying a margin of 32.5%-32.8%. Margin expansion is expected to moderate in Q3 due to the lapping of prior year cost actions, ongoing investment in B2B growth, and unfavorable net FX impacts. We expect the pace of margin expansion to improve in Q4 as some of these pressures ease and as we continue to drive operating efficiency across the business. Based on the strength of the first half and our assumptions for the third quarter, we are raising our full year guidance.