Executive Summary / Key Takeaways

• Expedia Group's Q1 2025 results reflected softer U.S. travel demand, leading to bookings and revenue at the lower end of guidance, but strong cost discipline drove bottom-line performance meaningfully above expectations.
• The B2B and Advertising segments continue to be key growth engines, posting 14% and 20% revenue growth respectively in Q1 2025, benefiting from international exposure and strategic investments, helping to offset softness in the B2C segment (+1% bookings).
• The company's unified technology platform and increasing adoption of AI are central to driving operational efficiencies, enhancing traveler and partner experiences, and are expected to contribute to continued margin expansion.
• Management is guiding for Q2 2025 Gross Bookings growth of 2-4% and Revenue growth of 3-5%, with full-year 2025 guidance revised to 2-4% for both metrics, while raising the full-year Adjusted EBITDA margin expansion outlook to 75-100 basis points.
• Strategic focus remains on improving B2C brand performance (especially Vrbo and Hotels.com), extending B2B leadership, and maintaining cost discipline, positioning the company to deliver profitable growth despite macroeconomic uncertainty and competitive pressures.

The Platform Powering Global Travel

Expedia Group stands as a titan in the global travel marketplace, connecting travelers with a vast array of lodging, air, car rental, activities, and other travel services through a diverse portfolio of consumer brands like Expedia.com, Hotels.com, and Vrbo, alongside a powerful B2B segment. At its core, Expedia's mission is to power global travel for everyone, everywhere, leveraging its extensive supply network and technological capabilities.

The company's recent history is marked by a significant technological transformation – the unification of its core B2C brands onto a single, shared platform infrastructure, completed with the migration of Hotels.com in 2022 and Vrbo in 2023. This ambitious undertaking, while causing some initial disruption, was designed to accelerate innovation, create a seamless customer identity across brands, and enable greater operational efficiency. This unified platform now underpins all of Expedia's transaction-based businesses, including customer service, search, payment processing, and fraud operations.

This technological foundation is a critical differentiator. It allows Expedia to develop and deploy new features and capabilities faster across its ecosystem. For instance, the ability to offer flexible date search across multiple brands simultaneously is a direct benefit of this work. Furthermore, the company is increasingly embedding Artificial Intelligence (AI) across its operations. In product development, AI is used to summarize reviews, power property Q&A filters, and highlight key property features, making shopping easier for travelers. In customer service, virtual agents now handle nearly half of all traveler inquiries through self-service, while an agent copilot feature significantly reduces after-call work for human agents. Internally, generative AI is being deployed to streamline operations across technology, commercial, and marketing teams, contributing to efficiency gains. The strategic goal is to develop configurable technical capabilities that support various travel products using simpler, standard architecture, leading to more product improvements and greater economies of scope and scale.

The online travel market is intensely competitive, with major players like Booking Holdings (BKNG), Airbnb (ABNB), and Tripadvisor (TRIP) vying for market share. Booking Holdings, with its strong global presence and AI-driven personalization, often exhibits higher profitability margins (BKNG TTM Net Margin 25% vs EXPE TTM Net Margin 8.48%) and cash flow generation. Airbnb leads in the alternative accommodations space, demonstrating strong growth and user engagement, posing a direct challenge to Expedia's Vrbo. Tripadvisor remains a significant player in meta-search and reviews, leveraging user-generated content for trust. Indirect competitors include search engines like Google (GOOGL), which prioritize their own travel products, and emerging AI-native travel planning tools.

Expedia's strategic response to this landscape is multifaceted. Its diverse brand portfolio allows it to target different traveler segments and needs, while the B2B segment provides a broad reach through partnerships with airlines, financial institutions, and other companies, a channel where Expedia has cemented leadership. This diversification, particularly the strength of the B2B business with its heavy international presence, offers a degree of resilience, helping to offset softness in more concentrated areas like the U.S. consumer market. The company also leverages its marketplace to offer value to supply partners through sophisticated technology and access to a global audience, including tools like "visibility boosters" and targeted deals.

Performance Reflecting Strategy and Market Dynamics

Expedia Group's recent financial performance reflects the interplay of these strategic initiatives and the prevailing market conditions. In the first quarter of 2025, the company reported total revenue of $2.99 billion, a 3% increase compared to $2.89 billion in Q1 2024. Gross bookings grew 4% to $31.45 billion. While these figures landed within management's guidance range, they were at the lower end, primarily due to weaker-than-expected travel demand within and into the United States. Booked room nights grew 6% overall, but growth was notably stronger internationally (mid-teens in rest of world, mid-single digits in Europe) compared to the U.S. (low single digits). Average Daily Rates (ADRs) booked decreased 1% year-over-year.

Despite the top-line pressure, Expedia delivered a strong bottom-line performance, beating its own guidance. Adjusted EBITDA for Q1 2025 was $296 million, a 16% increase from $255 million in Q1 2024, resulting in Adjusted EBITDA margin expansion of over one point to 9.9%. This profitability improvement was largely driven by solid execution and disciplined cost management, particularly benefiting the B2B segment.

Segment performance highlights the current dynamics. The B2C segment, heavily weighted to the U.S., saw bookings grow only 1% in Q1 2025, and revenue declined 2% to $1.96 billion. Brand Expedia remained the fastest-growing consumer brand (+7% room nights), while Vrbo grew modestly for the third consecutive quarter. Hotels.com, impacted by softer U.S. demand and FX headwinds, slipped back into negative territory. The B2B segment, in contrast, posted robust 14% bookings growth and 14% revenue growth to $947 million, benefiting significantly from its international exposure, particularly in APAC. B2B Adjusted EBITDA surged 26% to $216 million, with margin expanding over 200 basis points to 22.8%. The trivago segment also saw strong third-party revenue growth of 22% to $85 million, though its Adjusted EBITDA declined.

Operational efficiency initiatives are yielding results. Cost of revenue remained consistent year-over-year, leveraging 44 basis points as a percentage of revenue due to transactional efficiencies, especially in customer service. Technology and content expense decreased 6%, reflecting lower personnel costs and cloud spending optimization. Selling and marketing direct costs increased 6%, driven by higher B2B partner commissions and increased B2C marketing spend aimed at international expansion and brand growth. Overhead expenses saw leverage, contributing to the overall margin expansion.

Expedia's financial health remains solid. As of March 31, 2025, the company held $6.1 billion in unrestricted cash and short-term investments. Its $2.5 billion revolving credit facility was essentially untapped. The company actively manages its debt, having issued $1 billion of 5.40% senior notes in February 2025 and redeeming $1 billion of maturing notes, maintaining debt levels consistent with its investment-grade rating. The merchant booking model provides a significant source of working capital cash flow, although this is subject to seasonal fluctuations. Capital allocation priorities include maintaining the investment-grade rating, opportunistic share repurchases ($330 million in Q1 2025, with $2.9 billion remaining authorized), and the reinstatement of quarterly common stock dividends ($0.40 per share paid in Q1 2025, with another declared for Q2 2025).

Outlook and Strategic Path Forward

Looking ahead, management acknowledges the continued macroeconomic uncertainty, particularly in the U.S. and for inbound travel. For the second quarter of 2025, the company expects Gross Bookings growth of 2% to 4% and Revenue growth of 3% to 5%. This guidance incorporates an estimated two points of foreign exchange headwinds to revenue at current rates and a one-point tailwind from the timing shift of Easter.

For the full year 2025, Expedia has revised its top-line guidance downwards, now expecting Gross Bookings and Revenue growth in the range of 2% to 4%. This reflects the softer start to the year and the cautious macro outlook. However, demonstrating confidence in their operational execution and efficiency gains, management has raised the full-year outlook for Adjusted EBITDA margin expansion to roughly 75 to 100 basis points, up from the previously guided 50 basis points. This is expected to be driven by continued cost discipline, including approximately $40 million in additional restructuring charges anticipated in the remainder of 2025, primarily in Q2, which will contribute to overhead savings.

The strategic focus for 2025 remains centered on three priorities: delivering more value for travelers, investing where the company sees the greatest growth opportunities, and driving operational efficiencies to expand margins. This includes continued efforts to improve the performance of the B2C brands, particularly Hotels.com (with a refreshed value proposition launched in late April) and Vrbo (leveraging the multiunit inventory added last year). Investment will continue in the B2B segment to extend its leadership and in targeted international expansion. The company is also tuning its One Key loyalty program based on performance, such as removing the always-on earn for Vrbo Blue tier members where it didn't drive sufficient repeat behavior.

Technological innovation, particularly the application of AI, is expected to be a key enabler across these priorities, from enhancing product features and driving traffic (e.g., new partnerships with AI search companies and features like Expedia Trip Matching on Instagram) to streamlining internal processes.

Key risks to this outlook include further deterioration in macroeconomic conditions, sustained softness in travel demand (especially in the U.S.), adverse currency fluctuations, intense competition from both direct and indirect players, and potential impacts from ongoing tax and legal matters, some of which could require significant "pay-to-play" prepayments.

Conclusion

Expedia Group is navigating a dynamic travel market characterized by macroeconomic uncertainty and shifting demand patterns. While the softer U.S. consumer environment has tempered top-line growth expectations for 2025, the company's investment thesis is increasingly underpinned by the strength and profitability of its B2B and Advertising segments, coupled with a rigorous focus on operational efficiency and margin expansion. The completion of its core technology platform migration and the strategic deployment of AI are providing tangible benefits, enabling faster innovation and cost savings that are critical in a competitive landscape dominated by agile and financially strong rivals like Booking Holdings and Airbnb. By leveraging its diversified business model, enhancing its core brands, and maintaining cost discipline, Expedia Group is positioning itself to deliver profitable growth and shareholder returns, even if the path forward involves navigating periods of demand volatility. The raised margin guidance signals management's confidence in its ability to execute on efficiency, offering a compelling aspect for investors amidst the near-term top-line pressures.