Expedia Group Q3 2026 Earnings Call - EXPEDIA GROUP INC

Financial Performance:

• Gross bookings grew 11% year-over-year, driven by 7% room-night growth and 3% Average Daily Rate (ADR) growth on an FX-neutral basis.
• Revenue increased 12% to exceed high-end guidance, reaching record levels with improved consumer marketing returns and cost discipline.
• Adjusted EBITDA reached $1.7 billion for Q3, representing a margin of 34.2%, an expansion of over 100 basis points year-over-year.
• Adjusted EPS grew 24% year-over-year, supported by 19% net income growth and a 4% reduction in weighted average shares outstanding due to repurchases.
• Free cash flow totaled $3.7 billion on a trailing 12-month basis, a 25% increase year-over-year.
• The company repurchased approximately 2 million shares for $576 million during the quarter, bringing year-to-date buybacks to $1.5 billion.
• Foreign exchange impacts included a 0.5% headwind to bookings growth and a 1% tailwind to revenue growth for the quarter.

Guidance and Future Outlook:

• Full-year 2026 Gross Bookings guidance raised to $131.4B–$139.9B (approx. 10% growth); Revenue guidance raised to $16.37B–$16.43B (approx. 11-12% growth).
• Full-year Adjusted EBITDA margin expansion guidance raised to 180–200 basis points year-over-year.
• Q4 2026 Gross Bookings guidance lowered to $27.9B–$28.4B (3.3%–5.2% growth) due to softer demand, lapping strong B2B promotions, and timing of the fall sale.
• Q4 2026 Adjusted EBITDA guidance set at $830M–$880M, implying a margin of 22.5%–23.5%, reflecting slower revenue growth and investment costs.
• Management expects a robust full-year 2026 performance, projecting to exceed the top end of original annual guidance ranges for bookings, revenue, and margin expansion.
• AFX assumptions include a 0.5% headwind for Q4 bookings and approximately 1% tailwind for full-year bookings and 2% for full-year revenue.

Business Segments and Product Lines:

• B2B segment delivered 19% bookings growth; expanded partnership with Qantas using a new customizable template integrating travel, supply, and servicing infrastructure.
• Consumer bookings grew 7%; Expedia brand remains the fastest-growing, with active loyalty membership growing low-single digits and Silver Plus tiers accelerating.
• Q3 Fall Sale exceeded $1B in bookings for the third consecutive time, demonstrating two-sided marketplace strength.
• Completed acquisition of CarTrawler and launched Activities API to enhance marketplace completeness and competitive positioning.
• Product innovations include dynamic package search, "reserve now pay later" across all brands, and conversational AI agents for search, booking, and post-booking servicing.
• AI-driven "agentic voice experience" on Vrbo is resolving over 15% of inbound contacts, improving satisfaction and reducing costs.
• Advertising revenue grew 7% in Q3 (down from 13% in Q2) but remains a high-margin business with long-term runway; recently expanded sponsored listings to Vrbo.

Market and Competitive Landscape:

• Travel demand remains healthy, particularly among affluent U.S. consumers, despite elevated airfares.
• Strategic focus on AI-driven discovery channels; integrated with Google AI Mode and announced an integration with Metamuse to capture traffic shifting to AI assistants.
• Maintains market leadership in citation share for AI agents in the U.S.
• B2B market addressed as a ~$3T total travel opportunity minus supplier direct and major OTA sales, characterized by fragmentation and opportunities to gain wallet share with existing partners.
• Company holds 75,000 B2B partners globally with no inordinate concentration in any single partner.
• Competition in AI and agentic commerce is viewed as early-stage, with a focus on building capabilities to engage new audiences before they become demand channels.

Risks and Challenges:

• Q4 guidance reflects risks from U.S. election cycles and ongoing geopolitical disruptions in the Middle East and Europe affecting long-haul travel.
• Lapping of strong B2B partner promotional activity from Q4 of the prior year is expected to moderate Q4 growth rates.
• Margins in Q4 face pressure from sequential revenue moderation, B2B investment costs (including CarTrawler integration), and diminishing efficiency gains from marketing spend cuts made a year ago.
• AI channel economics remain unsettled; traffic volumes are currently small, and models change frequently, causing volatility in attribution.
• Regulatory and structural changes in the vacation rental industry (e.g., Vrbo host fee changes) require partner education and could impact short-term reception, though take rates are not expected to change materially.

Management Commentary and Tone:

• Management expressed high confidence in Q3 performance, citing outperformance of the industry and execution on strategic priorities.
• Tone regarding AI is optimistic yet cautious; leadership views AI as a tool for discovery and personalization while emphasizing that trust and reliability remain the differentiators for booking completion.
• CEO Ariane Gorin highlighted the company's ability to turn emerging channels into demand sources while leveraging its trusted consumer brands and loyalty ecosystem.
• CFO Derek Anderson emphasized disciplined cost management and the scalability of B2B investments for long-term EPS growth despite near-term margin headwinds.
• Management reaffirmed commitment to capital allocation: organic investment, disciplined M&A, and returning cash via dividends and share repurchases.

Analyst Questions and Answers:

• Q4 Drag Factors: Confirmed moderation due to election cycles, geopolitical events (Middle East/EMEA), lapping B2B promotions, and fall sale timing.
• AI/Agent Economics: Described as "early days"; current traffic is high-intent and incremental or taken from other paid channels, with economics being worked out as models evolve.
• B2B Growth & Margins: Growth driven by wallet share expansion with existing partners and new partner acquisition; near-term margin pressure noted due to partner mix and recent investments, with long-term confidence in scaling margins.
• AI Traffic Sources: Agentic traffic currently too small to impact direct/paid channels significantly; internal natural language features are driving higher conversion and attach rates.
• Marketing Efficiency: Consumer marketing leverage remains strong but at a slower pace than the previous year's efficiency gains; continued focus on measurement and channel optimization.
• B2B Market Size: Addressable market remains large and fragmented; strategy focuses on multi-dimensional growth across wallet share and partner count.
• Acquisition Impact: CarTrawler had minor Q3 impact but contributes to Q4 investment costs, specifically within the B2B segment.

Other Key Points:

• AI is accelerating product development; the autonomous hotel onboarding agent was built in less than a quarter versus historically multiple quarters.
• Natural language search and conversational agents are driving deeper funnel engagement, with activity agents increasing likelihood of booking activities by 2x within seven days.
• The company is leveraging AI to enhance content production and testing velocity in marketing.
• Management clarified that while discovery is shifting to AI agents, the "hard parts" of travel (supply connectivity, payments, servicing) remain a trust-based differentiator for Expedia.