Expedia’s Platform, Loyalty, and Data Investments Support Its Network Advantage

Expedia’s EXPE investments in a unified technology platform and loyalty (OneKey) stand to support its network advantage, the source of its narrow moat. We think worker flexibility will increase long-term travel demand. We developed this positive stance because higher-income occupations (like those in technology, finance, legal, and architecture) are in industries that are the most likely to support ongoing work from remote locations.

Expedia has built a leading network of online travel services, which has driven a strong user base. We expect this network effect to remain over the next decade, although supplier consolidation creates some headwinds in U.S. markets. In addition, replicating Booking’s leading network in Europe, while not an insurmountable hurdle, will involve marketing and labor investments over the coming years. However, Expedia’s investments to further expand its international presence should support its network advantage over time. Also, in emerging markets, the company has a collaboration with Trip.com, the leading online travel agency in China. Finally, the company’s Vrbo brand gives Expedia a leading share in the fast-growing online vacation rental market.

During 2020-21, Expedia achieved the removal of $700 million-$750 million in annualized run-rate fixed costs. Also, Expedia has taken out $200 million in variable costs. We expect the company to reinvest some of these cost savings in building its network through brand marketing, loyalty and user experience enhancements over the next few years. We see its powerful network advantage driving higher direct traffic (which have no marketing costs), allowing the company to offset pressure from indirect channels like Google (which add to marketing costs).

Another risk is focused entry from Google, Meta, Amazon, Alibaba, Costco, and others could double the current handful of players with dominant scale, leading to a meaningful impact on profitability.