Expedia Group (EXPE, Financial) reported mixed Q1 2025 results. While earnings per share slightly exceeded expectations, driven by strong growth in its B2B and advertising sectors, total revenue increased by only 3%, falling short of forecasts. Similar to competitors Airbnb (ABNB, Financial) and Booking Holdings (BKNG, Financial), EXPE's growth was affected by weaker U.S. travel demand and foreign exchange pressures on its international-focused Hotels.com brand. The company's Q2 guidance, predicting revenue growth of 3-5% and gross bookings growth of 2-4%, highlights ongoing challenges, leading to a significant drop in the stock price.
- In Q1, total gross bookings rose 4% year-over-year to $31.5 billion, with booked room nights up 6% to 101.7 million, driven by the B2B segment's strength ($8.8 billion in bookings, +14% year-over-year). However, domestic weakness, particularly in the U.S., offset this growth, with U.S. room night growth lagging behind international markets. The timing of the Easter holiday also posed challenges for the B2C business.
- VRBO's performance stabilized in Q1, with bookings growing in line with the U.S. market. This marks an improvement from previous quarters, following the completion of re-platforming processes in 2023. Despite product enhancements and supply expansion aiding VRBO, competition from ABNB and macroeconomic uncertainties impacting higher-priced vacation rentals continue to hinder growth.
- EXPE's advertising business emerged as a highlight, achieving a 20% revenue increase and boosting the adjusted EBITDA margin by 105 basis points to 9.9%. This growth, fueled by Expedia Group Media Solutions and trivago's hotel metasearch referrals, benefits from higher advertiser demand and advanced AI-powered ad tools. The high-margin nature of this segment supports EXPE's Q2 guidance for a 75-100 basis point expansion in adjusted EBITDA margin, despite top-line pressures.
EXPE's soft Q2 guidance and the broader slowdown in U.S. travel demand, as seen with ABNB and BKNG, indicate near-term challenges for the travel sector. While advertising growth and cost efficiencies offer some relief, sustained margin expansion could be difficult if macroeconomic conditions worsen.
