Now that Expedia Group Chairman Barry Diller (pictured) has sacked CEO Mark Okerstrom and CFO Alan Pickerill, taking control of the company, what will be the first thing he does? I think it will be to cut costs.
Expedia’s overspending in relation to its much larger rival Booking Holdings can be starkly seen in the table below I prepared for a client last week. The aim was to show budget allocation across marketing and technology, and the results were revealing.
- Revenue 3rd quarter: $US3.4 billion.
- Selling and Marketing expenses: $US1.6 billion.
- Tech expenses $US286 million.
- Expedia spent 47 per cent of its revenue on marketing.
- Expedia’s marketing spend was 5.5 times more that its technology spend.
- Revenue 3rd quarter: $US5 billion.
- Sales and Marketing: $US1.7 billion.
- Tech expenses: $US71 million.
- Booking spent 34 per cent of its revenue on sales and marketing.
- Booking’s marketing spend was 24 times more than its technology spend.
The quick takeout is that much of Expedia’s marketing spend is non productive compared with Booking Holdings, which generates 1.5 times more revenue for roughly the same amount of marketing money.
Expedia is also spending big on technology – four times more than Booking Holdings.
In simple terms if Expedia’s tech spend was reduced by half, for just one quarter, profit would increase by $143 million.
Add another couple of hundred million by cutting ineffective marketing and you have a very different bottom line.
The numbers are compelling.