First-quarter financial figures from the world's four largest online travel agencies showed Expedia Group Inc., Booking Holdings Inc., Airbnb Inc. and Trip.com Group Inc. entered 2024 much the same way they ended 2023, spending record amounts to promote their brands and attract customers.
The four brands spent a combined $4.08 billion on sales and marketing (Booking Holdings reports only marketing) in the first three months of the year, up 10.6% from the $3.69 billion they spent in the first quarter of 2023 (for a total of $16.8 billion for the year).
While marketing costs are not an accurate indicator of their business model, they do illustrate the challenges OTAs face in winning bookings while competing with each other and with suppliers such as hotels and airlines, who are struggling to do more direct business.
How fierce is the competition? Consider this: According to a survey conducted by data firm Statista, chief marketing officers of publicly traded U.S. companies report spending an average of 9.2% of revenue on marketing.
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First quarter marketing spend for major OTAs averaged 37% of revenue, but this average isn’t evenly distributed.
Expedia Group is the group's biggest spender: The company spent $1.65 billion on sales and marketing in the first quarter, up 11% from the same period last year, and representing 56.9% of the quarter's revenue, only a slight increase from the same period last year.
Meanwhile, Booking Holdings is in line with the average: Marketing expenses of $1.6 billion in the first quarter were up 6% year over year and accounted for 36.4% of revenue, down from 40.2% of revenue in the first quarter last year.
Airbnb spent $514 million on sales and marketing in January through March, up 14.2% from the same period a year ago and representing 24% of revenue, slightly down from 24.8% in the first quarter of last year.
The biggest change from last year was seen at Trip.com Group Inc., which cut spending from 2020 through 2022 due to recurring COVID-19 travel restrictions, but has allocated $1.3 billion to sales and marketing in 2023 when restrictions are lifted.
While still modest compared to the spending levels of other companies, Trip.com Group's $320 million in spending in the first quarter of this year was up 32% year over year, the largest increase among the major OTAs, but this figure represented 19% of revenue, down 1% from the fourth quarter.
What do marketing spends mean for OTAs?
While parsing the numbers is fairly easy, determining what they mean isn't so easy and sometimes requires reading between the lines in earnings reports and conference calls with analysts.
Trip.com Group CEO Jane Sun pointed to “robust growth” in the domestic Chinese market to explain the company's increased marketing costs.
“Chinese consumers are changing their consumption habits, placing great importance on quality, experiences and emotional fulfillment,” she said in an earnings call on May 21. “This changing mindset is encouraging travelers to seek personalized, high-quality travel experiences that are tailored to their unique preferences, providing significant advantages to the travel industry.”
With interest in travel reaching “unprecedented levels,” the company is “increasing its marketing efforts in many states,” she said. [to] It effectively encourages travelers to explore diverse destinations and contributes greatly to the enduring popularity of domestic tourism.”
She later added: “Year-over-year increases. [in marketing spend] This is mainly due to increased marketing promotion activities in line with business expansion.”
The situation was less clear at Expedia Group, where the company spent the last year completing a technology transition and looking to the future. In a May 2 conference call with analysts, former CEO Peter Kahn said Vrbo's total bookings had been slower than expected.
“We scaled back on marketing at Vrbo in the second half of last year as we transitioned, and while we've since increased spending and improved our product, the recovery has been slower than we expected,” Khan said, adding that he predicted growth in 2024 would be lower than the company had originally forecast.
New CEO Ariane Gorin also elaborated on this point.
“To achieve the kind of acceleration you want in your consumer business, you need to focus on the fundamentals: driving traffic, increasing conversions, and increasing margins through higher take rates and more efficient marketing,” she said. “Ultimately, it's about having a great product and a great brand value proposition.”
We're always looking for the most effective way to spend our money. What's the best way to make money work for us? And when we find something that works, we invest more in it.
Glenn Fogel – Booking Holdings
More efficient marketing was also a key takeaway from Booking Holdings' earnings call, also on May 2. Like most travel companies, that means more direct bookings, CEO Glenn Fogel said.
“We are pleased to see that our direct booking channels continue to grow at a faster pace than the number of nights we acquire through our paid marketing channels,” he said. “While paid marketing channels have become a smaller and smaller portion of our business over time, we believe it is important for us to continue to be active in these channels to drive new travelers to our platform as long as we can do so with a compelling ROI. [return on investment]. “
During a Q&A with analysts, Vogel was asked how the company seeks to improve marketing efficiency.
“We're always looking for the most effective way to spend money,” he said. “How can we make money work for us? And when we find something that works, we put more of our money into it. And when we find something that doesn't really work and is redundant, we take it out and say, 'Okay, let's not spend money on that.' And that's exactly what we've been doing.”
At Airbnb, the conversation is more about marketing discipline than efficiency, Chief Financial Officer Ellie Mertz said on the company's May 8 earnings call.
“We've been very disciplined over the past few years when it comes to marketing,” she said. “We're much less marketing-intensive than anyone else in the travel industry. At the same time, we've had more opportunities to focus on channels that, while marginal, offer a higher ROI.”
When asked about the company's investment priorities for 2024 and beyond, CEO Brian Chesky gave the example of marketing's role in international expansion.
“We've done a really good job of expanding internationally over the last few years, but I think at this point we're ready to step on the gas,” he said. “And by step on the gas, I don't mean making significantly bigger investments, but going at a much faster pace, because we're putting a lot of effort into updating our product.”
“We've recently updated our applications in Asia, particularly in China, and we're also introducing a number of improvements to Japan and Korea, as the applications work pretty similarly,” Chesky added. “So getting those products up to a better standard is a really good first thing to do before we really ramp up our marketing efforts.”
