Expedia Group, Inc. (EXPE)

How it makes money

Most revenue is a commission or margin earned on each travel booking, plus advertising revenue from hotels and other suppliers paying for better placement in search results. Some bookings are recorded as the full value the traveller pays (the merchant model, mainly for hotel rooms Expedia buys and resells) and others as just the fee Expedia earns for facilitating a booking made directly between traveller and supplier (the agency model); either way, revenue depends on how many trips people book and how much each trip costs.

Revenue by segment

A large selection of hotels and flights attracts travellers, and a large base of travellers in turn gives Expedia's sites leverage to negotiate inventory and rates from suppliers — the classic two-sided marketplace effect. But Booking.com is comparably large or larger in much of the world, and Google increasingly inserts itself into travel search, so Expedia's network advantage does not translate into pricing power the way a dominant marketplace elsewhere might.

Travel spending is discretionary and one of the first things households and businesses cut when money is tight, so bookings and the fees Expedia earns on them fall in an economic downturn or during any event that discourages travel. The B2B unit, which supplies other companies' travel offerings, adds some diversification, but it depends on the same underlying travel demand.

Key risks

• Discretionary spending sensitive to the economy — Travel is one of the easiest expenses for a household to cut, so bookings and revenue can fall quickly in a downturn, a pandemic, or any event that makes people wary of travelling.
• Dependence on hotel and airline supply relationships — Expedia needs travel suppliers willing to list inventory on its sites at competitive rates; a major hotel chain or airline pulling back availability or favouring a rival platform can directly reduce what Expedia has to sell.
• Competition from Booking.com and Google — Booking Holdings operates a comparably large or larger travel marketplace in much of the world, and Google increasingly surfaces flight and hotel search results directly, both competing for the same traveller before they ever reach an Expedia site.
• Cybersecurity and data protection — Expedia holds large volumes of traveller payment and personal data across many brands and markets, and a significant breach could bring regulatory penalties, litigation and reputational damage.