Expedia Group Inc (EXPE) — Q1 2026 Earnings Call Transcript

Good afternoon and welcome to Expedia Group's First Quarter 2026 Earnings Call. I'm pleased to be joined on today's call by our Chief Executive Officer, Ariane Gorin; and our Chief Financial Officer, Scott Schenkel. As a reminder, our commentary today will include references to certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in our earnings release. Unless otherwise stated, all growth rates are on a year-over-year basis and any reference to expenses exclude stock-based compensation. We will also be making forward-looking statements during the call, which are predictions, projections and other statements about future events. These statements are based on current expectations and assumptions, which are subject to risks and uncertainties that are difficult to predict. Actual results could materially differ due to factors discussed during this call and in our most recent Forms 10-Q, 10-K and other filings with the Securities and Exchange Commission. Except as required by law, we do not undertake any responsibility to update these forward-looking statements. This call is being webcast on the Investor Relations section of our website at ir.expediagroup.com. A replay will be archived on our site. A slide deck containing financial highlights has also been posted on our investor relations website. For today's call, Ariane will begin with a review of our first quarter results. Then Scott will provide additional details on our first quarter financial performance and guidance. After our prepared remarks, we will turn the call over to our operator to begin the Q&A portion of the call. And with that, let me turn the call over to Ariane.

Thanks, Rob and thank you all for joining us today. I'll begin my remarks with our first quarter performance and then I'll talk about AI as we see it as a significant growth opportunity and I know it's top of mind for many investors. We had a strong first quarter underpinned by solid execution as well as progress on our strategic priorities and operational leverage that we've been building over many quarters. Our financial results exceeded both our top and bottom line expectations, demonstrating the resilience of our strategy even amid a mixed macro environment. We grew bookings 13 percent, revenue 15 percent and expanded adjusted EBITDA margin by nearly six points. Momentum from late 2025 carried through February, delivering our best first quarter start in three years. In March, we hit a more challenging macro environment with the conflict in the Middle East and travel advisories in Mexico. When travelers needed us most, we took care of them, working with our partners in the region to extend cancellation flexibility and augmenting our service teams. While the Middle East itself represents less than two percent of our total bookings, we saw elevated traveler cancellations across Europe and Asia. Cancellation rates stabilized in early April and booking activity reaccelerated throughout the month. Total booked room nights in the first quarter were up six percent, including mid-single digits in the U.S., low single digits in Europe, the Middle East and Africa, and low double digits in the rest of the world. Our domestic U.S. room night growth remained stable but it was partially offset by travel advisories in Mexico and less promotional activity by select business-to-business partners. B2B once again delivered healthy performance with bookings up 22 percent. We announced an exclusive partnership with Bank of Montreal AIR MILES and just last week became the exclusive hotel partner for Uber. Uber will also be in our Expedia app, making travelers' trips more seamless. Our consumer brands grew bookings by 10 percent, the fastest pace in twelve quarters. Active loyalty members were up mid-single digits and we continue to see even faster growth in our higher tiers. For the first time, vacation rentals on Expedia reached an annualized run rate of one billion dollars in gross bookings, demonstrating that our investment in a unified lodging shopping experience is scaling successfully. And we also continue to expand our supplier-funded promotions. Twenty-five percent more hotels participated in our March sale this year and more than one-third of Vrbo bookings last quarter came from supplier-funded promotions. Our strong performance was a direct result of the progress we've made on our three strategic priorities: delivering more value to travelers, investing where we see the greatest opportunities for growth and driving operating efficiencies and margin expansion. On our third priority, in particular, we achieved our highest first quarter margin in fifteen years. We're pleased with our progress and remain committed to additional cost efficiencies and marketing productivity in our consumer business. Now turning to AI. Simply put, AI reinforces our core advantages and amplifies our execution against our priorities. We're using it to enhance the experience for our partners and the travelers that come to us direct and to acquire new traffic and market more effectively. Let me ground this in some concrete examples, starting with how we're improving traveler experience through our products, supply and servicing. First, AI enables better personalization at scale in our products. We're using data from hundreds of millions of travelers' interactions from shopping to reviews, servicing and more, to continuously improve our ranking and recommendation models. AI-powered conversational experiences provide even richer data and coupled with more advanced models enable us to uncover deeper patterns. In the first quarter, this translated into higher conversion at Vrbo and record attach rates on Expedia. Our two most widely adopted features are our servicing agent and AI-powered filters and travelers who use AI filters return more often and convert at higher rates. Second, AI is a great tool to strengthen our supply advantage given the massive scale we operate at. We work with nearly 3.7 million properties, of which 800,000 are exclusive to us. AI enables us to onboard partners faster. And last quarter, we grew lodging property count by ten percent with our fastest growth outside the U.S. It also allows us to improve our supply quality, enriching our proprietary content, which ultimately underpins travelers' trust in our brands. And just as importantly, as AI deepens our understanding of travelers, we're bringing even greater value to our partners through more powerful insights, advertising and promotional tools. Third, AI improves our post-booking experience. We handle more than 250 million service interactions a year with over half resolved through self-service. More than thirty percent of those are powered by AI and that number keeps increasing. And when human support is required, AI shortens wait and handling times and enables faster resolution. We're automating conversation summaries in over thirty languages, enabling seamless handoffs with context across our global workforce and reducing new agent onboarding time by about sixty percent. As flights were canceled across the Middle East, AI helped us handle surging volumes at speed, allowing our human agents to focus on more complex time-sensitive issues. This hybrid servicing platform combines intelligent automation, strong partnerships and human support to deepen travelers' trust so they know we always have their back. AI also strengthens our ability to acquire traffic and market more effectively. While roughly two-thirds of our bookings come through direct channels, AI platforms are an opportunity to grow through indirect channels. We moved early here, leveraging our technical strengths built up over many years. Answer Engine Optimization is now our fastest-growing channel. And in February, we went live with ChatGPT ads. Traffic and bookings from AI-driven channels remain small but we're encouraged by the mix of new users, conversion and average purchase size. This is a long-term opportunity to reach a large engaged audience while diversifying our marketing investments. More broadly, AI is improving our creative and supercharging our testing abilities. Overall, AI-enabled tools are driving hundreds of millions of dollars in realized marketing value through greater productivity and workflow automation. Stepping back, I want to be clear that as we're moving to take advantage of opportunities, we're also working deliberately to ensure our strategy is resilient no matter how traveler behaviors evolve. We know that trust, scale, supply quality and deep relationships will remain essential and that's where we excel. In closing, we had a strong start to the year, delivering better-than-expected results against a mixed macro backdrop. Our team's solid execution drove double-digit bookings and revenue growth and meaningful margin expansion. As we look ahead, we'll continue advancing our strategic priorities, thoughtfully deploying AI and driving value for all our stakeholders. Before turning it over to Scott, I want to take a moment to thank him for the significant contributions he's made during an important period for the company. Our strong financial foundation reflects the great work he and the team have done over the last one and a half years. And looking ahead, I'm pleased to welcome Derek Andersen as our next Chief Financial Officer. With that, I'll turn it over to Scott to walk you through the financials.

Thank you, Ariane. It's been a privilege to work with this team over the last one and a half years and I'm proud of the progress we've made to strengthen the business and drive improved financial performance. I am confident the company is well positioned to build on this foundation, continue to drive growth, further enhance operating efficiency and expand margins under Ariane's leadership. With that, let's turn to the quarter. I'm pleased to share that our first quarter 2026 results exceeded the high end of our guidance range. Gross bookings were $35.5 billion, up thirteen percent, driven by six percent room night growth and four percent average daily rate growth on an FX-neutral basis. Revenue increased fifteen percent to $3.4 billion with foreign exchange contributing approximately three points to bookings and nearly five points to revenue, roughly one point higher than we had anticipated. Moving to our segment performance. Consumer gross bookings of $24.8 billion grew ten percent, driven by sustained momentum in the U.S. and continued momentum in Vrbo. Revenue of $2.1 billion grew eight percent. Bookings growth outpaced revenue in the quarter, primarily reflecting a higher mix of air. Consumer adjusted EBITDA margins were approximately twenty percent, up nine points from last year, driven by marketing leverage and cost control. B2B gross bookings grew twenty-two percent to $10.7 billion, led by an acceleration in North America and double-digit growth across all core regions. Rapid API was again the largest contributor to growth and B2B continued to benefit from elevated marketing activities from some of our largest partners, albeit at a more moderate level sequentially. B2B revenue grew twenty-five percent to $1.2 billion and EBITDA margins were 22.7 percent, approximately flat year-over-year. As we have stated previously, we will continue to prioritize B2B investments to support future growth, which will weigh on near-term margins. Before moving further, let me provide some context on how demand progressed throughout the period. We entered the quarter with solid momentum with booking windows and lengths of stay modestly higher year-over-year. However, the macro environment became more volatile as we entered March, resulting in higher cancellations and more moderate booking trends late in the quarter. In our consumer business, we faced headwinds from travel advisories in Mexico, while in B2B, the conflict in the Middle East meaningfully impacted outbound travel from multiple regions, driving elevated cancellations in Europe and Asia. Excluding these impacts, both bookings and room night growth would have been approximately two points higher for the quarter. During the quarter, we saw air capacity tighten and prices increase with some shifts across corridors, while U.S. domestic travel remained healthy. We also saw continued strength at the higher end of the market alongside resilience from more price-sensitive travelers. Moving to our cost structure. Cost of revenue was $373 million, up five percent, while leveraging approximately one point as a percentage of revenue, driven by continued efficiencies in payments and customer service. Total direct sales and marketing expenses were $1.9 billion, up six percent. We saw significant leverage in our consumer business with direct sales and marketing down seven percent, leveraging approximately 75 basis points as a percentage of consumer gross bookings. This was partially offset by growth in B2B sales and marketing expense, which reflects partner commissions and is recognized at the time of stay. Overhead expenses were $627 million, up four percent from last year, while leveraging approximately two points on revenue. As a reminder, last year, we implemented a series of cost reductions, which had a meaningful impact on the margin in the back half of the year and those actions continue to favorably impact the first quarter. Turning to profitability. We delivered first quarter adjusted EBITDA of $542 million with a margin of 15.8 percent, our highest first quarter in fifteen years with nearly six points of adjusted EBITDA margin expansion. Approximately one point of the expansion was driven by favorable foreign exchange with the balance reflecting stronger-than-expected marketing leverage, revenue flow-through and cost efficiencies. Adjusted EPS of $1.96 grew approximately four times, reflecting robust earnings growth and the accretive impact of our share repurchase activity. Moving to our cash position. We ended the quarter with $5.8 billion of unrestricted cash and short-term investments and we remain committed to maintaining debt levels consistent with our investment-grade rating. During the quarter, we retired $1.75 billion of short-term debt, including our convertible and senior notes. We secured a $2.5 billion revolving credit facility. And subsequent to quarter end, we issued $1 billion of long-term debt, further strengthening our liquidity profile and overall financial flexibility. On a trailing twelve-month basis, free cash flow was $4.1 billion, reflecting the strength of our operating model and continued disciplined execution. In the first quarter, we utilized $700 million to repurchase 3.3 million shares of our common stock at an average price of $212 per share. Since 2022, we have repurchased nearly 49 million shares, reducing our share count by 24 percent net of dilution. We remain committed to returning capital to shareholders. And today, we announced that our Board approved a new $5 billion share repurchase authorization. For 2026, we intend to continue opportunistic share repurchases at a pace similar to recent years. Turning to our outlook. For the second quarter, we expect gross bookings growth of seven to nine percent and revenue growth of nine to eleven percent. At current exchange rates, this assumes foreign exchange tailwinds of approximately 0.5 point to bookings and four points to revenue. For EBITDA, we expect second quarter EBITDA margins to be up fifty to one hundred basis points. Consistent with prior commentary, margin expansion this year will continue to be supported by cost discipline and a more efficient marketing base with the pace of expansion moderating as we lap lower marketing spend and larger cost actions taken last year. We will also benefit in Q2 from cost actions taken in Q1. For Q2 and the full year, we acknowledge there could be potential upside. But given the volatility we have seen recently and the ongoing geopolitical and macroeconomic uncertainty, we believe it is prudent to maintain our current full year outlook and provide an update when we report Q2 earnings. As a result, we reiterate our expectations for gross bookings growth of six to eight percent and revenue growth of six to nine percent, including approximately one and two points of foreign exchange tailwind, respectively. On EBITDA margins, we continue to expect full year expansion of 100 to 125 basis points. Given our first quarter performance and Q2 outlook, we would expect to come in at the high end of that range and we'll provide an update on our Q2 earnings call. In closing, we delivered a strong first quarter despite a challenging macro environment. B2B bookings grew more than 20 percent. Our consumer business achieved its highest bookings growth post-COVID and we expanded margins by six points. These results reflect continued progress in operating discipline and execution, positioning us well to drive durable, profitable growth and sustained shareholder value. With that, we will now open the call for questions.

I have two. The first one, I appreciate all the color on the macro trends throughout the quarter. Can you talk to us a little bit about what you've seen in April and sort of the start in May from a macro perspective and what you've embedded in the guide on room nights? That's number one. Then the second one, kind of highlighting a little more on the U.S. specifically throughout the first quarter, it looks like you may have grown slower than a couple of your peers in the U.S. Did anything change from a competitive perspective? And how do you think about sort of investing to drive faster growth in the U.S. throughout 2026?

Yes, absolutely. Maybe a couple of things. I'll start and then hand it over to Ariane. We started with a strong January and February, posting healthy room night growth and bookings growth across both our consumer and B2B businesses in line with the prior quarter. In March, we experienced a slowdown with the rise in cancellations in select corridors. First, with the announcement of travel advisories in Mexico; and second, with the conflict in the Middle East. The regions most impacted, as I indicated in my prepared remarks, were Asia-Pacific and Europe outbound, which particularly impacted our B2B business. Domestic travel, largely in our consumer business, remained resilient during this time in our core regions. Additionally, we saw some resilience from more price-sensitive travelers as well as continued strength at the higher end of the market. While we saw a spike in March, cancellations have normalized in April and bookings have improved in the month of April.

Yes. And on the U.S., I would say, if you just look at the U.S. on domestic bookings, the U.S. domestic bookings actually accelerated and grew in the mid-teens. U.S. domestic room nights were stable and we grew faster than the market overall. Those numbers would have been stronger absent the pressure that we had on outbound demand, in particular outbound to Mexico, when there were the travel advisories to Mexico. We feel particularly good about the performance of Vrbo and how Vrbo was able to grow in the quarter. At the same time, the B2B growth decelerated and that was, as Scott said, due to moderation in promotional activity from some of the largest partners that we have following what they had done in the fourth quarter, which was more elevated promotional intensity. So overall, in the U.S., I would say the consumer has been remarkably resilient. Certainly, it's our backyard. It's where we're investing. We feel good about where we are. We certainly look at room nights. We look at bookings from low-star all the way up to high-star. And just like in all of our marketing, we're disciplined. We look at where we can have the best returns and we make a balanced decision.

Scott, first, thanks for everything and wishing you the best going forward. Maybe building on Brian's question and just coming at it from a different angle, how do you think about the health of your consumer-facing brands as we get deeper into 2026? And talk to us a little bit about the amount of spend needed in support of brand and direct traffic initiatives rather than maybe performance marketing initiatives when you think about the mix of your marketing dollars in support of growth.

Sure, Eric, I'll start on that one. First, I feel really good about where the brands are right now, in particular relative to where they were two years ago. When I stepped into this role, I said we're going to go back to the basics on our brands. We're going to make sure that they have clear value propositions, position them well. We're then going to pull that through into our marketing, into our product, into our supply and we're going to be very disciplined to make sure that we're getting the returns that we want, where we're spending our money. Brand Expedia is in a great spot. It's growing well. It's very clearly the one-stop shop. It had a strong quarter with air tickets growth. I talked about what we're doing in vacation rentals and how that unified lodging path is doing well. That wasn't here one year ago. We're at record levels of attach and insurance. So I feel good about where Brand Expedia is. Vrbo, similarly, had a great quarter. We're positioning it as the trusted pure-play vacation rental brand. We filled some gaps that we had a couple of years ago. Last year, we started to have the promotions, which is now one-third of the bookings. We've extended VrboCare. We've really done a lot of things to position that brand well as the trusted vacation rental brand. And then on Hotels.com, we relaunched the brand last year. We have strong brand metrics from that and we're still working on adjusting the loyalty program on Hotels.com. But again, we're pleased where we are. With all of that, making sure we have the right positioning, the right product, the right supply, then it's a question of what is the marketing mix. We certainly have a mix of brand spend and then performance spend. On brand spend, on Expedia, we just last week did a partnership with a big creator, a big YouTuber, which is really all about getting after the Gen Z audience. Similarly, in the other brands, we have plenty of upper funnel spend. And a lot of the efficiencies that we're seeing are coming out of performance and better understanding the incrementality of the returns and performance. Certainly, on brand, we're getting benefits and leverage from using AI and creative and the like. But I would say we're keeping that balance. And the better we are at understanding returns on performance spend, the more we also are balancing between upper and lower funnel.

Great. I'll dive into marketing. You're seeing continued really strong leverage there, better than estimates. How are you thinking about the efficient frontier? And could you be driving room nights faster if you wanted? And then second, you're going to lap that step function improvement in the third quarter. Do you think you can still drive marketing improvements as you think about the back half?

Yes, a couple of things. Let me start with, first off, the marketing leverage piece. I think kind of following on from what Ariane just said, much like in Q3 and Q4 of 2025, we continue to demonstrate strong marketing discipline and improved efficiency and returns across and between channels. And we've spent a fair amount of time reallocating between channels and countries and getting sharper. Our capabilities and improved targeting and measurement capabilities allow us to more dynamically reallocate spend across channels and markets, reducing investments in lower-performing areas, while concentrating spend where returns are the strongest. AI has helped us do this. It's helped us do more tests, deliver more gains across both paid and unpaid channels. And as you called out, as we look to the second half of the year, we expect marketing efficiency to moderate as we lap the elevated levels of leverage that we drove in the back half of 2025. I indicated that on the last call as well.

Yes. The way I would think about it is, there's some of the work that we've done that is going to be durable. The work that we've done to better understand returns, to understand incrementality, to move money from one place to another, that is durable. Raising the bar on the levels of returns we're expecting and taking out unprofitable spend are things we will lap over. As we go forward, what I'm looking to the team for is to make each dollar of marketing count by improving our product experience, by improving how each marketing dollar then lands into the product and converts. And that's where we're going to see benefits down the line. That's what we're driving toward.

Yes. I would double-click on one of the questions embedded there. Do we leave growth on the table? We actually don't believe we left meaningful growth on the table, which is remarkable given our consumer brands are growing gross bookings value at ten percent and the margin expansion we delivered reflects the work we've done to improve those efficiencies across the business from marketing to cost of sales to overhead. We tend to be very disciplined in how we allocate those funds. When you look at the top line, our consumer business grew about ten percent this quarter, the strongest growth in nearly eight years, while we've cut marketing spend in the consumer business by seven percent. And even then, as we look at that, we haven't really cut— I don't think we've left much growth on the table at all. And just a shout out to the team. They did a great job to better understand the returns, reallocate the spend and optimize the channel mix. So while we could have spent more, the incremental return didn't warrant it.

Just circling back on the partnership with Uber. Can you sort of dive into how some of the economics potentially work? Like should we expect more of these larger partnerships with larger companies that could drive higher volume to your B2B segment? Can you just dive into that?

Thanks for the question, Jed. We are excited to be the exclusive hotel partner for Uber and it's a testament to the strength of our B2B business, the strength of the technology, the team, the supply. I'll just remind everyone, our B2B business has been growing strongly for many quarters in a row and we have a lot of big-name partners that we power. So we're thrilled to have Uber. There are lots of— it's not our first big partner that we power. The way we think about this deal is our supply partners, our hotels, will benefit because they will get incremental demand, all with the one pipe that they have or the one connection to us. It's a net positive deal for us. It's a deal that's first launching in the U.S. and then it's going to expand further. In fact, Uber is strong in some regions where our brands aren't as strong. So it's going to give us access to that demand. And like with anything in our B2B business, I'm always pushing the team on acquiring new partners or partnering with new companies. I mentioned Bank of Montreal AIR MILES. We have Uber. It's really about how we continue to build up our partner network, which then creates a virtuous cycle because it's great for our supply partners. They get incremental demand. It's great for the B2B partners. And it also creates the flywheel and helps all of our content get even better.

Great. And just as a follow-up, just on the cost for the back half, is there anything we should be thinking about AI investments around higher token cost, token usage? Anything around there that could inflate the cost?

So we'll get to the second half in the next earnings call but a couple of thoughts ahead of that. Definitely, we're seeing the use of AI and the associated costs, broadly speaking, increasing. The team has done an excellent job managing their overall cost to include a number of reductions that we've made across multiple teams over the course of the last year. And that's left us room in our cost structure to be able to absorb that and deliver the margin expansion that we've talked about. That will moderate as we cross into the second half of this year. I expect token cost to go up. We're going to be adding back skills that we need to optimize our AI plans. And I think that will put some upward pressure on costs but I think the teams have done a good job continuing to take costs out. So it's kind of a mix of productivity to pay for additional investments in AI.

And I would just add because I'm spending a lot of time with the team on AI adoption internally is, we are not constraining ourselves. That being said, we're certainly pressurizing our usage. So like with everything we're doing, we're being disciplined. And I think you've all seen that since I became CEO a couple of years ago, it has been a top priority to run the company efficiently. So it is invest in the areas we see growth and drive efficiency, which is why we can do both at the same time.

I'd also keep in mind that we're working not just on engineering costs. We're working on every cost bucket in the company, in particular, overheads and cost of sales. And we've done really nice work over the course of the last year and that dynamic will continue.

Could we dive a little bit into the B2B segment? You talked about some of the dynamics in the quarter that seem more macro related. But you also talked about some of your partners pulling back on their promotional activity. Could you just elaborate a little bit more? And within that, were there any meaningful changes in customers or partners either in the first quarter or as you look into the second quarter? And then maybe just expand on that as you saw the business recover in April on the core bookings side, are you seeing similar on the B2B side? And any differences you might be seeing from the B2C versus the B2B side in April and anticipated in the second quarter?

I'm happy to start. B2B had another solid quarter, growing twenty-two percent. As a reminder, about two-thirds of the bookings in B2B are outside of the U.S. So it was more impacted than our consumer business with the conflict in the Middle East. It saw more cancellations, especially in Europe and Asia in March. Then it recovered since, in the same way that Scott talked about cancellations dissipating in April. The performance in the first quarter was, like all of the recent quarters, about winning wallet share. It's better using the supply. I mentioned that we added ten percent more properties and B2B consumes that. And then the marketing campaigns with some partners: they're still investing in marketing campaigns. It's just that there was a more elevated level of investments in the fourth quarter. This industry has always been competitive. There will be deals we'll lose and deals we'll win, but you want to be on the net positive side of that.

A couple of things from a line-of-business standpoint. API was again the largest contributor to growth and B2B continued to benefit from the elevated promotional activity, as Ariane highlighted, from some of our largest partners but it's at a decelerating rate of growth. So the contribution to growth for B2B from that is less this quarter and we expect it to be a bit less next quarter. Template and TAAP also delivered healthy growth, each in at least the mid-teens growth level. So we feel good about the breadth of the lines of business within B2B that continue to perform and we're clear-eyed about what we can expect as we go forward. On the point about April, we throw March and April into the bucket of two highly volatile months and that informed how we thought about the rest of the quarter. What you see is a lot of different metrics moving very differently. Some of it you can see coming given the dynamics with Mexico or the Middle East but some are just consumer behavior changes. And so that informed our guide as we think about Q2 and why we didn't necessarily want to get into a full-year guide at this point.

Maybe one last thing about B2B, which is a more macro point: we've talked in previous quarters about our ambition to build out more lines of business in B2B to become a one-stop shop. We continue to work on that and make progress. We're doing that at the company level while expanding margins. So we're finding opportunities to find cost savings in some places and then reinvesting in B2B and a few other areas as well.

I wanted to follow up on the Uber deal, which seems like it could be pretty meaningful for B2B. Could you talk about how you think about incrementality, how you got comfortable, especially in the U.S. with the incrementality of that deal and how you balance the focus on B2B growth versus enabling a potential competitor?

Sure. I always think that each of our brands — and I put B2B as a brand — our three big consumer brands and B2B have to stand on their own with really strong value propositions. Expedia needs to stand on its own as a one-stop shop where you can bundle and save, package things together and have a great loyalty program. Vrbo needs to stand on its own. B2B has a value proposition: we're going to power other companies. My view is that that creates a beautiful flywheel that helps all of the assets across the company. When we looked at the Uber deal, we said it makes economic sense for B2B and for the P&L and it expands the size of our marketplace. At the same time, of course, we have leaders of each of the three consumer brands and they're working through how to make sure that of the roughly two-thirds of bookings that come directly to them, they're continuing to make those customers more loyal. We've got the silver members and above that are growing quickly. How do we keep adding value in our consumer business so they come back, we retain them more and they repeat more? That's the work of the consumer brands.

Ariane, one for you and then Scott, one for you. Ariane, I realize that the traffic from AI channels is still very small. I think you noted new users and conversion are all very good. But can you expand on the efforts to capture this traffic and potentially make them into repeat customers? I know it's early days but curious on how you're approaching from a product strategy here. And then Scott, can you expand on the drivers of B2C bookings growth, perhaps share additional color on the trends by brand that's enabling pretty strong growth in Q1? And how should we think about the sustainability of this in the second half?

With each of these AI channels, whether it's Gemini, ChatGPT, Claude or others, it's about making sure that our brands show up well there and then making sure that where we can, we get traffic and we can land them into our own apps. Some of that is Answer Engine Optimization and I talked about the work we're doing there; it's the fastest-growing channel for us — still very small but fastest-growing. We did an early integration with ChatGPT and we're now integrated and live with Claude. These are still early days but what we're learning is what the user behavior is and how we most seamlessly land them into our product so that it's a seamless experience, they convert and then come back direct. It's similar to what we've always had in performance channels where it's not only about getting eyeballs on your ads or brand but also perfecting how you land them into your product so they convert and then return. The teams are experimenting a lot. I expect we'll continue to experiment over the coming quarters. It's a fast-evolving space but one that we think is a great opportunity to bring new travelers into our brands and then convert them into repeat direct customers.

A few thoughts on B2C. Our consumer business delivered strong growth this quarter with all of the brands contributing. In fact, as I called out earlier, excluding the COVID periods, the last time our consumer business grew bookings ten percent was the second quarter of 2018. It was across all the major brands. Brand Expedia continued to deliver steady performance and was the primary contributor to Q1 growth. We feel really good about the position that business is in. Vrbo continued to show strong momentum with improvements in traffic, quality and conversion as well as the overall shopping experience. Our recent capabilities around supplier-funded promotions, as Ariane noted, represent over one-third of bookings at this point for the quarter. Stepping into margins: consumer margin expansion reflects the marketing leverage and the disciplined cost management of all line items, particularly marketing, driven by the benefits we saw from targeting, measurement and channel optimization. As we think about going forward, we're on a nice arc of growth from one year ago when results were weaker to where we are today. We feel great about it and we see that continuing. The dynamic we'll manage is margin as we start to lap the second half of last year when we cut marketing, which will be the biggest change in the second half.

The main thing we need to do is to continue to find more ways to deliver value to travelers. If we create great product experiences, if we become truly personalized travel agents for people, they will come back to us, repeat more and the consumer brands will grow. Each of the three brands is in a different spot but everyone in this organization — product, tech, marketing, supply, servicing — is focused on creating great traveler experiences so that people come back to us in the long term.

You talked a lot, Ariane, about AI in your opening remarks. The direction of travel in recent weeks and months seems to be away from commerce at the point of discovery and towards more of a discovery layer with paid placements being the model where some providers are headed. Could you talk a little bit about that? We've heard large hotel chains try to talk up their own native apps. It feels like we might be heading to a place similar to where search has evolved after experimentation. How do you feel about that direction and how would it affect your business?

I would say I'm not totally surprised by some decisions to scale back certain commerce features. We always experiment, and we'll continue experimenting because things move fast. What we know is travel is complex — bookings, payments, servicing — and it takes expertise built up over time. The pullback in checkout reinforces our view that AI can be a powerful discovery layer but the actual booking and servicing is best handled by a trusted, scaled provider. If the market evolves toward paid advertising, that's a space we know well; we've been in it for many years. We will continue to play across the stack and adapt, and I think that's a net positive for us. No matter how the market evolves, we'll make sure we are present and competitive.

And just as a follow-up in a slightly different track. You said growth continued in line with Q4 in early January and February and then decelerated materially because of both Mexico and the Middle East and then reaccelerated in April. Was that a reference to cancellations only, or can you give any additional detail on trends in February, March and April?

That's correct. Bookings expanded in April and cancellations reduced. January and February were strong. We called out that Mexico and EMEA cost us about two points for the total quarter. By pure math, that was about a five-point impact for the month of March. April rebounded — not fully but pretty well. We expect further volatility as we go through the rest of the quarter and that informed our guidance.

Okay. And sorry, just to be clear, my statement about January and February looking like Q4, is that what you were suggesting?

That's correct.

Two questions from me. Maybe just coming back to the Uber partnership, Ariane. The use case of Uber is usually at the time of travel, right? So how should I think about Uber being used to book a hotel when hotel bookings typically are booked sometimes months in advance? Just give us your thoughts on that. And then I think you also called out a one billion dollar run rate for vacation rentals on Expedia. Is that gross bookings or revenue? I think it should be bookings but correct me if I'm wrong.

The vacation rentals figure I referenced is gross bookings on Expedia and it excludes Vrbo. On the Uber partnership, there are a lot of use cases for people using the Uber app. Whether it's last-minute bookings or other experiences, it's a question for our partner about how they surface hotels. Many of our B2B partners use hotel inventory in different ways: airlines allow customers to use loyalty points to book hotels, corporate travel companies integrate hotels into itineraries, and sometimes hotel bookings are made at the time of a flight purchase or stand-alone. The diversity of partners and their different customer journeys is a strength because each partner figures out where lodging fits in their flow and they are motivated to grow that use of inventory.

Maybe a clarification first. Is it fair to assume that second quarter does have some lingering impact on the bookings figure as a result of the tensions in the Middle East? I understand the March dynamic but April seemed to rebound; I just want to make sure I understand correctly. And then maybe just on airfares, they've been on the rise. Can you talk about any impact you've seen on bundling at all? Any comments around demand elasticity for travel overall would be helpful.

Sure. April rebounded a bit from March. January and February were strong, March was weak. We called out two points of impact for the quarter, which was about a five-point impact for the month of March. April rebounded, not fully but pretty well. We expect in our guide that there will be additional dynamics from the Middle East and ongoing uncertainty in energy prices and other macro factors.

In terms of bundling, so far we haven't seen any dramatic shift in customer behavior. But when airfares are rising, the ability to bundle and get deals on hotels — whether you bundle at the time you buy the flight or later — is attractive for travelers and it's one of the value propositions of Brand Expedia.

So I just want to thank you all for joining the call and for your questions. We delivered a strong first quarter ahead of our expectations and I'm looking forward to updating you all next quarter on our full year guide with Derek. I want to, as always, thank our teams for their hard work and our partners and travelers for their continued trust in us. Thanks.