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Expedia Group (EXPE) delivered mixed 1Q25 results with EPS edging past expectations, buoyed by robust growth in its high-margin B2B and advertising businesses, but total revenue grew by only 3%, missing expectations. Like competitors Airbnb (ABNB) and Booking Holdings (BKNG), each of which reported earnings over the past two weeks, EXPE's growth was hampered by softer U.S. travel demand, alongside FX pressures impacting its international-heavy Hotels.com brand. EXPE's downside Q2 guidance -- projecting revenue growth of 3-5% and gross bookings growth of 2-4% -- underscores these challenges, sparking a steep selloff in the stock.

• In Q1, total gross bookings increased 4% yr/yr to $31.5 bln and booked room nights were up 6% yr/yr to 101.7 mln, driven by strength in the B2B segment ($8.8 bln in bookings, +14% yr/yr). The B2B segment's outperformance, particularly in APAC, was offset by domestic weakness, with U.S. room night growth lagging international markets, highlighting a broader industry trend of uneven recovery. Meanwhile, unfavorable timing related to the Easter holiday presented a headwind in the B2C business.
• The VRBO business was stable in Q1 with bookings growing in-line with the U.S. market, a marked improvement from prior quarters where its recovery lagged due to re-platforming processes completed in 2023. The migration of VRBO onto EXPE's single front-end stack, which was completed at the end of 2023, was followed by a slow start for the brand in 2024 that caused EXPE to fall behind ABNB. Product improvements and supply expansion are providing a tailwind for VRBO, but intense competition from ABNB and macro uncertainties that disproportionately affect VRBO's higher-ticket vacation rentals are hindering growth.
• EXPE's advertising business has emerged as a bright spot, posting strong revenue growth of 20% and bolstering adjusted EBITDA margin, which increased by 105 bps to 9.9%. This growth, driven by Expedia Group Media Solutions and trivago’s hotel metasearch referrals, benefits from increased advertiser demand for targeted travel audiences and enhanced AI-powered ad tools. The high-margin nature of this segment also supports EXPE’s Q2 guidance for 75-100 bps of adjusted EBITDA margin expansion, despite top-line pressures.

EXPE's soft Q2 guidance and the broader U.S. travel demand slowdown, mirrored by peers ABNB and BKNG, signal near-term challenges for the travel industry. While improving margins through advertising growth and cost efficiencies provide a buffer, sustained margin expansion may prove difficult if macroeconomic conditions deteriorate further.