Expedia, Inc. Goldman Sachs Technology & Internet EXPE Conference Feb. 11, 2014 Company▲ Ticker▲ Event Type▲ Date▲ PARTICIPANTS Corporate Participants Mark D. Okerstrom – Chief Financial Officer & Executive Vice President, Expedia, Inc. MANAGEMENT DISCUSSION SECTION Unverified Participant Great, so we’ll go ahead and get started. Really excited to be able to welcome Mark Okerstrom, the CFO of Expedia, here with us today. Mark, thanks for taking the time, really appreciate it. I know this is always a busy time of year for you guys. Mark D. Okerstrom, Chief Financial Officer & Executive Vice President It’s great to be here. 1 corrected transcript www.CallStreet.com • 1-877-FACTSET • Copyright © 2001-2014 CallStreet Expedia, Inc. Goldman Sachs Technology & Internet EXPE Conference Feb. 11, 2014 Company▲ Ticker▲ Event Type▲ Date▲ QUESTION AND ANSWER SECTION <Q>: For people in the audience that primarily know Expedia through your Expedia.com brand or have used Hotels.com as possibly everybody in this room has at some point or another. What’s the right way to think about Expedia as a company right now? <A – Mark Okerstrom – Expedia, Inc.>: Well, I think as a company, the right way to think about it is, first of all, we are a leader in a absolutely huge industry. It’s a trillion dollar industry, travel, with great tailwinds. If you look at online penetration around the world, even in the U.S., the most mature market’s only 60%. And when we look at our corporate customers, the true potential of online penetration, technically up to 95%. So it’s a big industry with big tailwinds and we’re a leader in it. And we approach it in a very deliberate way. We have a multi-brand strategy and we have, what we think, are really some of the leading brands in travel. In the core leisure business, obviously, we have brand Expedia, which is really, in our view, the only remaining full service OTA that’s truly global. And it’s in 31 different countries around the world, re-platformed the business, it’s on modern technology and really firing on all cylinders. Hotels.com in over 70 countries around the world, standalone specialist. EAN, our private-label business. And that core business is really in just execution mode. I mean, it’s heads down, execute, expand globally, world-class online marketing, great supply. And then we’ve got these other longer-term brands that are out there addressing different parts of the market. We’ve got eLong, which is the number two OTA in China, and that’s just a huge opportunity for us in the long term. You’ve got trivago, which is the leading hotel metasearch player predominantly in Europe growing at incredibly healthy rates and now coming into the U.S. And then you’ve got Egencia. Corporate travel’s a third of this trillion dollar industry, and we’ve got the fifth largest player in there that really came out of nothing 10 years ago to really become the fifth largest player, and they’re doing to corporate travel what Expedia did to leisure travel 10 years ago, and we think that’s an incredibly exciting long-term bet for us. <Q>: Yeah. I mean, you touched on this a little bit. I mean, we all tend to get bogged down in sort of the quarter-to-quarter metrics of ADRs and room nights and all of that. But I mean if you step back and look at the market as a whole, where is penetration in the U.S., in Europe, in Asia? How fast are those relative markets growing? <A – Mark Okerstrom – Expedia, Inc.>: Yeah. So again, if you just look at the overall travel industry, it’s about $1 trillion, a little bit north of that now, a third in the U.S., a third in Europe, about a third in A-Pac, Latin America combined. Online penetration is, call it, 50% to 60% in the U.S., call it anywhere from 35% to 45% in Europe depending on the countries, and call it in the 20%s in most Asian and Latin American regions with some exceptions like South Korea which is very high. The overall travel industry usually grows at a clip that’s slightly ahead of GDP. And then you’ve got this great offline to online tailwind that’s happening around the world. And the interesting thing is that one of the big barriers to online penetration historically has been PC penetration and broadband Internet penetration, and what we’re finding in some of these emerging markets is mobile is essentially enabling leap-frogging of that. corrected transcript www.CallStreet.com • 1-877-FACTSET • Copyright © 2001-2014 CallStreet 2 Expedia, Inc. Goldman Sachs Technology & Internet EXPE Conference Feb. 11, 2014 Company▲ Ticker▲ Event Type▲ Date▲ So it’s a huge industry with great tailwinds, and you look at a player like ourselves, 2013, we did around $40 billion of gross bookings, so that’s 4% of that $1 trillion industry. We’re the market leader. And even in the U.S. where we are the strongest and we’re the strongest brand, we’re still in the single-digits. So I think we’re in the very early stages of the online revolution of the travel industry. <Q>: Okay. You mentioned that in a lot of ways you guys are the only global full service OTA left. How do you think about those synergies that exist between the hotel, air, car rental package business that you’ve gotten. How’s that changing with mobile? <A – Mark Okerstrom – Expedia, Inc.>: Well, there’s a couple of pieces of the synergy story that’s part of the Expedia, Inc. family. Firstly and foremostly, with our selection of leading brands, and our breadth across brand Expedia with the packages product, Hotwire with opaque, standalone hotel, Egencia the corporate product. For a supplier who’s looking to access the whole travel market globally, it’s of tremendous value to in one conversation be able to hit really any pocket of the market they want to. So that’s one big synergy with the Expedia, Inc. business. As it relates to brand Expedia, and that’s full service OTA opportunity, the interesting thing is that the bulk of the profits in this industry, it’s been no secret has been hotel. So, therefore, you have a lot of competition in the hotel space. Metasearch players are going after it, big OTAs like ourselves are going after it. And it can be very expensive to acquire traffic in the hotel space, Google in metasearch, et cetera. But what we have in brand Expedia is an incredible asset which is we have the air product. It’s a product that has historically been less profitable across the industry for intermediaries. It’s something that we’ve actually counterintuitively perhaps invested aggressively into building really state-of-the-art platforms. And that enables us to access a whole different source of traffic and then cross-sell that into hotel. We’re in the very early stages of the opportunity there. It’s an opportunity that’s really only now become available on the new Expedia platform. And we think when you take a travel experience that starts with air and you can, in many cases, bundle hotel and car and scuba trips in that same package, in many cases, a lot of those components are free and that’s something that is an unparalleled consumer opportunity when you couple something, which is an unbeatable product, with the ability to tap into traffic that no one else can tap into. That creates a big opportunity. <Q>: So you touched on customer acquisition. The last couple of years you’ve just seen dramatic changes in a lot of your primary channels, whether it’s Google evolving their travel offering and travel search offering through Hotel Finder and some of the other products that they’ve tried to develop whether it’s TripAdvisor and what they’ve been doing since spinning out from Expedia and evolving their market, Priceline buying Kayak and all of that. How do you think about customer acquisition both from just a strategic standpoint now with some of your own acquisitions like trivago but also from an economic standpoint? <A – Mark Okerstrom – Expedia, Inc.>: Well, for us, the real strategy for a great customer acquisition starts with having a great product. Having websites that are easy to use, easy to navigate, having hotel and air and car inventory that has great availability and great prices. And when you start with a great product and that becomes the core focus of your brands. It enables you to convert traffic better than those people that are less focused or have not as an effective product. And that’s really were we started with the re-platforming of Hotels.com, the re-platforming of brand Expedia, the rollout of the Expedia Traveler Preference Program, which opens the aperture to much broader supply inventory. corrected transcript www.CallStreet.com • 1-877-FACTSET • Copyright © 2001-2014 CallStreet 3 Expedia, Inc. Goldman Sachs Technology & Internet EXPE Conference Feb. 11, 2014 Company▲ Ticker▲ Event Type▲ Date▲ And now we’re in a spot where we do have websites where conversion is getting better and better and better and better. That enabled us to be much more effective in variable marketing channels and be able to spend more and acquire more traffic. And really the game here is to bring customers to your product, give them a great experience and next time, come back to you for free or through a cheaper channel either through the mobile app or to your website directly.