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Expedia Results Show Slowing Growth in VRBO Unit

Olivia Carville

(Bloomberg) -- Expedia Group Inc. showed a decline in revenue growth at its vacation rental business in the third quarter, signaling slowed momentum in the travel giant’s fastest-growing category and leading to a lowered profit forecast for the year.

Bellevue, Washington-based Expedia’s short-term rental unit reported revenue growth of 14% in the three months ended Sept. 30, to $467 million. That’s less than the 17% pace in the previous period and missed analysts’ estimates for $462.4 million. Total revenue grew 8.6% to $3.56 billion, in line with analysts’ estimates. As a result of “disappointing results” in the quarter, Chief Executive Officer Mark Okerstrom lowered the company’s full-year outlook for adjusted earnings before interest, taxes, depreciation and amortization. The shares fell about 13% in extended trading.

Expedia has been plowing resources into its home-sharing division, Vrbo, in a bid to challenge rivals Airbnb Inc. and Booking Holdings Inc. in the booming market for alternative accommodation. While Vrbo dominates the market in the U.S. for purely vacation-rentals, Airbnb and Booking capture a much larger share of the broader global $34 billion alternative accommodation market, which also includes non-traditional hotels and home sharing.

“We continue to be happy with the trends we are seeing at Vrbo and we continue to see growth rates in double digits,” Okerstrom said on a conference call. Expedia expects “continued muted growth rates” at Vrbo while it builds out the brand, which now suffers low visibility compared with its competitors. “Once we get past some changes, we will be able to return to growth rates we’re more satisfied with,” he said.

Earlier this year, Expedia changed the vacation-rental division name to Vrbo, a moniker more familiar to Americans than the previous HomeAway label, which is more well-known in Europe.

Okerstrom said Expedia now sees 2019 adjusted Ebitda growth of 5% to 9%, down from a previous forecast for as much as 15% growth.

Vrbo only pulls in just over 10% of Expedia’s overall revenue, but analysts and investors focus on the division because it represents the company’s best bet for growth.

Gross bookings for the travel giant climbed 9% to $26.9 billion. Adjusted earnings before interest, tax, depreciation and amortization came in at $912 million, missing average analyst estimates of $973.3 million. Earnings per share were $3.38, excluding some items. Analysts, on average, estimated $3.77.

(Updates with forecast in the sixth paragraph.)

To contact the reporter on this story: Olivia Carville in New York at ocarville1@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Molly Schuetz, Andrew Pollack

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