Firing of Top Executives Doesn't Solve Expedia's Strategy Problem, Say Some Critics

Expedia surprised the Street on Wednesday as CEO Mark Okerstrom and CFO Alan Pickerill were ousted from the travel agency company amid a disagreement over strategy, the company said. But some on the Street aren’t convinced a switch-up at the top will fix the online travel giant’s problems.

As companies are increasingly shifting toward integrated and connected trip-platforms, the company’s now ex-CEO Okerstrom began a push for Expedia to integrate its brands and technology earlier in the year—a strategy that board chairman Barry Diller called an “ambitious reorganization plan” in a statement Wednesday. And after a dismal 3rd quarter earnings report (missing Wall Street’s estimates) and disappointing 4th quarter estimates, Expedia’s board ousted the CEO and CFO, and said Diller would lead the company for the time being.

Investors seemed encouraged by the news, pushing the stock to close 6% higher on Wednesday.

Yet some analysts think Okerstrom was onto something. Following what Morningstar’s Dan Wasiolek describes as a period from 2018 into early 2019 of Okerstrom “executing pretty effectively,” with performance exceeding EBITDA expectations, “it seemed like the reason for the departures and the reason for the poor [4th quarter] outlook is being pinned on a loss of focus for the overall core of the business due to Okerstrom’s strategy.” To those like Wasiolek, the ousting of Okerstrom and Pickerill was “disappoint[ing]” given he believed the former CEO’s strategy was “prudent” over the long-term.

Pressure from Google

One big issue has been Expedia’s reliance on traffic from Google. “[Expedia] already had a higher exposure to free, organic search that Google is de-emphasizing, so they were more at risk of feeling the pressure from Google,” Morningstar’s Wasiolek says. Yet while Google’s push into Google Travel (and the company’s move to make Google Maps a ‘super app’ with travel services included) does present a competitive concern for Expedia, it’s the pressure on the travel agency’s marketing channel that makes Google a “threat,” and has weighed on Expedia’s marketing spend, Wasiolek says.

In fact, that’s why some analysts like Evercore ISI’s Lee Horowitz thinks “there are challenges at [Expedia] unsolved by relieving management—Expedia needs to wean off of Google SEO as a source of traffic or face getting further squeezed as Google continues to convert more traffic from Free to Paid,” Horowitz wrote in a note.

And for Morningstar’s Wasiolek, the question is, “can Expedia booking offset that indirect channel by giving a great user experience on their own platforms that drives their direct traffic, where they’re not paying marketing, higher?”

Even if a push to refocus strategy on Expedia’s existing core businesses were to bump short-term outlook and growth (which, according to the company, it should), some analysts think it could be to the detriment of a more long-term, beneficial strategy that would ultimately help Expedia keep pace with other travel companies. Competitors TripAdvisor and Booking.com have been implementing a similar strategy of integrating their brands and technology, which Morningstar believes adds long-term value through a “fully connected trip.” Even competitors like Airbnb are building out fully-integrated platforms to compete.

Whether or not the new leadership, currently headed up by Diller, will circle back to Okerstrom’s integration strategy in the future is yet to be seen. “I think that they [just] saw that one area of integration investment as a distraction, and taking away from the near-term results, and if you remove that and return to your focus, you’ll see some stronger results,” Wasiolek tells Fortune. “I just don’t want it to come at the [expense of the] long-term view of investing into the platform.”