This summer, Expedia Group CEO Mark Okerstrom unveiled a plan to realign how the Seattle-based travel booking company did business.
Only four months later, Okerstrom is out of a job.
In a shock to analysts and employees alike, Expedia’s board of directors announced Wednesday morning Okerstrom had resigned, effective immediately, at the request of the board. Chief Financial Officer Alan Pickerill is also out.
“Ultimately, senior management and the Board disagreed on strategy,” the company wrote in a statement. Expedia declined to comment further on the management change, and the executives could not be reached.
Board chairman and major shareholder Barry Diller has taken the reins to oversee day-to-day operations while the company seeks new leaders.
During much of his 13-year tenure at the company, Okerstrom sat shoulder-to-shoulder with former CEO Dara Khosrowshahi, who now heads Uber. The two negotiated billions of dollars in acquisitions to build the sprawling network of travel brands Expedia controls today.
Okerstrom was greeted by fanfare when he took the top job in mid-2017, and he signed a compensation package that made him that year’s best-paid CEO in the Pacific Northwest.
But the company’s share price has declined nearly 40% since then.
Last month, Expedia posted third-quarter earnings so anemic the company’s share price cratered by 27% overnight, to under $100.
Ketchup and mustard
Okerstrom joined Expedia in 2006, rising to become CFO in 2011.
He served as something of a consigliere for Expedia founder Khosrowshahi. The two sat six feet away from each other for more than five years. They planned matching Halloween costumes — one year, as ketchup and mustard.
When Khosrowshahi accepted the CEO position at Uber in 2017, the board of directors considered only one candidate to replace him: Okerstrom.
“This transition is as natural as water flowing down a snowpacked mountain,” Diller said at the time.
When he accepted the position, Okerstrom pledged to continue aggressively pursuing opportunistic acquisitions.
Mergers and acquisitions, Okerstrom said at the time, are “in our DNA, and it will be in our DNA in the future.”
As Okerstrom rose to the top, the company was facing fierce competition from Booking Holdings, known then as Priceline Group, the owner of Booking.com, Priceline.com and Kayak.
Until 2010, Expedia ruled the online travel booking market. But by 2014, Booking Holdings’ annual revenue outpaced Expedia’s by billions of dollars — in part, analysts believe, because Booking excelled at integrating its many brands.
A third-quarter shockwave
Meanwhile, after years of acquisitions, Expedia’s operations were fragmented and siloed, Okerstrom said on a second quarter earnings call in July.
In addition to Expedia.com, the company manages more than 200 travel booking sites worldwide, including the vacation rental site Vrbo, Hotels.com, Hotwire, Orbitz, Travelocity, corporate travel manager Egencia and hotel search engine Trivago.
Customers booking, say, a vacation rental on Expedia-owned Vrbo shouldn’t have to leave the site to book a car on Expedia-owned Hotwire, Okerstrom explained on the call.
Okerstrom created three new roles for executives to oversee collaboration across the company’s many travel booking platforms, resulting in a musical-chairs-like shuffle of top executives into new positions.
The goal was to follow Booking Holdings’ lead: Boost the bottom line by selling across brands.
Instead, Expedia saw net income fall in the third quarter, by 27%. By the end of the year, the company announced, adjusted revenue would grow by as little as 5% — down by 10 percentage points from its original forecast.
Okerstrom put an optimistic face on the disappointing results. Expedia’s growth had fallen massively under expectations, but he argued in a November earnings call the realignment positioned the company for better growth in the long term.
He said other factors had affected the company’s poor revenue forecast, including lower hotel room rates across the industry. Marketing costs rose, too, after Google changed its algorithm to make free links to sites owned by companies like Expedia and Booking appear lower down on the page when potential customers search for hotel rooms, cars, flights and other travel.
Diller, it seems, felt differently.
In his letter to employees, he pegged the reorganization as the crux of the board’s clash with Okerstrom.
“This reorganization, while sound in concept, resulted in a material loss of focus on our current operations,” he wrote,”leading to disappointing third quarter results and a lackluster near-term outlook.”
The board, he wrote, believed that the company could grow faster than Okerstrom predicted.
“That divergence necessitated a change in management,” the message read.
The announcement of Okerstrom’s and Pickerill’s resignations on Wednesday morning came after a Tuesday afternoon shareholders meeting.
It’s unclear what happened at that meeting.
What does seem likely is the executives’ departure was unplanned.
One sign the company may not have been prepared for the board to ask Okerstrom and Pickerill to resign? The lack of a clear succession plan.
Until Expedia recruits a new CEO and CFO, Diller and vice-chair Peter Kern will oversee the company’s day-to-day operations. Chief Strategy Officer Eric Hart will serve as acting CFO, the company said.
The company also scheduled an all-hands meeting for employees to ask questions about the shake-up for Dec. 19 — two weeks after the executives’ departure.
“You’d think that if they had something planned, a meeting like that would have been scheduled right away,” said analyst Edward Woo, of Ascendiant Capital Markets.
The future of the $30.72 million compensation package Okerstrom received when he signed on as CEO in 2017 is also up in the air. Nearly all of that sum is tied up in restricted stock units, some of which only vest if Expedia hits specific performance targets.
A positive outlook
The market responded positively to the shake-up at the top of Expedia, with shares rising 6.2% to $105.56 Wednesday.
The company also announced it would add 20 million shares to its share buyback program. It had previously announced it would buy back as many as 9 million shares.
Diller also said he would purchase Expedia shares “as a tangible sign of my faith in and commitment to Expedia’s long-term future.”
But some analysts said new management won’t resolve the larger issues facing Expedia and all online travel sites.
Google’s algorithm change is a “headwind” that will continue to drag on Expedia’s revenue growth through the middle of 2020, said analyst Lee Horowitz, at Evercore ISI.
“This is not something that will go away once you have a new CEO,” Woo said.
Information from The Seattle Times’ archives is included in this report.
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