Is This the Best Online Travel Company?
Dan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Orbitz (NYSE: OWW) has rewarded investors with a 250% return so far this year. However, if you weren’t in on it, don't worry. What we need to establish is whether or not Orbitz is a better investment option than peers, Priceline.com (NASDAQ: PCLN) and Expedia (NASDAQ: EXPE).
Black and red
Orbitz has seen revenue improvements over the past three years, but growth has been slow and revenue still isn’t close to where it was in 2008. On top of that, Orbitz continues to lose money.
On the other hand, three of the last four quarters have been profitable. Investors are attracted to this because they love companies that are successfully managing a turnaround. In other words, returns on these types of businesses have the potential to be enormous.
That said, this can’t be classified as a turnaround just yet. Orbitz must deliver full year profits, (and despite the industry performing well), there are many questions about the health of the consumer on a global scale. If the industry falters, then it will be very difficult for Orbitz to show consistent improvement on the bottom-line.
Orbitz owns several online brands, including Orbitz.com, CheapTickets.com, ebookers.com, HotelClub.com, and RatesToGo.com. While this demonstrates diversification, it’s not impressive on a relative basis to peers.
Priceline.com owns Priceline.com, Agoda.com, Kayak.com, and Booking.com.
Expedia owns Expedia.com, Hotels.com, and Hotwire.com.
Priceline.com and Expedia have a lot more exposure to consumers. The global traffic rankings for the aforementioned websites are from Alex.com.
- Orbitz.com: 1,514
- CheapTickets.com: 4,924
- ebookers.com: 15,187
- HotelClub.com: 12.446
- RatesToGo.com: 66,653
- Priceline.com: 682
- Kayak.com: 1,009
- Booking.com: 150
- Agoda.com: 899
- Expedia.com: 487
- Hotels.com: 711
- Hotwire.com: 1,428
The numbers below, provided by comScore, indicate industry 2012 page-view market share for Expedia.com, Priceline.com, and Orbitz.com.
- Expedia.com: 31.6%
- Priceline.com: 17.3%
- Orbitz.com: 12.9%
Not surprisingly, Priceline.com and Expedia have been more consistent performers. Expedia’s revenue has consistently improved. Profits have also been steady, but earnings declined in 2012, and the company reported a loss last quarter.
Priceline.com has seen very consistent improvement on the top line and red ink is nowhere to be found. Furthermore, Priceline.com sports a profit margin of 26.82%, whereas Expedia's profit margin is 4.24%, and the profit margin for Orbitz is -18.82%. Therefore, it should come as no surprise that shorts are betting heavily against Orbitz.
The industry has seen a significant amount of consolidation, but Orbitz hasn’t been a major player. Unfortunately, Orbitz doesn’t have nearly as much cash available as Expedia or Priceline.com, which puts it at a significant disadvantage when it comes to inorganic growth.
While Orbitz might be showing improvements, it will be difficult for Orbitz to steal market share if it doesn’t have the capability of acquiring popular properties. And with the company focused on trying to deliver consistent profits, a major acquisition would be risky.
The company culture for Orbitz is strong, which is a big positive. It indicates employees believe in the direction of the company. Happy employees also tend to produce more and make for happy customers. According to Glassdoor.com, Orbitz employees have rated their employer a 3.9 of 5 and 84% of employees would recommend the company to a friend. Several employees point out the low turnover rate and limited micromanaging as big positives.
Expedia employees rate their employer a 3.3 of 5, and 65% of employees would recommend the company to a friend. Therefore, Orbitz does outperform a peer in one area.
However, Priceline.com remains a dominating force, even in company culture. Priceline.com employees have rated their employer a 4.1 of 5, and 86% of employers would recommend the company to a friend.
Orbitz is a risky turnaround play. While the rewards could be high, it's a dangerous game to play. That being the case, investing in best-of-breed companies for the long haul is recommended. Priceline.com is clearly the best option of this group. If you’re concerned about the broader market, then consider scaling into a position slowly.
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Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Priceline.com. The Motley Fool owns shares of Priceline.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!