Orbitz' Research Doesn't Just Matter for Orbitz
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the Wall Street Journal, Dana Mattioli reported that the online travel broker Orbitz (NYSE: OWW) has discovered a way to detect travelers who will pay for higher quality hotels, marketing pricier rooms to travelers who use Apple (NASDAQ: AAPL) Macs to make their reservations. Orbitz' study has some interesting implications for other businesses, including its own competitors, the hotels, and Apple itself, and the study also illustrates the advantages that big data services can provide.
Orbitz' report is a good sign for Apple. Although Macs provide a much smaller amount of Apple's sales than they once did, Orbitz has provided some evidence that personal computer owners still see the Apple Mac as a luxury brand. Apple needs to control a large share of several markets, including the tablet and smartphone markets, to continue its growth. It can be tricky for a large company to maintain a luxury image while marketing its products to more shoppers, although Apple's design efforts have helped the company accomplish this goal so far. Mac owners' confidence about making high end hotel reservations could be good news for future Apple products like the Iphone 5. At a PEG of 0.57, investors aren't paying a premium for Apple's expected growth.
A glance at Orbitz' margins shows that the travel agency may have already gained a competitive advantage from its hotel room search strategy. Yahoo! Finance lists Orbitz' gross margin at 82 percent, which surpasses both Expedia (NASDAQ: EXPE) at 78 percent and Priceline (NASDAQ: PCLN) at 72 percent. Even with better gross margins than its competitors, Orbitz is still running in the red, while Expedia and Priceline are both profitable. Orbitz may have decided, like other tech firms, to focus on growth instead of immediate profitability, as it is much smaller than Expedia and Priceline. Priceline's 0.91 PEG beats Orbitz' 1.00 PEG figure, so even after considering Orbitz' marketing strategy, Priceline may still be a better pick.
Orbitz' strategy also has implications for the hotels themselves. Some hotels prefer to handle their own guest reservations without the involvement of online travel agencies, and hotel websites frequently offer their own online reservation services. If a hotel decides not to work with the online travel agencies, the hotel may not have the IT staff to perform detailed number crunching on its own data, especially if it's a small hotel. A hotel could work with a big data company to design a new pricing strategy that could boost the hotel's margins.
A big data company could also decide to compete with the online travel brokers itself, which is what EMC (NYSE: EMC) did with EMC Venues. EMC Venues was designed for large groups of business travelers, so the other online travel brokers may be more relevant for an individual traveler. Priceline, Expedia, and Orbitz investors should still watch what EMC does in the online travel sector, as EMC mentions that business travelers can choose from more than 125,000 venues on its Venues site. EMC Venues is a small part of EMC itself so a direct comparison to the online brokers isn't that helpful, although EMC does have a PEG of 0.97, which shows that the big data company's own sales are expected to rise.
The main thing I'd take away from Orbitz' results is that Mac users do seem willing to spend more money on hotel rooms right now, which seems positive for the overall travel industry and shows that Apple still has a high end brand image. Priceline's low PEG still makes it look like a better investment choice, especially if some of Orbitz' customers switch to Priceline in search of lower prices.
enovinson has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, EMC, and Priceline.com. Motley Fool newsletter services recommend Apple and 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.If you have questions about this post or the Fool’s blog network, click here for information.