Is This Online Travel Company A Buy?
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Expedia posted hotel room growth in the last three quarters. Although the average revenue/room is declining in today’s difficult macro environment, the growth of ~17% in domestic and ~38% in international bookings helped Expedia overcome this decline. Expedia has shown quarterly revenue growth of 17.5% in comparison to its competitors Orbitz, which had negative growth of 2.3%, while Priceline (which I have covered in detail here) had growth of 17.4%. Additionally, one other important factor to be considered is the number of unique visitors which each of these three companies’ sites has attracted. In this parameter too, Expedia has a significant lead against the other two companies.
These figures are summarized below.
Source: Yahoo Finance
Orbitz has been facing several issues for a long time. It has declined significantly from ~$15 since its IPO in 2007 to the current level of ~$2.70. Orbitz is too dependent on airline travel bookings. It has not paid enough attention to diversify toward Hotel Bookings and to expanding internationally. It is also facing issues in its core US and European markets, because of negative macroeconomic factors.
On the other hand, Priceline’s recent acquisition of Kayak software will provide it with search ranking and technical expertise. Priceline has significant exposure to the European market. This acquisition will provide it with a direct access to Kayak’s well established US market. With this acquisition, Priceline may provide Expedia a tougher competition in the upcoming time. But looking at Expedia's continuous technological advancements, innovative marketing ideas, and expansion in its inventory, I feel the company should not face any problems in the future. I have also covered Priceline over here.
Let’s have an overview of its growth drivers.
Recently, the company has improved its “Hotels.com” website. It has made the room booking process much simpler, which has resulted in an increase of 20% in the booking conversion rate. It is expected to improve further and should result in additional revenue of ~$1.2 billion annually for the company.
Growth in Mobile:
Expedia's mobile apps are also gaining popularity among users. Till date, its Hotel.com app has been downloaded by 10 million+ users. Moreover, 5 million users from 220 different countries have downloaded the Expedia app. Additionally, the company has also launched its iPhone app for Hotwire recently. With the development of these apps the company should gain attention of the users who habitually do last minute bookings. Presently ~ 20% of the hotel transactions are done through different mobile apps. I believe, with the rapid growth in mobile and tablet users, the company should see increased revenue in direct on-line booking.
Adding to its technological advancement, the company has also intensified its advertising in various media. It’s newly released advertising campaign “Find Yours” is attracting more users towards Expedia as it focuses on making one’s trip unique and personalized.
Expedia Travelers Preference:
In the last quarter Expedia came up with a very innovative program “Expedia Travelers Preference” (ETP). This has given its users an option to either pay directly to Expedia at the time of booking or to pay to the hotel of their stay at the time of check-out. This program has been a big hit in the hotel industry as ~13,000 hotels out of ~160,000 associated hotels have shown keen interest in this program. This model should attract more customers towards Expedia as most of the people like to pay at the time of check-out which will result in more revenue generation through commissions.
Synergy from VIA acquisition:
Expedia's acquisition of Nordic travel operator VIA has started showing good results.
In 3Q12, its airline ticket booking grew by 11% Q/Q, backed by VIA’s strong market position in air bookings. In future, the company should attain higher growth in revenue, as now the company has more services in its portfolio like marine travel booking, leisure trip booking etc.
Partnership with Elong:
Recently the company went into a partnership with the Chinese online travel agency “Elong”. With this partnership, ~32,000 hotels of China will now be associated with Expedia. This deal has shown an increase of ~22% in Expedia’s international revenue in the last one month. Further, China’s fragmented market should help Expedia, as customers prefer booking through an online travel agency instead of direct booking. This will help Expedia in generating higher revenue.
Summing it up, I feel Expedia is best placed to grow in future, based on its strong fundamentals. Additionally, it’s very little presence in Europe provides it with a huge opportunity for growth. Also, the company has shown solid cash flow from its operations growth of ~830% Y/Y and is further expected to show robust growth in future. I would recommend buying this stock for long term value creation.
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool owns shares of Priceline.com. Motley Fool newsletter services recommend 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.