The Online Travel Market- Two Buys and One Sell
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We at TheAnalystHub.com have been working on the online travel market for quite some time and have been watching closely the stock movements for many online travel stocks. As the Online travel market is slowly stabilizing, we feel that the agencies with maximum TAM will perform well while the companies which remain low on expansion will perform weakly on the stock markets. Here is our brief analysis of three OTAs we feel that the investors should know about.
Ctrip (NASDAQ: CTRP)
Our Take: Buy
Ctrip stocks have dipped ~39 % Year to date. We believe that the market has underappreciated the hidden value of the assets along with the long term strategies for Ctrip. Being in “high-growth” emerging markets, Ctrip enjoys a huge market base coupled with growing demands. In Q2, hotel reservation and online booking that together constitute ~87% of total revenue rose YoY by 12% and 16% respectively. The management indicated that the growth was mainly driven by increasing hotel reservation volume and Air ticketing volume. We believe that Ctrip can sustain its high growth with its laser focus on different demographics. With Ctrip working on its plans to expand its corporate travel services to tier 2 cities it will drive more demand from the corporate arena resulting in incremental revenues over the long term. Ctrip’s mobile app remains the most popular booking app in China extending Ctrip’s reach to younger demographics. Ctrip trades at a Forward PE of 17.03, that seems undervalued when compared to its Chinese peer Elong (NASDAQ: LONG) at 25.47 and therefore we rate it as a buy.
Priceline (NASDAQ: PCLN)
Our Take: Buy
Priceline (NASDAQ: PCLN) has been another stock that has plummeted due to its recession-prone guidance and a beat in the domestic markets by its peer Expedia (NASDAQ: EXPE). While Priceline bookings growth in the domestic markets have been less than Expedia in the last two quarters, the difference would have been less noticeable when the reporting irregularities are taken into the picture (As Priceline doesn’t include domestic bookings done through Booking.com portal). Priceline posted highest international growth at 33% YoY among its peers, Expedia and Orbitz (NYSE: OWW) who posted YoY growth of 12% and 3% respectively. Furthermore, Priceline continued growing its hotel segment at a rapid growth as Priceline’s Q2 Hotel Room Nights were up 39% YoY while the number of hotels increased 52% YoY. To add to the prospects, Priceline CFO Daniel Finnegan indicated a possibility of share repurchases from $3.9 billion in cash and equivalents at the end of Q2. As the investors focused on the negatives the stock has gone down more than 100 points in the past few days but we believe that the current weakness provides an entry point for long term investors and therefore rate it as a buy.
Our Take: Sell
Although, Expedia maintains a stronghold in the domestic market it substantially lags Priceline in the high-growth international markets. While Priceline extracts 22% of its total revenues from US, Expedia’s 60% of the business depends on US which limits the possibilities for Expedia going forward. As Expedia is working towards including an agency based model similar to Priceline in its offerings, there remains a risk to unit economics and free cash flow for Expedia in the case the shift is not carried out well. Apart from that, we believe that the Buyback indicated by the management during the Q2 earnings call might not take place for some time as the management might reevaluate its options to invest money in the international markets. Expedia stocks have gained ~10% in the past month on its better than expected performance in the US and a seemingly underperformance in US by its core rival Priceline. We believe that Expedia is set for a major correction as the market catches up to the fundamentals and therefore we recommend it as a sell.
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