Don't Discount Smaller Players in the Travel Space

Tedra is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Compared to the mega online travel agent Priceline, the smaller players in the space are managing to hold their own. As we review how they fared during the previous quarter, it is interesting to also take a look at the steps they have taken to improve their positions – some of which are paying off, while others…well, not so much.

TripAdvisor (NASDAQ: TRIP), Expedia (NASDAQ: EXPE) and Orbitz (NYSE: OWW) have been reporting their first quarter earnings for the past few weeks. They managed to beat estimates on their top and/or bottom lines, even though the first quarter is typically slow for the travel and vacation industry. They also managed to hold their own despite the challenges of facing the much-larger Priceline.

Let’s start with TripAdvisor. Its revenues came in at roughly $230 million for the last quarter, while analysts had expected about $225 million. Its earnings per share were $0.39, which was 23% higher than they were for the same quarter last year. They were also higher than the $0.35 analysts had estimated. Cash flow from operations improved 47% to roughly $44 million, or 19% of revenue.

The driving force behind TripAdvisor’s increase was click-based advertising. Revenue from this source totaled about $180 million. Still, however, this revenue source accounted for less of the company’s total revenue this year than it did last. For the first quarter of 2013, it accounted for 78% of total revenue, compared to 79% in the first quarter of 2012.

Naturally, we don’t want to see a company’s main revenue source decline as a percentage of total revenues, especially if its other revenue sources aren’t doing that well either.

One tool that is helping TripAdvisor’s growth is Facebook. TripAdvisor reported that it averaged more than 33 million monthly Facebook visitors to its own website and Facebook app last quarter. The arrangement has been so successful that AppData said TripAdvisor is the top travel app on the social networking site.

Another factor that can help TripAdvisor’s future growth relates to Samsung. It has inked an exclusive agreement with the handset maker to pre-install its mobile app on to the new Galaxy S4. Also, Samsung is using TripAdvisor’s user content to power several travel functions on the smartphone. Scoring this deal with Samsung is a coup especially if it is as good of a seller as earlier generation Galaxy smartphones.

A recent change that TripAdvisor made that is negatively affecting its revenues deals with a new hotel pricing model. Called metasearch, critics point out that its ability to allow customers to make their own hotel reservations (or other arrangements) by directly contacting a property is affecting revenues as customers become acclimated. Though company execs hail it as a “wonderful complement,” investors may have to wait several quarters to see how this new strategy is panning out.

Expedia reported in April that its revenue for the first quarter was $1.1 billion, versus the roughly $965 million that had been estimated. The higher amount represented a 24% increase from last year. Earnings per share totaled $0.25 compared to the $0.23 that was expected. While this is good, the company has quite a ways to go in reversing its negative earnings trend. It’s been on a decline since the third quarter of 2012, when it was $1.32.

A major drain on Expedia has stemmed from Hotwire, which saw its usage drop off due to Super Storm Sandy. Hotwire is also being challenged by several trends, including constraints in the inventories of domestic rental car companies. That has led to these companies raising their prices, nearly obliterating the deep discounts consumers expect to receive.

Buying Trivago is a good idea for the company to expand its reach. Expedia acquired it earlier this year. The company’s service compares hotel prices. Trivago was supposed to help Expedia in several areas, including increasing its reach to the European market, as well as helping it further build its corporate client base.

This acquisition can help Expedia be better able to compete with Priceline, too. Investors should watch its performance over the next year to see if it produces meaningful results.

When Orbitz reported, it had to reveal an EPS loss of $0.10 per share, but that turned out to be just fine, as the company reported a profit. Its revenues were up 7% to roughly $203 million, which was better than the $198 million that had been expected. The news was enough to boost Orbitz’s shares by as much as 20% during intraday trading on Wednesday.

Orbitz is benefiting from a partnership it began last fall with American Express Travel. The two teamed up so that Orbitz is the engine that powers American Express’ consumer travel site, replacing Travelocity.

Orbitz CEO Barney Harford had this to say about Amex on the conference call:

I'd also say that the majority of the growth that we're reporting today is driven by growth in business lines other than the American Express partnership. That being said, the American Express is certainly a significant contributor to growth right now.

So while the Priceline “negotiator” is the largest of these companies by market cap ($37 billion compared to Expedia's and TripAdvisor's roughly $7 billion), the smaller companies are learning ways to stay competitive. Through acquisitions and partnerships, they are trying to make their brands stand out.

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Tedra DeSue has no position in any stocks mentioned. The Motley Fool recommends TripAdvisor. The Motley Fool owns shares of TripAdvisor. 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!

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