Launch of Trefis Coverage on Expedia – Stock Sensitivity to Advertising Revenues
Expedia (NASDAQ:EXPE) is the world’s leading online travel agency in terms of booking volumes, operating a variety of travel portals such as expedia.com, hotels.com and hotwire.com. Customers can research and purchase air tickets, hotel stays, car rentals, and cruises on these subsidiary sites. Expedia competes with other online travel agencies like Priceline (NASDAQ:PCLN), Orbitz Worldwide (NYSE:OWW), and Travelocity.
Like its competitors, Expedia makes money by charging a commission (in the form of a booking/processing fee) on every transaction or by purchasing travel inventory (air tickets, hotel stays, etc.) from travel suppliers in bulk at discounted prices and selling them to consumers at a premium. Expedia also offers advertising placement on its websites and earns revenue on a per-click or per-impression basis.
Launch of Coverage on Expedia; $38.57 Price Estimate
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We’ve launched coverage on Expedia with a $38.57 price estimate, a significant premium (roughly 45%) to market price. We estimate that hotel bookings constitute 57% of Expedia’s stock value, while air ticket bookings and car rentals & cruises contribute 10% and 6% respectively.
Advertising Revenues Represent a Significant Portion of Expedia’s Stock Value
What caught our attention in the analysis is the significance of advertising revenues to Expedia’s stock value. We estimate that advertising on Expedia’s Tripadvisor.com website, which gathers and publishes user-generated content such as hotel reviews that travelers use for research prior to making bookings, constitutes over 22% of the company’s stock value. Advertising placements on Expedia.com and Hotels.com generate an incremental 3%.
We currently forecast that monthly page views per visitor on Tripadvisor.com will improve slightly in the years ahead, following a significant drop-off between 2009 and 2010 as the economic recession stifled the vacation market. The site should benefit as a growing user database and content expansion drives greater user engagement. However, this metric faces looming pressure from social networking platforms.
While TripAdvisor is currently the number 1 online travel community in North America, Europe and Asia-Pacific, it implicitly competes with large social networking sites like Facebook and Twitter which also offer a forum for users to discuss travel plans and exchange reviews. Hence, to grow (or even maintain) its substantial advertising revenues, Expedia must sustain its market position in the face of a widespread consumer shift towards one-stop social networks.
Drag the trend line in the modifiable chart above to see the impact of various Tripadvisor.com page views per visitor scenarios on Expedia’s stock value.
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