Less than two month after Priceline’s (NASDAQ:PCLN) acquisition of Kayak, leading online travel agency Expedia (NASDAQ:EXPE) announced its acquisition of German meta search engine Trivago, last week. Expedia plans to acquire a 61.6% share in Trivago for an estimated price of 477 million euros, 434 million euros in cash and the remaining in Expedia’s stock. Expedia expects the acquisition to close in the first half of 2013.
Trivago is one of the leading meta-search engines for hotel bookings in Europe. Established in 2005, the website now has over 600,000 hotels across 140 booking sites in 30 countries. A meta-search engine collates results from multiple search engines giving a broader scope to user searches. Despite many views to the contrary, meta-search remains an integral part of the online travel booking supply chain.
Given the increasing competition in the online travel market, it seems like the leading OTA’s are on an acquisition spree to build a robust and well-rounded travel portfolio to retain their foothold in the market. We feel that apart from marking Expedia’s entry in the meta-search space, Trivago would help fuel the company’s strategy to leverage growth in the European hotel market.
While both Kayak and Trivago are meta-search engines, they differ in terms of their core products. While Kayak primarily specializes in air ticket searches, Trivago is more popular for hotel price comparisons. Additionally, Kayak receives about 80% of its revenue from the U.S. and has somewhat struggled to expand in the international markets, whereas Trivago has a much larger presence in the European market.
Trivago Could Expand Expedia’s Presence in the European Hotel Market
While growth in the U.S. travel market has slowed down, European markets offer immense growth opportunities for OTAs, despite the ongoing debt crisis in the region. The hotel market in Europe is much more fragmented with smaller, independent lodgings compared to the U.S., where the hotel market is dominated by large hotel chains. Hotel chains are more likely to offer online bookings through their own websites, while online travel agencies such as Expedia are more appealing to small, independent hotels outside the U.S.
Over the years, Expedia has increased its focus on expanding in international markets. Its revenue contribution from international markets has nearly doubled in the past five years, from 24% in 2007 to around 42% at present. Rapid increase in international gross bookings, especially from Europe, is an important factor driving Priceline’s growth. Key European markets represent around 60% of Priceline’s total booked room nights. Getting Trivago on board, we believe will help Expedia better compete against Priceline in the European markets.
Contributing over 66% to Expedia’s valuation, as per our estimate, hotel bookings is the most important division in the company’s portfolio. In addition to accounting for majority of its revenue, hotel bookings offer around 23% revenue margin which makes it the most profitable division, compared to airlines (3%) and car rentals & cruises (9%).
With the acquisition, Expedia looks confident of witnessing higher growth in Europe in 2013. Trivago gets close to 20 million monthly unique visitors on its website.  It has a number of strategic partnerships with various hotel booking websites in Europe, which we feel will help expand Expedia’s portfolio in the country.
We feel that a boost to its international hotel portfolio would augur well for Expedia’s long term growth.Notes:
- Expedia pays $632 million for majority stake in Trivago, let the travel search games begin, Tnooz, December 21, 2012 [↩]