Backed by higher international revenues and continued acceleration in hotel bookings, leading online travel agency (OTA) Expedia (NASDAQ:EXPE) closed its fiscal 2012 with 17% higher revenues ($4.03 billion), compared to 2011. Despite the economic weakness, it managed to post solid growth in the last few quarters and marked a 24% y-o-y growth in its Q4 2012 earnings. Expedia is set to announce its Q1 2013 results on April 25, and though the company is wary of increasing competition in international as well as domestic markets, we believe that it will be able to post yet another quarter of strong growth.
With a goal of growing its user base, Expedia aims to continue innovating and improving its products and services to drive growth across geographical segments. We believe that with an expanding international presence, the robust growth in hotel bookings and a focus on developing its mobile platform, it is well-equipped to leverage growth in the online travel market.
Increasing International Footprint To Drive Future Growth
Expedia is the largest OTA in the U.S. in terms of gross bookings and has been focused on expanding its leadership position in international markets as well. Its international revenue contribution has nearly doubled in the past five years from 24% in 2007 to over 40% in 2012, and it claims to be gaining additional market share in the $1 trillion global travel market. 
Much of Expedia’s revenue growth in Q4 2012 was driven by a 33% annual increase in global room night booked, which translated to a 15% y-o-y increase in hotel revenues. Annual growth in international room bookings accelerated to 49%, compared to 38% in Q3 2012. In comparison, the domestic hotel bookings increased by only 19% sequentially in Q4 2012.
The fragmented European hotel market and rising per capita income in emerging economies provide tremendous growth opportunities for travel agencies. Additionally, Internet penetration in these economies is relatively low, but is expected to grow at a rapid pace, which leaves immense potential for growth for the online travel industry as a whole. The expanding international footprint is one of the prime reasons why Priceline (NASDAQ:PCLN) overtook Expedia as the world’s largest OTA by sales in 2010.
Strong global growth in Hotels.com, international expansion of Hotwire, the acquisition of VIA Travel by Egencia, the Air-Asia Expedia joint venture, the collaboration with Fotopedia Paris & Fotopedia Japan, and the eLong partnership to expand presence in China are factors that have contributed to Expedia’s growth in international hotel bookings, and we believe these will continue to be the guiding factors for future growth as well.
In December 2012, Expedia announced its acquisition of Trivago, one of the leading meta-search engines for hotel bookings in Europe. The two companies have signed a definitive agreement, wherein Expedia will acquire a 61.6% share in Trivago for an estimated price of 477 million euros. We feel that apart from marking Expedia’s entry in the meta-search space, Trivago will help increase its footprint in the European online travel market. (Read: Can Expedia Take More Share In The European Hotel Market With Trivago Deal?)
Expanding Mobile Platform
In order to rapidly expand its mobile user base, Expedia has launched a number of applications for iPhone and Android users over the years. The latest feature, launched last month provides users with up-to-date information at every stage of their travel using a set of visual cues. (Read: Expedia Adds a New Mobile Feature To Tap Expanding Mobile User Base)
Offering bookings on over 200 airlines and 140,000 hotel properties, the Expedia application has so far been downloaded more than 11 million times in 228 territories on various operating systems - iOS, Android and Windows 8 (tablet version). Expedia has been witnessing an increasing proportion of its traffic moving to the mobile platform with 10% of its customer engaging in mobile at present. 
With the rapid adoption of smartphones and tablets, mobile devices are increasingly becoming the preferred and more convenient option for accessing the web. As Expedia aims to continue investing in building its mobile platform, we anticipate its mobile penetration to increase in the future.
Priceline’s Increasing Focus On U.S. Remains A Big Threat
Expedia remains the most popular OTA among American users accounting for 43% share of gross bookings as compared to Priceline’s share of only 11%.  Over the years, Priceline has been successful in narrowing the market share gap in the domestic (U.S.) market with Expedia. If Priceline ends up acquiring Kayak, it can help increase its foothold in the U.S. market. The acquisition of Kayak could increase traffic to Priceline’s website, in turn increasing its booking transactions.
Last year, Priceline launched its first offline advertising campaign to build the Booking.com brand in the U.S. With an inventory of over 280,000 hotels and 18 million reviews in 178 countries, Booking.com has been the primary product behind Priceline’s success in the European market. We believe that by increasing Booking.com’s presence in the U.S. market, the offline campaign can help expand Priceline’s footprint in the market. (Read: Priceline Plans To Pare Expedia’s Lead In U.S. Online Bookings)
Additionally, Priceline remains a big threat for Expedia in the European market as well. Though Expedia attracts a higher number of unique visitors in Europe compared to Priceline, the latter is known to have a wider presence in the European hotel market. Expedia has a global inventory of >145,000, whereas Priceline’s booking.com covers over 180,000 hotels in Europe alone.
We will update our current price estimate of $68.29 for Expedia after the Q1 2013 earnings release.Notes:
- Expedia Management Discusses Q4 2012 Results – Earnings Call Transcript, February 5, 2012 [↩]
- Expedia Mobile Takes Flight: New App Update Combines Simplicity of Mobile with Robust Flight and Hotel Booking Intelligence, Expedia Media Room, November 14, 2012 [↩]
- Priceline, Travelocity take steps to increase share, Travel Weekly, February 5, 2013 [↩]