Weekly Online Travel Agency Notes: Expedia, TripAdvisor, And Ctrip

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Expedia

This week  Expedia (NASDAQ:EXPE) has been asked to submit additional documents by the U.S. Department of Justice, in relation to Expedia’s pending acquisition of  Orbitz Worldwide. On a separate note, Expedia is changing Wotif’s modes of operations in a  significant manner that can impact the demand for Wotif’s services in the future.

TripAdvisor‘s (NASDAQ: TRIP) Instant Booking platform might not be generating expected traction, as a recent study showed that people downloading TripAdvisor application also download an additional travel related application, probably to complete the booking process in the second application. Ctrip International (NASDAQ: CTRP) management states that the coupon discounts which is in vogue in the competitive online travel market in China, are one of the important reasons for Ctrip’s declining profitability.

Below we give a quick rundown on the most notable events in the last week related to these companies.

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See Our Complete Analysis for These Companies Here

Expedia

On March 25, Expedia (NASDAQ:EXPE) announced that the U.S. Department of Justice had asked for additional documents for review, in relation to Expedia’s pending acquisition of Orbitz Worldwide. This is the second set of request for documents, and is a standard procedure for regulatory approval. (Read Press Release). Last month,  Expedia announced the intention to acquire Orbitz Worldwide, the Chicago-based online travel agency (OTA) responsible for brands like Orbitz.com and Cheaptickets.com. The companies, having received the go-ahead from their respective boards of directors, are still awaiting regulatory approvals. Expedia expects the deal to close by the second half of 2015, once the approvals are achieved. [1] Expedia might own up to 75% of the U.S. online travel market as a result of this acquisition, according to the 2013 market shares provided by PhoCusWright. [2]

Months after acquiring Australian OTA leader, Wotif, Expedia has started tweaking with Wotif’s business model. In a recent move, Expedia replaced Wotif’s booking engine with that of its own. Wotif has started displaying Expedia’s reservation template. Consequently, the rates charged by Wotif are at par with Expedia’s rates, thereby nullifying all previous agreements that Wotif might have undertaken with its hotel partners. The change has also impacted the sequence in which the search results appear.  Earlier, Wotif would throw search results in descending order of positive ratings and in an alphabetical format. Wotif, similar to Expedia’s website is now displaying names in random, ignoring both the star ratings and the alphabetical order.

This came as a huge blow to Australian hotels, as many have specifically changed names to those starting with the letter ‘A’ to appear on the top of Wotif and other third party operator’s search results. The rival travel websites in Australia had been following Wotif’s footsteps of displaying names in alphabetical sequence. Wotif’s booking engine has been the leading pioneer in Australia for so long. These drastic transformations might cause a dent in Wotif’s popularity. [3] Explore Trefis forecast for Expedia’s Market Share of Occupied Hotel Rooms.

On a separate note, Expedia recently revealed witnessing significant growth in the Haiti travel market in 2014, including increased demand for travel related services, growth in its alliances with hotel partners, and a boost in the mobile and package booking segment. Haiti is being recognized as a popular travel hub with increased flights and new hotels and resorts accommodations. [4]

Our price estimate of $90 for Expedia is marginally below the current market price. We forecast the company to report revenues of approximately $6.6 billion for FY 2015. Our GAAP and non-GAAP diluted EPS estimates stand at $3.60 and $4.70, respectively. These estimates are in line with the consensus analysts’ estimates. Expedia’s stocks witnessed a decline of around 2% over the last week.

TripAdvisor

A recent study revealed that people using the TripAdvisor (NASDAQ:TRIP) mobile application are more likely to have downloaded an additional travel application, such as third-party OTA, airline or hotel related applications, on their phones. The study was conducted by Strategy Analytics and it used the panel of AppOptix mobile users. The focus was to segregate the users between those that used the TripAdvisor application, versus those that didn’t. Next, the data of both the  categories  were analysed to come to the conclusion.

The result might be worrying for TripAdvisor because it implies that TripAdvisor’s Instant Booking platform might not be generating enough interest. Most users still prefer booking via other platforms after going through TripAdvisor’s reviews. [5]

In Q1 2014, TripAdvisor rolled out its Instant Booking feature which aimed at reducing the friction related to mobile bookings. Instant Booking enhances the user experience by allowing users to complete all booking related steps from selecting a room to inputting personal and credit details on the TripAdvisor platform itself. With its Instant Booking Platform, TripAdvisor plays the role of an intermediary between a traditional online travel agent (OTA) and a travel advertising website. This is a unique model in the existing marketplace and hence gaining partners on the platform is taking longer than usual according to TripAdvisor’s management. [6]

On a related note, TripAdvisor’s transformation from a travel review website to one with travel booking feature, might not be going down too well with its biggest clients, Priceline (NASDAQ:PCLN) and Expedia. In 2014, both the companies contributed to 46% of TripAdvisor’s revenue, which was a decline from the 49% contribution in 2011, according to TripAdvisor’s financial reports.

Our valuation of $87 for TripAdvisor is slightly higher than the current market price. Our 2015 revenue estimate for the company stands at $1.7 billion. Our GAAP and non-GAAP diluted EPS estimates stand at $2.70 and $3.20, respectively. These estimates are almost in line with consensus analyst estimates. TripAdvisor’s stock price experienced around 3% decline over the last week.

Ctrip

In Q1 2015, Ctrip International (NASDAQ: CTRP) merged its key subsidiaries to form Joint Wisdom Information Technology Co., Ltd. (Joint Wisdom). The combined entity would provide the entire gamut of property management solutions, while encompassing 60,000 Chinese hotels ranging from hostels to high starred hotels. Joint Wisdom integrated big data and cloud-based technology in three areas: software, information stream, and data intelligence products. [7]

On a separate note, Ctrip’s heavy investments and coupon discounts were one of the factors why its GAAP operating margin in 2014 was -2%. In China, all the major online travel agencies including Ctrip, Qunar, eLong, Alitrip, compete against each other by offering coupons, which translate into discount on the advertised hotel price. In 2015, Ctrip projects that coupon expenses will account for approximately 20% of its hotel commission, translating to around 2% decline in its room per night. [8] Explore Trefis forecast for Ctrip’s EBITDA Margin in the Hotel Booking Division.

We are in the process of updating our valuation of $43 for Ctrip . Ctrip’s stock price experienced a around 2% growth over the last week.

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Notes:
  1. Expedia to buy Orbitz in cash deal worth $1.6 billion, tnooz, February 12, 2015 []
  2. Expedia Will Pay Orbitz $115 Million if Antitrust Complications Scuttle Acquisition, Skift, February 13, 2015 []
  3. Expedia Drops Wotif’s Booking Engine, Big News Network.com, March 24, 2015 []
  4. Expedia Reports Strong Demand For Haiti Holidays, Breaking Travel News, March 27, 2015 []
  5. If TripAdvisor is a gateway to other travel apps will its strategy fall flat?, tnooz, March 26, 2015 []
  6. TripAdvisor (TRIP) Q4 2014 Results – Earnings Call Transcript, Seeking Alpha, February 11, 2015 []
  7. Ctrip Reports Unaudited Fourth Quarter and Full Year 2014 Financial Results, Ctrip Investor Relations, March 19, 2015 []
  8. Ctrip Leaders Say Discounts Are Killing The Chinese Travel Industry, Skift, March 24, 2015 []