Weekly Online Travel Agency Notes: Priceline, Expedia, TripAdvisor

The momentum of acquisitions and strategic alliances in the online travel market will not be slowing down any time soon.While Priceline (NASDAQ:PCLN) has announced a  second issuance of senior notes for acquisition and other corporate activities, Expedia (NASDAQ:EXPE) invested $270 million to expand its partnership with Decolar.com, the Latin American online travel agency (OTA) leader. TripAdvisor (NASDAQ: TRIP) created a new position Head of Client Development, for TripAdvisor Asia Pacific in order to enhance its presence in the world’s fastest growing travel market.

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

See Our Complete Analysis for These Companies Here

Priceline

On March 10, Priceline (NASDAQ:PCLN) announced a second set of senior notes offerings, subject to market conditions. It intends to use the funds for general corporate purposes, including share repurchases, paying down debt and making acquisitions. (Read Press Release).

Last month, Priceline announced its decision to raise $1.13 billion (or 1 billion euros) through a public offering of senior notes. ^[1] Priceline spent around $2.5 billion net of cash acquired, on acquisitions in 2014. The leading OTA also invested more than $900 million in China’s OTA leader, Ctrip in 2014. Priceline had around $8 billion cash on hand in the end of 2014, and the senior notes will add on to that fund.

On a separate note, Priceline revealed the results of its survey of  top 50 popular destinations for students during spring breaks. According to the survey, 73% of American students between the age group pf 18 to 24 are likely to opt for a last minute trip in 2015. The most popular destinations (according to hotel reservations made by students in March) are: Las Vegas, Orlando, New York City, Phoenix, and Orange County. (Read Press Release).

Our price estimate of $1036 for Priceline is 11% lower than the current market price. We expect the company to report revenues of approximately $10 billion and net income of $3.16 billion for FY 2015. Our GAAP and non-GAAP diluted EPS estimates stand at $57 and $60, respectively. These estimates are almost in line with the consensus analysts’ estimates. Priceline’s stock experienced around 5%decline over the last week.

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Expedia

Expedia (NASDAQ:EXPE) has expanded its existing partnership (initiated in 2002) with Latin American Online Travel leader Decolar.com, Inc., which operates the Portuguese Decolar.com and Spanish Despegar.com branded websites. Expedia has made a $270 million minority equity investment and will have access to,  Decolar’s hotel offering in Latin America. The expanded partnership will benefit users and hotel partners of both Expedia and Decolar, by allowing them access to a wider array of hotel listings  and potential customers. While this partnership offers Expedia better exposure to the Latin American travellers, Decolar also benefits by expanding its portfolio of international hotel supply through Expedia. ^[2]

The Hospitality Association admitted that Wotif has raised its commissions after being acquired by Expedia. Wotif’s commissions from the hotels had been 12% prior to the takeover. However, recent events suggest that Wotif is raising commissions to Expedia’s prevalent commision rates of 15%. Expedia required a clearance from the Commerce Commission before taking over its Australian rival, Wotif in November 2014. Prior to the acquisition, the Hotel Association expressed concerns about Expedia’s dominance and a change in pricing strategy at the wake of the acquisition. It seems that their concerns were not unfounded. ^[3]

On a separate note, Expedia Chief, Dara Khosrowshahi on an interview with Skift, had rebutted the claims that Expedia’s growth has been solely through its acquisitions for the last few years. He said that the organic growth of the company has been very healthy. He also stated that Expedia’s acquisition strategy is widely divergent from its main rival, Priceline. Expedia plans on growing through building multiple brands and simultaneously maintaining an accelerated pace of innovation. According to Khosrowshahi, the $1.3 trillion travel market gives ample scope for companies to pursue different strategies and still succeed simultaneously, given that a very small portion of the market is currently covered by the existing players. ^[4]

Our price estimate of $90 for Expedia is slightly 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 $3.6 and $4.7, respectively. These estimates are in line with the consensus analysts’ estimates. Expedia’s stocks witnessed a slight growth of around 1% over the last week.

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TripAdvisor

TripAdvisor (NASDAQ:TRIP) appointed Irene Sung as the Head of Client Development for TripAdvisor Asia Pacific. Based out of Singapore, TripAdvisor’s Asia Pacific headquarters, Irene’s responsibilities will include formulating strategies for TripAdvisor’s display advertising and managing client relationships. Prior to joining TripAdvisor, Irene has held the Head of Branding position at Google and has been pivotal in enhancing Google’s Asia Pacific presence. ^[5]

TripAdvisor’s CFO Julie Bradley, at the Deutsche Bank 23rd Annual Media, Internet and Telecom Conference, stated that TripAdvisor didn’t want to acquire Orbitz Worldwide because the company doesn’t aspire to convert into a full-fledged online travel agency. She further stated that Expedia’s Orbitz acquisition will impact TripAdvisor in a positive manner. TripAdvisor’s conversion into a full-service OTA will put it in direct rivalry with giants such as Expedia and Priceline. Given the fact that these companies are also among TripAdvisor’s biggest clients, the rivalry wouldn’t augur well for TripAdvisor’s business. ^[6]

On March 11th, TripAdvisor announced the results of its TripBarometer Study. The study was conducted on behalf of TripAvisor, by Ipsos, an independent research firm. Some of the findings were: 67% of U.S. travelers plan on international travels in 2015, as compared to 50% in 2014, 95% of U.S. travelers plan on domestic travels in 2015, as compared to 92% in 2014, countries that spent the most on travel in 2014 are Switzerland, Australia, U.S. and U.K. (Read Press Release).

Our valuation of $87 for TripAdvisor is at a 6% premium to 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 $2.7 and $3.2, respectively. These estimates are almost in line with consensus analyst estimates. TripAdvisor’s stock price experienced around 4% decline over the last week.

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Notes:

1. Priceline Positions Itself for 2015 Acquisition Spree With $1.13 Billion Note Offering, Skift, February 24, 2015 [↩]
2. Expedia and Decolar.com Strengthen Partnership, Expedia Inc. Press Releases, March 10, 2015 [↩]
3. Expedia NZ dominance fears realised: Hospitality Association, Business Day, March 11, 2015 [↩]
4. Interview: Expedia’s Comeback CEO on What It Will Take To Win, Skift, March 9, 2015 [↩]
5. TripAdvisor hires Irene Sung from Google for new APAC head of client development role, mUmBRELLA, March 16, 2015 [↩]
6. The One Big Reason TripAdvisor Didn’t Acquire Orbitz, Skift, March 12, 2015 [↩]