The Week That Was For Online Travel Agencies

PCLN: Priceline Group logo
PCLN
Priceline Group

The Australian travel market has been busy with some important OTA related activities. The Accommodation Association of Australia (AAA) has recently objected to Priceline (NASDAQ: PCLN) and Expedia‘s (NASDAQ:EXPE) market dominance and putting hotel owners at a financial and competitive disadvantage. Expedia is aiming to gain greater presence in corporate travel with Egencia and it also views Australia as a great market for growth in relation to increasing Chinese inbound travel. Priceline, on the other hand, is targeting greater presence in the U.S. and China. The travel market growth surpassing the GDP growth, and the rise of online travel bookings, seem to encourage the OTA behemoth to grow its gross bookings by 20% in Q3 2015. TripAdvisor (NASDAQ:TRIP) announced Ernst Teunissen as its new CFO to replace its outgoing CFO, Julie Bradley.

Priceline

Priceline’s Booking.com is eyeing China along with the U.S. for an expansion of its presence. Booking.com is aiming for a 20% growth in bookings in Q3 2015. According to Priceline’s Chief, Darren Huston, the company has three tailwinds to propel its future growth: the rate of growth of travel is twice that of the rate of growth in GDP, the do-it-yourself travel is on the rise in comparison to packaged travel, and online travel is growing at a faster rate than offline travel. Booking.com had accounted for 85% of the company’s revenues in Q2 2015. [1]

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On the other hand, Hotel operators in Australia are pleading to the regulators against Expedia and Priceline’s practices such as “price parity,” last room availability, and “brandjacking.” The Accommodation Association of Australia (AAA) had recently pointed these out in a submission to a consultation which was started by Australian Competition and Consumer Commission. The AAA stated that the level playing field between hotel operators and OTAs are slowly getting eroded after Expedia’s acquisition of Wotif. Both Expedia and Priceline had raised commissions from 12% to 15%. Additionally, the OTA leaders insist upon a “price parity” clause that forbids the hotel partners from offering lower prices for direct booking. [2] It is noteworthy to mention here that several parties had objected to the recent Expedia-Orbitz merger on similar grounds. However, the Department of Justice had given a go-ahead on the basis of the emerging OTA competitors in the U.S.

Priceline’s stock gained around 4% over the week through Friday. We have a  price estimate of $1,282 for Priceline’s stock which is slightly below the current market price. For the year 2015, we estimate revenues of around $10 billion and EPS of $57.80, both in line with the consensus estimate.

Expedia

Expedia’s corporate travel division, Egencia, is looking for options to increase its presence in the Australian market. Egencia’s entry into the domestic Australian market dates back to 2011, through its acquisition of Travelforce, a local corporate travel management company. After overcoming the initial hiccups of migrating Travelforce into the superior Expedia platform, the company had been recently delivering double-digit growth. Expedia wishes to take advantage of this fact, and also the profitable Australian market, to expand its reach. Egencia is currently one of the top 5 corporate travel agencies in the world with a gross booking of over $5 billion in 2014. Egencia’s growth rate in Australia currently exceeds those of its closest rivals –Flight Center Travel Management and Corporate Travel Management, albeit from a smaller transactional base. In 2014, Egencia’s gross bookings in Australia was around $67 million, reflecting 36% year-on-year growth. In the same period, Flight Center and Corporate Travel reported gross bookings worth $2.3 billion and $814 million, respectively, with growth rates in high single digits. [3]

Meanwhile, Expedia is also seeking the help of its Australian acquisition Wotif, to grow its presence in China. According to Expedia Chief, Dara Khosrowshahi, though Wotif was originally acquired to tap into Australia’s outbound market to the U.S., currently the rise of the Asian middle class, and especially the Chinese traveler, implied that Australia’s potential as an inbound market has grown more profitable. [4] You can read more about the China travel market here.

In this context, it is relevant to mention that Expedia has recently sold its 62% stake in Chinese OTA, eLong, because of the latter’s prolonged weak performance. Chinese OTA leader, Ctrip was one of the major buyers of eLong’s stake (~40%). Post the sell-off, Expedia and Ctrip entered into a partnership to share inventory in specific geographies, mainly in the air and packaged tours segment. You can read more about it here. Hence, Expedia might have analyzed its options in the world’s soon to be largest travel market, before giving up on eLong. Currently, it is expanding its presence in China through its brand, hotels.com, and by leveraging on its Ctrip partnership. Expedia is also contemplating the launch of the Expedia brand in China in the future.

Expedia’s stock gained around 2% over the week through Friday. We have a  price estimate of $117 for Expedia’s stock which is around 5% below the current market price. For the year 2015, we estimate revenues of around $7 billion and EPS of $4.29, both in line with the consensus estimate.

TripAdvisor

On October 8th, TripAdvisor announced the appointment of a new chief financial officer, Ernst Teunissen, who will assume the position effective November 9th. Teunissen will be responsible for the company’s global finance operations that include investor relations, tax, corporate development, and real estate. He will succeed TripAdvisor’s current CFO Julie Bradley, who had decided to step down in April due to personal reasons. Teunissen is currently the CFO and executive director of the public tech company, Cimpress, a company that produces marketing material through mass customization and web-to-print systems. According to Stephen Kaufer, TripAdvisor’s president and CEO, Teunissen’s experience in business, technology, strategic investments, and mergers and acquisition-related activity will prove beneficial for TripAdvisor’s growth. [5] Under Bradley’s financial governance, TripAdvisor had almost doubled its revenues in the last four years to $1.2 billion, acquired 17 companies, and strengthened and expanded its user and advertiser platform. [6]

TripAdvisor’s stock gained around 2.5% over the week through Friday. We have a  price estimate of $80 for TripAdvisor’s stock which is close to 20% over the current market price. For the year 2015, we estimate revenues of around $1.5 billion and EPS of $2.59, both almost in line with the consensus estimate.

 

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Notes:
  1. Booking.com targets China, U.S. growth: CEO, Reuters, October 9, 2015 []
  2. Hotels urge ACCC to take action against Expedia and Priceline, The Sydney Morning Herald, October 6, 2015 []
  3. Expedia targets Australian corporate travel market with Egencia, The Sydney Morning Herald, October 11, 2015 []
  4. Australia key to Expedia’s global strategy, The Australian Business Review, October 7, 2015 []
  5. TripAdvisor Names Ernst Teunissen as Chief Financial Officer, TripAdvisor Press Release, October 8, 2015 []
  6. Chief Financial Officer Julie M.B. Bradley Resigns From TripAdvisor, TripAdvisor Press Release, April 2, 2015 []