Why Might TripAdvisor Be An Attractive Acquisition Target For Priceline?

PCLN: Priceline Group logo
PCLN
Priceline Group

Priceline and Expedia have always been fierce rivals when it comes to gaining a bigger portion of the online travel market. These two OTAs with market capitalization of ~66 billion and $16 billion, respectively, have acquired most of the heavyweights in the online travel arena to strengthen their leadership positions even further. While Priceline owns Kayak and booking.com, Expedia has acquired HomeAway, Orbitz, and Travelocity. In fact, the HomeAway acquisition has given Expedia one of the largest portfolio of accommodations on its platform.

homeaway

 

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(Image Source: Expedia Investor Presentation)

Hotel Booking comprises 85% of our valuation for Priceline and 75% of our valuation for Expedia. Hence, towards that end TripAdvisor (Market Cap: $9.5 billion) may be an attractive acquisition target for both the companies. Let’s take a look at the performance of the two leaders in the accommodation segment over the last five years.

pclnvsexpehotel

Why Priceline May Be A More Probable Candidate To Takeover TripAdvisor?

It seems that the acquisition of the third largest global player, TripAdvisor might help either of these companies to consolidate their positions as leaders. If we take a look at their cash positions, revenues, and scales of operation, Priceline can beat any other rival in a takeover bid with its resources. Here are a few reasons why acquiring TripAdvisor might be a profitable option for Priceline:

  • Currently, Priceline is the OTA partner that has tied up with TripAdvisor’s Instant Booking platform. As a result, Priceline gets exclusive branding coverage on the Instant Booking platform. These two OTAs already have a common platform sharing in place.
  • Priceline’s stock is not displaying impressive growth right now. While the one year growth for the stock has been over 15%, the YTD stock price rise has been just 4%. It seems that Priceline needs to shake up its performance to impress shareholders.
  • Priceline is currently troubled by internal management changes (where it is still in search of CEOs for the entire Priceline group as well as for Priceline.com) and the lack of demand for its ‘name your own price’ model.

However, Priceline Might Face Some Problems With The Acquisition Decision, Too

  • TripAdvisor has been a part of Expedia before it spun out into an independent operation in 2011. The two entities are still connected in some ways. John Malone and Barry Diller control Expedia, while Malone’s business partner, Greg Maffei controls TripAdvisor through the Liberty TripAdvisor tracking stock.
  • Also, the ownership structure of TripAdvisor, as shown below, might make it a difficult entity to be acquired.

1x-1 malone

(Image Source: Skift)

  •  Finally, acquiring TripAdvisor won’t come cheap. The company is currently valued at around 40 times its trailing 12 months EBITDA and with a takeover premium taken into account it might be a rather expensive deal. So, while it is easy to speculate, the company’s ownership structure and price might give pause to anyone actually acting to implement such an action.  However, as we see from the first chart, TripAdvisor’s platform currently houses the largest number of accommodation options and acquiring the company would, theoretically, significantly expand an online travel agency’s offerings portfolio and global footprints.

Have more questions on Priceline and Expedia? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Priceline

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