Expedia Tops Estimates In Q3, Promises Tougher Competition With An Enhanced Trivago And Newer Offerings

Expedia (NASDAQ:EXPE) released its Q3 2015 earnings on October 29^th. The company had performed well above expectations and the eLong sell-off is working well for the financial performance of the company. The highlight of its earnings call was the recent Priceline–TripAdvisor collaboration through Booking.com’s participation on TripAdvisor’s Instant Booking platform. Expedia’s management spoke at length over the strengthening of its metasearch platform, Trivago, which might offer some competition to Instant Booking in the future. However, Expedia did admit that, in case TripAdvisor decides to give it more branding opportunity on the Instant Booking platform, then Expedia might also consider the platform in the future. Expedia is currently focusing into expanding its tours and activities offerings and is also building a railway booking platform which might be available in 2016.

In line with its strong first half, Expedia’s third quarter performance surged ahead with 36% room night growth, 31% air ticket growth, and 30% car days’ growth on a year-over-year basis. Excluding eLong, gross bookings rose by 21% to over $15 billion and Expedia’s revenue was up by 16% to $1.94 billion. It witnessed 13% adjusted EBITDA growth to reach $469 million. The growth was achieved despite headwinds received from currency exchange rates and the company’s expenses related to discounted deals. This year, Expedia has added 14,000 properties to its hotel supply  and its hotel inventory has risen by 29% year-on-year. Due to seasonality, the company expects the property additions in Q4 2015 to outpace even that of the third quarter. ^{[1] [2]}

We are in the process of updating our  price estimate of $117 for Expedia’s stock.

 See Our Complete Analysis for Expedia Here

Expedia’s Reaction To Priceline’s Participation On Instant Booking?

According to Expedia Chief Dara Khosrowshahi, though Priceline’s participation helps expand Instant Booking’s global footprint, TripAdvisor might not be able to handle the increased volume of inventory booking. Additionally, he mentioned that TripAdvisor’s contribution in generating demand for Expedia (through its advertising platform) has been decreasing over time and advertising through TripAdvisor is a less profitable channel for Expedia currently.

However, he admitted that Priceline was its greatest competitor and if the OTA leader received some branding concession while placing its inventory on TripAdvisor then Expedia might also consider Instant Booking in the event such conditions are met for it, as well.

As Priceline’s CEO had earlier mentioned that Instant Booking’s lack of branding for its partners was the major reason for Priceline’s earlier reluctance.  So, it is conjectured that TripAdvisor must have offered some branding concessions for Priceline for it to agree to being featured on Instant Booking.

Is Trivago Expedia’s Answer To TripAdvisor’s Instant Booking?

Expedia has been gearing up its metasearch engine Trivago with increased direct partnership with hotels, an updated Hotel Manager platform to attract independent hotels, and a more robust review structure through its Mystery Shopper program. Under the program, hotels compensate certain customers to visit and rate their properties without their knowledge. Trivago then shares the ranks of the hotels on the basis of an extensive set of parameters, in order to let its users make more informed choices about their stays. ^[3]

Under the current trend where metasearch engines are blurring the lines between their functionalities and those of the OTAs, making Trivago a stronger and better-equipped metasearch engine might work in Expedia’s favor. Thanks to its acquisitions, Expedia’s now enjoys around 75% of online travel market share in the U.S. ^[4] However, with the entry of  newer competitors in the OTA segment, it might serve Expedia well to strengthen its metasearch engine, as well.

Along with the development of the core OTA websites, Expedia is gearing up its metasearch engine in order to gain customers from different avenues – both from Trivago and from its OTA websites. Expedia can compensate for the lack of its visibility on the Instant Booking platform by featuring more on the Trivago website. The OTA websites can complement the metasearch platform to ensure maximum footfalls and conversion through Expedia.

Currently, Trivago is testing a product in Germany which might be similar to Instant Booking. Many of the Expedia brands are participating in the product. Trivago will launch the platform in more English speaking countries over the next year.

Expedia’s Cross Promotion Plans And Foray Into Tours and Railway Booking

Currently, excluding Orbitz, Expedia witnesses 7.5 billion air searches annually, and it is expected to increase with time. The company recently renewed its agreement with the American Airlines Group, due to which the Expedia affiliated websites including Expedia, Travelocity, and Hotwire would feature flights from US Airways and American Airlines. Additionally, the Expedia Affiliate Network (EAN) and AA Vacations collaborated to enable EAN to supply hotel content through the www.aa.com website. ^[5]

Along with selling the ancillary air products and fares, the company intends to capitalize on the footfall by attempting to cross-sell its other products such as hotels, vacation rentals, rental cars, tours and activities, etc.

The company has increased focus on the tours and activities sector and spent around $6.5 million recently on TV ads in the U.S. ^[6] Expedia’s tours and activities sector is growing by triple digits currently. The company has started promoting such activities on its website over the last one year.

Expedia is also developing a new product related to railway bookings, which is expected to be launched in 2016. Railway is an important mode of transportation in Europe and Asia and these regions will be primarily targeted in the beginning.

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1. Expedia’s Q3 2015 Earnings Call Transcript, Seeking Alpha, October 29, 2015 [↩]
2. Expedia, Inc. Reports Third Quarter 2015 Results, Expedia Press Release, October 29, 2015 [↩]
3. Interview: Trivago Building Big Team in Shift Toward Direct-Hotel Relationships, Skift, September 29, 2015 [↩]
4. Expedia Will Pay Orbitz $115 Million if Antitrust Complications Scuttle Acquisition, Skift, February 13, 2015 [↩]
5. Expedia, Inc. And American Airlines Group Expand Partnership Bringing More Choices To Travelers, Expedia Press Release, September 2, 2015 [↩]
6. Expedia Makes a $6.4 Million Bet on Tours and Activities in New TV Advertising, Skift, October 22, 2015 [↩]