Expedia Expands Its Presence In China With eLong Partnership

Expedia (NASDAQ:EXPE), the largest US online travel service provider in terms of booking volumes, recently announced a new agreement with eLong Inc. (NASDAQ:LONG) to further expand the global hotel booking options for its consumers. Expedia’s revenue contribution from the international markets have almost doubled in the past five years, from 24% in 2006 to around 42% in 2011. The acquisition of VIA Travel in April this year, Air Asia-Expedia joint venture and the collaboration with Fotopedia Paris & Fotopedia Japan – are some recent examples reiterating the company’s continuous focus to increase its footprint in the international markets.

We estimate hotel bookings to contribute around 66% to Expedia’s valuation, being the most significant driver impacting the company’s valuation. We believe that expanding its presence in international markets offers huge untapped growth opportunities, and focusing on driving its higher margin hotel booking business will augur well for Expedia’s overall valuation.

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Expedia Strengthens Its Relationship With eLong

With a product portfolio of over 32,000 hotels in China and 155,000 international hotels in more that 100 countries, eLong offers the largest directly-bookable hotel options for its customers. ^[1]

Expedia is the largest shareholder in eLong, and the agreement further strengthens the relationship by increasing the level of strategic cooperation between the two companies. The agreement provides for greater knowledge sharing as well as cooperation for potential mergers and acquisitions and amends certain non-competitive provisions initially entered into in connection with Expedia’s investment in eLong.

Expedia will make an initial payment of $7 million followed by a subsequent payment in November 2015, based on a revenue sharing arrangement between the two.

Growing Opportunities In The Asian Markets

PhoCusWright estimates the total travel market in the Asia-Pacific region to be around $290 billion. At 26.2%, the internet penetration in Asia is comparatively very low, which we feel offers global OTAs tremendous opportunities for growth in the region.

Holding the largest population and being one of the fastest growing economy in the world, China is probably one of the most promising countries in the Asian market. With a relatively low percentage (compared to emerging economies) of consumers transacting online in the country, Expedia feels that China provides robust growth opportunities and estimates the Chinese travel market to reach over USD 105 million by 2013. ^[1]

Our price estimate of $61.62 for Expedia is more or less in line with the current market price.

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1. eLong and Expedia Expand Global Travel Partnership, Herald Online, September 27, 2012 [↩] [↩]