Expedia Strengthens Its Footprint In Asia With The Wotif Acquisition

On November 13, Expedia (NASDAQ:EXPE) completed its acquisition of Australia-based Wotif Group, home to leading travel brands in the Asia Pacific region, for $612 million or $2.87 per share.  The total consideration comprised of a $45 million special dividend distributed to Wotif’s shareholders and $567 million in cash from Expedia. Expedia announced about the acquisition in July 2014 and faced a set of hurdles for the same. ^[1] The Australian regulators raised concerns about the decline in the online travel market competition that would result due to this takeover. The Australian Competition and Consumer Commission (ACCC) released a “Statement of Issues” regarding competition issues which had to be addressed before gaining approval. Expedia’s commission rates in Australia and New Zealand were less  than the rest of the world, and that was mainly due to Wotif’s reduced rates. Market participants feared that Expedia would raise its commissions, and hence hotel rates would increase, once Expedia acquired Wotif. ^[2]

Wotif Group is a prominent player in the Asia Pacific market with a host of travel brands under its umbrella, including Wotif.com, lastminute.com.au, travel.com.au, Asia Web Direct, LateStays.com, GoDo.com.au and Arnold Travel Technology. Wotif’s portfolio focuses on hotel and air, offering consumers more than 29,000 bookable properties across the globe. The group was founded in 2000, and currently operates from Australia, China, Indonesia, Malaysia, New Zealand, Singapore, Thailand, UK and Vietnam. ^[3] Wotif Group’s revenue for fiscal year 2014 (ended June 2014) stood at $150 million with a 2.1% year-on-year growth, out of which 91% was contributed by Australia and New Zealand, 7% came from other Asian countries and the rest 2% from the rest of the world. Around 86% of Wotif’s revenue comes from the accommodation segment. Wotif group, as of June 2014, served a 3.5 million customer base. ^[4] To date, there has been 8.6 million application downloads in the Wotif.com platform, with mobile contributing to 44% of the Group’s traffic. ^[5]

Wotif was Expedia’s major rival in Australia and New Zealand. With 1.3 million hotel reviews on its platform, Wotif had a market leadership in hotel reviews in the Australia New Zealand (ANZ) market. According to September 2013 data from Experian Hitwise, among top travel websites in Australia, Wotif held the second position and Expedia, the third position. Also, among top New Zealand travel websites, Expedia enjoyed the first position and Wotif, the second. ^[6]

We believe that the acquisition of Wotif will help establish Expedia’s dominance in the ANZ region, which has the third largest online travel market in Asia Pacific.

Our price estimate of $84 for Expedia is at a slight discount to the current market price.

See Our Complete Analysis for Expedia Here

How Is The APAC Market Strategically Important And ANZ’s Contribution In APAC

According to a report by PhoCusWright, the Asia Pacific market overcame Europe to become the global leader in regional travel in 2012. It accounted for $320 billion worth of bookings. The Australia-New Zealand market accounted for 17% of APAC’s online travel market and earned $13.7 billion in online gross bookings. At 39%, the ANZ region has the highest online penetration in Asia-Pacific.

In 2013, the Asia Pacific online travel market was expected to grow by 18% to $93.4 million. For 2015, the market size is estimated to be around $126.6 billion. The contributing factor to this growth would be increased Internet penetration, adoption of mobile devices and telecom infrastructure improvements. ^[7] In 2013, the ANZ online travel market was the third largest in APAC, with an estimated size of A$14.6 billion. The ANZ region’s online travel penetration was 41%, which was the highest in APAC. ^[8]

Hence, both now and into the future, Asia Pacific will be a strategically important sector for online travel companies. The ANZ market is one of the most important in the APAC region, and Wotif is a prominent player in the ANZ market. Hence, we expect the acquisition to propel Expedia’s growth in the ANZ market and this in turn would be a contributing factor in establishing Expedia’s dominance in the APAC market.

Expedia’s Focus On APAC

In addition to Australia and New Zealand, Expedia’s focus in the Asia Pacific regions include India, Japan, Singapore, Thailand, Malaysia, Hong Kong and Korea, with a strong emphasis on the Chinese market. In its Q3 2014 earnings call, the management stated its plans to gear up for investments in China as it sees great long term potential there. The investments will be primarily into technology, supply front, and marketing. ^[9]

Expedia’s partnership with AirAsia BhD in Malaysia registered a maiden annual profit in 2013, with 46% growth in transactions to 1.9 million. This resulted in a greater than 30% increase in revenue. ^[10] AirAsia Expedia has a presence in Hong Kong, India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand, and Vietnam. AirAsia claims that the recipe for the partnership’s success was creating market disruption with unique deals and localized products. For example, in India it offers 18,000 deals, which no other site offers; in Singapore it has a micro-site which helps travelers with travel related documentation; and in Korea a successful campaign was run which provided customers accommodation in top hotels for only $1. With AirAsia, Expedia offers flights on more than 400 airlines, and accommodations in 240,000 hotels worldwide. It also offers a best-price guarantee which ensures that, if guests find a lower price for the exact trip, Expedia will match the lower rate and even award the guest with a travel voucher. ^[11]

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1. Expedia, Inc. Completes Acquisition Of Wotif Group, Expedia, Nov 2013 [↩]
2. ACCC raises concerns over Expedia bid for Wotif, The Australian Business Review, Sep 2014 [↩]
3. Expedia, Inc. Completes Acquisition Of Wotif Group, Expedia, Nov 2014 [↩]
4. ASX Announcement WOTIF.COM HOLDINGS LIMITED, Wotif Group, Aug 2014 [↩]
5. Wotif Group FY14 Highlights, Wotif Group [↩]
6. Expedia to acquire Wotif Group for $658 million, tnooz, July 2014 [↩]
7. Deep dive into Asia Pacific online travel market, tnooz, Dec 2013 [↩]
8. Australia-New Zealand: OTAs Steal Share of Supplier-Dominated Online Travel Market, Phocuswright, Nov 2013 [↩]
9. Expedia’s Q3 2014 Earnings Call Transcript, Seeking Alpha, Oct 2014 [↩]
10. Expedia Eyes Triple Digit Growth In Malaysia Again, malaysiandigest.com, October, 2014 [↩]
11. Annual Report 2013, AirAsia [↩]