Expedia Seeks Latin American Dominance: Strengthens Partnership With Decolar.com

Expedia (NASDAQ:EXPE) has expanded its existing partnership (initiated in 2002) with Latin American Online Travel leader Decolar.com, Inc., which operates the Portuguese Decolar.com and Spanish Despegar.com branded websites. Expedia has made a $270 million minority equity investment and will have access to Decolar’s hotel supplies in Latin America. The expanded partnership will benefit users and hotel partners of both Expedia and Decolar, by allowing them access to a wider array of hotel supplies and potential customers. While this partnership offers Expedia better exposure to the Latin American travellers, Decolar also benefits by expanding its portfolio of international hotel supply through Expedia. ^[1]

Our price estimate of $90 for Expedia is almost in line with the current market price.

See Our Complete Analysis for Expedia Here

Expedia’s Worldwide “Expeditions”

The travel market is sized at $1.3 trillion currently, and Expedia commands almost 5% of the market. ^[2] If we look into the past couple of years, the forerunners in the online travel space have been growing through acquisition. The rule in the OTA space seems to be: the bigger the scale and the more diversified the offerings, the higher  the chances are of generating profitability. Expedia’s management also believes that the consolidation in the online travel space will continue this year as well. Hence, we expect Expedia’s “shopping spree” to continue in full swing in 2015. (Read about Expedia’s major deals in 2014 here).

After an eventful 2014, a year in which Expedia acquired the Australian and New Zealand OTA leader, Wotif, the company started 2015 on an aggressive consolidation mode. First, it acquired its 2013 marketing partner, Travelocity for $280 million.  Then Expedia announced the intention to buy the third largest North American OTA, Orbitz Worldwide for $1.6 billion.

Expedia might own up to 75% of the U.S. online travel market as a result of its Orbitz acquisition, according to the 2013 market shares provided by PhoCusWright. However, online travel agencies (OTAs) together account for 16% of total gross travel bookings from the U.S. ^[3]

Expedia is also concentrating on the Asian markets with an emphasis on China. Expedia’s partnership with eLong (where Expedia has a 65% stake), a leading travel service provider in China, has helped it grow in this aspect. Recently, eLong has experienced a set back in the face of the aggressively competitive Chinese market. According to Expedia’s Chief Financial Officer Mark Okerstrom, the Latin American market is not that aggressively competitive, with the presence of internet giants. Latin America’s emerging middle class gives huge potential for online travel bookings growth. Expedia plans on expanding its business on the international front and aims to reduce the contribution of the U.S. in its total revenues from 50% to 30-40%, with the rest of the sales generated internationally. ^[4]

Expedia doesn’t seem to limit  its acquisitions and alliances at North America and Asia Pacific and is now eyeing for  Latin American dominance, as well. Expedia’s acquisition of former partner Travelocity suggests that a future acquisition of Decolar might be on the cards. Whether the Middle East and African region is next on Expedia’s radar, is something we should wait and watch.

Scope For Growth Of The Latin American Travel Market

Latin America is one of the biggest contributors in global tourism, with the number of international trips witnessing a 6% growth in 2013. Brazil is the fifth largest spender on international travel, just behind Saudi Arabia, Australia, China and South Africa. Brazil spent $25 billion on international trips in 2013. In 2016, Brazil’s online travel revenues are expected to reach $10 billion with an annual growth rate of 6%.

Online travel sales are growing at a greater pace than total travel sales in Latin America. With an increasing rate of Internet penetration, the online travel sales are expected to rise further in the future. By 2016, Latin America is predicted to be one of the leaders in global online travel sales growth. Latin America is estimated to have witnessed approximately 25% increase in online travel sales in 2014. ^[5]

Expedia’s Biggest Rival Priceline Is Also Gearing Up For 2015

Adding on to the recent spate of acquisitions on the online travel space, Priceline (NASDAQ: PCLN) has expressed the intention to acquire hotel-booking startup, Rocketmiles, for around $20 million. Rocketmiles is backed by $8.5 million in venture capital and the company claims to have a user base running to hundreds of thousands. ^[6]

On February 24, Priceline announced its decision to raise $1.13 billion (or 1 billion euros) through a public offering of senior notes. It intends to use the fund for general corporate purposes, including share repurchases, paying down debt and making acquisitions. Priceline spent around $2.5 billion net of cash acquired, on acquisitions in 2014. The global OTA leader (in terms of gross bookings) also invested more than $900 million in Chinese OTA, Ctrip in 2014. Priceline had around $8 billion cash on hand in the end of 2014, and the senior notes will add on to that fund. ^[7] Priceline Group announced that the company will be doing another public offering of senior notes soon. The amount is yet to be disclosed. Read more about Priceline’s key strategic moves in 2014 here.

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1. Expedia and Decolar.com Strengthen Partnership, Expedia Inc. Press Releases, March 10, 2015 [↩]
2. Expedia (EXPE) CEO Dara Khosrowshahi on Q4 2014 Results – Earnings Call Transcript, Seeking Alpha, February 6, 2015 [↩]
3. Expedia Will Pay Orbitz $115 Million if Antitrust Complications Scuttle Acquisition, Skift, February 13, 2015 [↩]
4. Expedia takes Decolar.com stake as it deepens Latin America ties, Reuters, March 11, 2015 [↩]
5. Latin American Overview, European Travel Commission Digital Portal, 2014 [↩]
6. Priceline to Buy Rocketmiles for About $20 Million, Wall Street Journal, February 18, 2015 [↩]
7. Priceline Positions Itself for 2015 Acquisition Spree With $1.13 Billion Note Offering, Skift, February 24, 2015 [↩]