Expedia Q3 2015 Earnings Preview: Healthy Performance Expected To Continue On The Back Of Strategic Investments

Expedia (NASDAQ:EXPE) is slated to release its third quarter earnings on October 29th. Post a strong performance in 2014, Expedia’s 2015 started off on a disappointing note due to its acquisitions not showing much positive impact. However, Expedia turned around in Q2 2015 with one of its healthiest performances. We expect Expedia’s healthy performance to carry on in the third quarter as well. Recently, Expedia completed its Orbitz acquisition. The company is trying to increase its footprints in the Asia Pacific region with the help of its Australian OTA acquisition, Wotif. Expedia is especially keen on China and its partnership with Ctrip will help it with further growth in the region. The company is also strengthening its metasearch engine, Trivago, with more independent hotel partnerships, in order to provide stiff competition to newer entities in the OTA domain, such as TripAdvisor and Google. It is also increasing focus on the tours and activities sector as was evident from its increased advertisement spend in the U.S.

Expedia’s growth in Q2 2015 was a mix of both organic and inorganic, leading to a strong performance in all of Expedia’s divisions–global room nights, air tickets, and car rental days. One of the most important reasons for this revival of performance in the second quarter was Expedia’s sale of its majority stake in the Chinese online travel agency (OTA), eLong. ^{[1] [2]} However, the company’s revenue per night declined in the second quarter primarily due to Expedia’s lower commission strategy in international markets, coupled with its huge expenditures on loyalty programs and promotions to increase its market demand in the international online travel space. We expect Expedia to perform on similar lines in the third quarter, as well.

Our  price estimate of $117 for Expedia’s stock is almost 10% below the current market price.

See Our Complete Analysis for Expedia Here

Recent Developments That Might Impact Expedia’s Performance

Orbitz Acquisition Provided Expedia With Lion’s Share Of The U.S. Online Travel Market: In September, Expedia finally received the regulatory approval to acquire Orbitz. The other market participants’ concerns had pushed Expedia under regulatory scrutiny. In January, Expedia had acquired  Travelocity’s websites in the U.S. and Canada. ^[3] The hotel suppliers and consumer forums feared that multiple acquisitions might lead to a consolidation in the U.S. online travel market, where Expedia might have gained almost 75% of the market share post the Orbitz merger. ^[4] The North American online travel market generated revenues over $200 billion in 2013 and is currently the biggest online travel market in the world. Between 2012 to 2017, the North American online travel market is forecast to grow at 7% CAGR. ^[5] However, the regulatory authorities felt that with the proliferation of newer competitors such as TripAdvisor (with its Instant Booking platform) and Google, the concerns for consolidation weren’t justified.

Strengthening Metasearch Capability Through Trivago: Expedia is strengthening its metasearch platform, Trivago, in order to provide stiff competition in the metasearch segment. According to Trivago’s managing director and head of hotel relations, Johannes Thomas, Trivago had changed its focus this year to give more importance to direct hotel relationships. ^[6] In order to attract more independent hotels on its platform, Trivago has also updated its Hotel Manager platform. The reason behind Trivago’s strengthening of its metasearch competency might be to help Expedia in its quest to gain a larger portion of both the hotel suppliers and travelers, on its platform. With the recent proliferation of metasearch engine turned OTAs in the online travel space, Expedia’s competency in the OTA space might be complemented with that of Trivago’s in the metasearch space to gain more customers through both the avenues.

China Focus: Expedia is trying to expand its presence in China with the help of its Australian acquisition, Wotif. According to Expedia’s management, though it was initially intended that Expedia would take Wotif’s aid to tap into Australia’s outbound market to the U.S., however, the current rise of the Asian middle class, and especially the Chinese traveler, implied that Australia’s potential as an inbound market has grown more profitable. ^[7] You can read more about the China travel market here. It is worthwhile to note that Expedia recently sold its 62% stake in Chinese OTA, eLong, because of the latter’s prolonged weak performance. Chinese OTA leader, Ctrip, was one of the major buyers of eLong’s stake (~40%). Expedia and Ctrip entered into a partnership after the sell-off, in order to share inventory in specific geographies, mainly in the air and packaged tours segment. You can read more about it here. Currently, Expedia is expanding its presence in China through its brand, hotels.com, and by leveraging its Ctrip partnership. Expedia is also contemplating the launch of the Expedia brand in China in the future.

Increased Focus On The Tours And Activities Sector: Expedia is about to increase its focus on the tours and activities sector. The company recently invested around $6.5 million in U.S. TV advertisements towards this end. Expedia had introduced tours and activities on its website and mobile applications over the last one year. ^[8] The fragmented tours and activities sector came into the limelight last year with TripAdvisor’s acquisition of Viator for $200 million. In February 2015, TripAdvisor and Viator announced the launch of a new tours and activities supplier platform called Marketplace, which enables more partners to list their business on, and more users to book tours and activities through, Viator. In Q2 2015, Viator almost doubled the number of attractions listings on its platform, as compared to all of 2014. ^[9]  Maybe, TripAdvisor’s success has fueled Expedia’s interest even further in this sector.

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1. Expedia, Inc. Reports Second Quarter 2015 Results, Expedia, July 30, 2015 [↩]
2. Expedia’s Q2 2015 Earnings Call Transcript, July 30, 2015 [↩]
3. Sabre and Expedia Announce Expedia’s Acquisition of Travelocity, Expedia Press Release, January 2015 [↩]
4. Expedia Will Pay Orbitz $115 Million if Antitrust Complications Scuttle Acquisition, Skift, February 13, 2015 [↩]
5. The New Online Travel Consumer, Euromonitor, February 2014 [↩]
6. Interview: Trivago Building Big Team in Shift Toward Direct-Hotel Relationships, Skift, September 29, 2015 [↩]
7. Australia key to Expedia’s global strategy, The Australian Business Review, October 7, 2015 [↩]
8. Expedia Makes a $6.4 Million Bet on Tours and Activities in New TV Advertising, Skift, October 22, 2015 [↩]
9. TripAdvisor’s Q2 2015 earnings Call Transcript, Seeking Alpha, July 23, 2015 [↩]