Some Of The Key Drivers Expected To Fuel Expedia’s Growth In 2016

Expedia (NASDAQ:EXPE) had been demonstrating solid performance in 2015 and the company looks well-equipped  to continue along the same lines in 2016. On the back of organic and inorganic growth, for the first nine months of 2015, the company displayed a 13% year-on-year increase in revenues for the first nine months of 2015, to $5 billion and a 21% year-on-year growth in gross bookings (~$45 billion). All of Expedia’s divisions displayed strong performances. Expedia’s global room nights and air tickets grew by ~34% and ~25%, during this period. Its net income grew by 134% year-on-year to $777 million. One of the primary reasons for Expedia’s surge in profitability was the selling-off of eLong, the Chinese OTA where Expedia had a 62% stake. For several quarters in 2014, eLong’s poor performance had been weighing down on Expedia’s otherwise robust performance. ^{[1] [2]} In 2015, Expedia continued with its shopping spree just like the previous year. However, Expedia is also strengthening its various arms to gear up for further competition from traditional OTAs, as well as metasearch engines that are entering the OTA domain. Along with this, Expedia is diversifying its portfolio by exploring sectors like tourism and railways. Finally, after a host of OTA acquisitions, Expedia is integrating those companies to leverage upon the synergies along with investing on technological capabilities to make its OTA platform more formidable in the future.

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

 See Our Complete Analysis for Expedia Here

A Significant Portion Of Expedia’s Growth Came Post Its eLong Divestiture

In May 2015, Expedia sold its 62% stake in the Chinese OTA, eLong, because of the latter’s persistent 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 using several channels to expand its China presence. Besides, its brand hotels.com and its alliance with Ctrip, the company is also taking 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. ^[3] You can read more about the China travel market here. In the future, Expedia is also contemplating the launch of the Expedia brand in China.

 Trivago’s Dual Purpose: Expand Metasearch Customer Base And Provide More Exposure To Expedia

Expedia is strengthening its search engine, Trivago, in order to pose stronger competition in the metasearch space, along with its dominance in the OTA space. Trivago’s growth of direct partnership with hotels, an updated Hotel Manager platform with an aim to attract more independent hotels, and a stronger review structure through its Mystery Shopper program, are some of the measures being taken towards this end. ^[4]

Currently, when metasearch engines such as TripAdvisor and Google are showing a propensity towards encouraging direct bookings through their platforms, giving OTAs a run for their money, Expedia’s reverse move of strengthening the metasearch capabilities might actually work in its favor. With growing competition in the OTA space, stronger capabilities and diverse functionalities might help the company build a competitive edge to stay ahead of the competition in the longer run.

Priceline’s Booking.com has recently agreed to participate in TripAdvisor’s Instant Booking platform, with the condition of exclusive branding opportunities. Hence, Expedia needs to compensate for its lack of visibility on Instant Booking. And what better way than utilizing its own metasearch engine. Trivago is currently testing a product in Germany which might be similar to Instant Booking. Many of the Expedia brands are participating in the product. Trivago is expected to launch the platform in more English speaking countries over the next year.

Expedia Might Expand In The Tours And Railway Booking Segments In 2016

Not only with upgraded metasearch capabilities, but Expedia might provide TripAdvisor with increased competition in the tours and activities segment as well. TripAdvisor had acquired Viator in 2014, and since then the company had introduced Marketplace to encourage more suppliers and to facilitate user bookings. Currently, Expedia seems to be showing increased interest in the tours and activities sector. The company spent around $6.5 million recently on TV ads in the U.S. ^[5] 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 expects to launch a railway booking product in 2016 and initially the company will target countries in Asia and Europe, where railway is an important mode of commute.

Expedia’s Air Booking Segment’s Success Is Expected To Rise Further

In its Q3 2015 earnings call, Expedia’s management mentioned that the company witnesses around 7.5 billion air searches annually (excluding Orbitz) and the number s expected to grow in the future. A few months back, the company renewed its agreement with the American Airlines Group, as a result of which Expedia affiliated websites including Expedia, Travelocity, and Hotwire would feature flights from US Airways and American Airlines. ^[6] This is expected to increase the air ticket sales even further.

In November, Expedia’s corporate travel arm, Egencia, announced that its mobile application would allow air bookings across the globe. This made Egencia the first business travel company to release such an application. (Read Press Release.) The company plans on capitalizing the huge footfall in its air ticket sement to not only sell the ancillary air products and fares, but also to capitalize on the cross-selling opportunities.

Orbitz Might Be The Most Significant Acquisition For Expedia

In 2015, Expedia acquired Orbitz, Travelocity, and (recently) HomeAway–the vacation rental booking website. According to Expedia’s CFO, Mark Okerstrom, Orbitz might be the most important acquisition for the company in recent time, because of its large scale of business ($12 billion in gross bookings). ^[7]

Expedia finally received the regulatory go ahead to acquire Orbitz in September. 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. ^[8] The market participants 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. ^[9] The North American online travel market is currently the biggest online travel market in the world. Having  revenues of over $200 billion in 2013, the market is expected to grow at 7% CAGR between 2012 to 2017. ^[10] The regulatory authorities finally gave Expedia the go ahead citing that with the proliferation of newer competitors such as TripAdvisor (with its Instant Booking platform) and Google, the concerns for consolidation weren’t justified.

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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. Australia key to Expedia’s global strategy, The Australian Business Review, October 7, 2015 [↩]
4. Interview: Trivago Building Big Team in Shift Toward Direct-Hotel Relationships, Skift, September 29, 2015 [↩]
5. Expedia Makes a $6.4 Million Bet on Tours and Activities in New TV Advertising, Skift, October 22, 2015 [↩]
6. Expedia, Inc. And American Airlines Group Expand Partnership Bringing More Choices To Travelers, Expedia Press Release, September 2, 2015 [↩]
7. Why Expedia Thinks It Got Great at Acquisitions, Skift, Nov 16, 2015 [↩]
8. Sabre and Expedia Announce Expedia’s Acquisition of Travelocity, Expedia Press Release, January 2015 [↩]
9. Expedia Will Pay Orbitz $115 Million if Antitrust Complications Scuttle Acquisition, Skift, February 13, 2015 [↩]
10. The New Online Travel Consumer, Euromonitor, February 2014 [↩]