How Will The Fourth Quarter Shape Up For Expedia?

Expedia (NASDAQ:EXPE) is set to release its Q4 2015 earnings on February 10th. On the back of its strategic investments and initiatives, the company has been demonstrating solid performance so far in 2015 and we expect the trend to continue in the fourth quarter as well. It is estimated that Expedia might be owning about 75% of the U.S. online travel market share post its Orbitz acquisition. Though online travel still enjoys a small portion of the total travel industry in the U.S. (and also across the world), the rising trend of digital bookings does speak of an even brighter future for Expedia in North America. The company’s gross bookings for the first nine months stood at ~$46 billion (17% Y-O-Y growth) surpassing even that of the biggest global OTA, Priceline (whose gross bookings stood at ~$44 billion). To offer a perspective, Priceline’s current market capitalization is around $49 billion while that of Expedia is only around $14 billion. Expedia’s top line grew by around 17% for the first nine months of 2015 to stand close to $5 billion. More importantly, its net income grew by over 130% during the same period to reach $74 million.

Till the third quarter of 2015, Expedia has added 14,000 properties to its hotel supply  and its hotel inventory has risen by 29% year-on-year. Due to seasonality, the company expects the property additions in Q4 2015 to outpace even that of the third quarter. ^{[1] [2]}

Expedia’s bottom line grew significantly post its eLong divestiture. The company is strengthening its metasearch arm, Trivago, that might replicate TripAdviosor’s Instant Booking platform in the future. It is also expanding its portfolio by exploring sectors like tourism and railways. Finally, after a host of OTA acquisitions, Expedia is integrating those companies on its own platform to leverage upon the synergies and build technological capabilities to make its OTA platform a one-stop shop for all travel needs in the future.

We are in the process of updating our  price estimate of $125 for Expedia’s stock.

 See Our Complete Analysis for Expedia Here

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

Expedia’s eLong divestiture seemed to have been a prudent move for the company. Now, not only does it boast of an alliance with Ctrip in the air and packaged tours segment, but it is also using several channels to expand its China presence. Along with its own brand hotels.com, its Australian acquisition, Wotif, is also helping it in building a presence in China. In the future, Expedia is contemplating the launch of the Expedia brand in China.

 Expedia Is Building Its  Competitive Advantage With Trivago

An important development in progress for the company is the strengthening of its search engine, Trivago. Trivago’s increased direct partnership with hotels, a revamped 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 steps taken so far. ^[3]

Expedia’s reason for boosting Trivago’s functionalities might be twofold. On the one hand, the competition on the OTA front seems to be growing with metasearch engines like Google and TripAdvisor entering the foray. Expedia’s strong OTA platforms will be further boosted with a stronger search engine. Secondly, with Priceline agreeing to participate on Instant Booking with exclusivity conditions, it might make sense for Trivago to compensate for Expedia’s lack of presence on Instant Booking by showing more results for the company on its own search results. Trivago is also testing a product in Germany which might be similar to Instant Booking. Many of the Expedia brands are participating in the product. Trivago will launch the platform in more English speaking countries over 2016.

Expedia Building Capabilities To Be Recognized As A One Stop Shop For Online Travel

Expedia’s accommodation related acquisitions in 2015 were Orbitz, Travelocity, and HomeAway. Its CFO, Mark Okerstrom, thinks that Orbitz might be the most important acquisition for Expedia, because of its large scale of business ($12 billion in gross bookings). ^[4] 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. ^[5]

In the air search segment, the company is currently witnessing 7.5 billion air searches annually, and it is expected to increase with time. Expedia aims to capitalize on the footfall by attempting to cross-sell its other products such as hotels, vacation rentals, rental cars, tours and activities, etc.

Also, Expedia’s tours and activities sector is growing by triple digits and it is developing a new product related to railway bookings, which is expected to be launched in 2016. Railway is an important mode of transportation in Europe and Asia, and these regions will be primarily targeted by this new product in the beginning.

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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. Interview: Trivago Building Big Team in Shift Toward Direct-Hotel Relationships, Skift, September 29, 2015 [↩]
4. Why Expedia Thinks It Got Great at Acquisitions, Skift, Nov 16, 2015 [↩]
5. The New Online Travel Consumer, Euromonitor, February 2014 [↩]