Expedia Likely to Take a Hit in Japan

The leading online travel agency, Expedia (NASDAQ:EXPE) draws almost 41% of its business from outside of the U.S. Expedia had started to rely heavily on the growth opportunities internationally, particularly in Asia Pacific similar to peers Priceline (NASDAQ:PCLN) and Kayak. Despite Japan’s technology savvy demographic, online bookings accounted for only 24% of Japan’s travel market, which presents considerable upside for online travel agencies. Expedia’s sales grew in Japan by about 50% in 2010, and the recent tsunami and subsequent nuclear disaster will certainly take its toll on growth in this market.

The hotel bookings segment is the most crucial for Expedia’s business and makes up over 55% of our $29.12 Trefis price estimate of its stock.

How Much Do Japan Woes Impact Expedia?

We currently estimate the occupancy rate of hotel rooms to rise from close to 55% in 2010 to beyond pre-recession levels of 63%. Since much of the growth in tourism is expected to come from South Asia, we can expect the tourism in this region to take a hit resulting in a lower occupancy rate. For example, if the occupancy rate increased to only 60% over our forecast horizon, this would lead to a 5% potential downside to our current $29.12 Trefis price estimate.

You can drag the graph below to see the impact on Expedia’s stock.

How Could Expedia Deal with Japan’s Crisis?

There is no denying that leisure travel to and from Japan will take a plunge. However, business travel to Japan, which accounted for over 40% of the total size of the tourism in Japan could present Expedia with an opportunity to shore up its business in South-East Asia assuming that nuclear concerns to not deter business travelers. ^[1]

Japan is the home of some of the biggest automakers like Toyota and Honda as well as electronics manufacturers such as Sony. As these major multinational corporations have professionals traveling extensively, Expedia could customize its Egencia corporate travel services to meet the needs of these businesses. Egencia currently constitutes only about 2% of its stock price; however, focusing on the corporate segment could provide growth and a way to differentiate itself from other online travel agencies such as Priceline and Travelocity, which do not have a separate corporate travel services arm.

You can see a detailed analysis of our $29.12 Trefis price estimate for Expedia.

1. Market Size of International Visitors to Japan Amounts to Some 231.1 Billion Yen – Leisure and Business Travel Account for 43.7% and 40.5% Respectively, March 14’ 2011 [↩]