Expedia Eyes $30.60 by Earning More Euros with Expansion
Expedia (NASDAQ:EXPE) can earn more Euros as Expedia Media Solutions recently announced the expansion of its TravelAds search advertising program to France, Germany and Italy from its current operations in the U.S., Canada and the U.K. Expedia is the largest online travel company in the world and competes with leading online travel agencies such as Priceline (NASDAQ:PCLN), Orbitz (NASDAQ:OWW) and Travelocity.
Expedia sells advertisements on its websites in addition to earning a commission on air tickets and hotels bookings. Advertising on TripAdvisor.com, Expedia.com and Hotel.com together make up almost one-fourth of our $30.60 Trefis price estimate of Expedia’s stock, at roughly 15% premium to the current market price.
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What is TravelAds?
TravelAds allows advertisers selling travel-related products and services to create sponsored listings within the search results on Expedia.com and Hotels.com. The advertisers make payment on a per-click basis and can control their advertising budget by setting a maximum daily, weekly or monthly spend for each listing. [1]
With TravelAds, advertisers can target customers based on travel searches by destination and dates. These ads are visible to the most relevant audience and during the most influential point in the booking process.
How does TravelAds’ entry into Europe benefit advertisers?
Since its launch in 2009, TravelAds has become quite successful with advertisers, on average, receiving a 40% increase in transactions and 52% increase in market share within the first week of participation. ((Expedia Media Solutions Expands TravelAds™ Search Advertising Program to New International Markets, PR Newswire, May 03, 2011)) The European lodging industry is dominated by small, independent hotels unlike the U.S. where hotel chains are more prevalent. This makes TravelAds a more compelling proposition to European travel service providers.
Why would Expedia expand TravelAds into Europe?
We currently estimate advertising and media revenue to rise to almost $200 million over our forecast period. By entering Europe, Expedia can reasonably expect higher advertising revenues.
Expedia recently decided to spin-off TripAdvisor into a separate public entity. TripAdvisor Media Network (tripadvisor.com) gathers and publishes user-generated content such as hotel reviews that travelers use for research prior to making bookings, and generates revenue from advertising. According to our estimates, advertising on TripAdvisor.com makes up almost 22% of Expedia’s stock while advertising on other websites together contributes around 3% of Expedia’s stock.
While TripAdvisor’s sale which is estimated to be around $4 billion yields a handsome 1900% return over its $200 million purchase in 2004 (See Expedia Shareholders Should Cheer The TripAdvisor Spin-Off), it devoids Expedia of a significant source of advertising revenue. Hence expanding TravelAds to more international locations such as Europe provides an additional advertising revenue stream for Expedia.
View our detailed analysis for Expedia
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