Expedia Earnings Preview: Airline & Groupon Alliances in Focus
Expedia (NASDAQ:EXPE), the leading online travel agency (OTA) in terms of booking volumes, will report Q2 earnings on July Thursday. The last quarter has been particularly dynamic for Expedia characterized by strategic alliances with several airlines apart from a further recovery in both leisure and business travel bookings with improving economic conditions post the downturn in 2008-09. Expedia competes with other leading online travel agencies such as Priceline (NASDAQ:PCLN) and Orbitz (NASDAQ:OWW). We value Expedia with $30.60 Trefis price estimate of its stock, at parity with its market price. Here we revisit the highlights of the quarter gone by and how these shall impact Expedia’s business in the future.
Partnerships with businesses
Expedia entered into private-label partnerships with airlines where it offers hotel bookings at airlines’ websites. This not only helps airlines offer consumers a more comprehensive travel package including air travel and accommodation options at the destination but also helps OTAs sell more hotel bookings on which they stand to make handsome commissions often in excess of 20%. Expedia announced a partnership with South African Airways, AirTran Airways and AirAsia. See After AirAsia, Expedia Now Partners With South African Airways, Expedia Partners with AirTran Airways, Extending its Affiliate Network and Expedia Partners With AirAsia.
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In a recent development, Groupon is creating a special section on its site called Groupon Getaways that will offer deep discounts to the tune of 50% on travel-related services by tapping Expedia’s inventory of hotel rooms and travel services from its 135k hotels as well as car rental and cruise options across the globe. See Groupon Takes on the OTA Market with Expedia.
While the impact of these partnerships shall be noticeable only after a few quarters, these have the potential to securely put Expedia on a long-term growth trajectory.
Sell-off of Tripadvisor.com, a major source of advertising revenues
Expedia also announced its plans to spin-off its media and advertising business arm TripAdvisor into a separate publicly traded company. TripAdvisor gathers and publishes user-generated content such as hotels, restaurants and travel destination reviews that travelers use for research prior to making bookings. With over 50 million unique monthly visitors at its 18 popular travel-brand sites in 27 countries across the globe, TripAdvisor generates revenue by offering advertising placements at its websites and accounted for a substantial 15% of Expedia’s revenues and close to 35% of Expedia’s operating income in 2010. See Expedia Shareholders Should Cheer the TripAdvisor Spin-Off.
While Expedia already sells advertising on its Expedia.com and Hotels.com, we expect it to further leverage its brand name and traffic to generate more advertising revenues. See Expedia Eyes $30.60 by Earning More Euros with Expansion.