Weekly Online Travel Agency Notes: Priceline, Expedia, TripAdvisor, Travelzoo, Ctrip

March 2nd, 2015 by Trefis Team
PCLN: Priceline Group logo
PCLN
Priceline Group

The online travel agencies (OTAs) started the year on an acquisition spree. It seems all the market players want a bigger share of the $1.3 trillion global travel market pie. Priceline (NASDAQ: PCLN) has recently announced the intention to acquire Rocketmiles, a hotel-booking startup. Priceline is also raising $1.13 billion (or 1 billion euros) through a public offering of senior notes for acquisition and other related purposes. Expedia (NASDAQ: EXPE) started the year by acquiring its erstwhile marketing partner, Travelocity, and is currently on its way to acquire Orbitz Worldwide, the third largest OTA in North America. TripAdvisor recently acquired the personal journal application provider, ZeTrip and launched a new feature called “Neighbourhoods” to help travelers better navigate in popular tourist destinations.

Below we give a quick rundown on the most notable events in the last week related to these companies.

See Our Complete Analysis for These Companies Here

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Priceline

Adding on to the recent spate of acquisitions on the online travel space, Priceline (NASDAQ: PCLN) has expressed the intention to acquire hotel-booking startup, Rocketmiles, for around $20 million. The deal will enhance Priceline’s consumer experience by allowing users to book lodgings via Priceline’s network, as against booking directly with hotels. Rocketmiles aids customers in gaining frequent flier miles by booking through its mobile application or website. These miles in turn can be redeemed for bookings for an array of around 12 airlines. The online travel agency leaders seem to be stressing on loyalty programs for expanding their customer base. Earlier on February 12, Expedia announced its intention to acquire Orbitz Worldwide. One of the advantages which Expedia would gain from Orbitz is the Orbucks loyalty programme. The rewards programs would allow the OTAs to gain a competitive advantage against airlines and hotels who in turn try attracting customers to their own websites. Rocketmiles is backed by $8.5 million in venture capital and the company claims to have a user base running to hundreds of thousands. [1]

On February 24, Priceline announced its decision to raise $1.13 billion (or 1 billion euros) through a public offering of senior notes. It intends to use the fund for general corporate purposes, including share repurchases, paying down debt and making acquisitions. Priceline spent around $2.5 billion net of cash acquired, on acquisitions in 2014. The leading OTA also invested more than $900 million in China’s OTA leader, Ctrip in 2014. Priceline had around $8 billion cash on hand in the end of 2014, and the senior notes will add on to that fund. [2]

We are in the process of updating our price estimate of $1108 for Priceline.

Expedia

On February 12, Expedia (NASDAQ:EXPE) announced its intention to acquire Orbitz Worldwide for an enterprise value of $1.6 billion (or $12 per share). This represents a premium of around 29% “over the volume weighted average share price” up to February 11, this year. Though the boards of directors of both the companies have agreed to the deal, the companies are awaiting regulatory approvals. Given Expedia’s recent spate of acquisitions, the antitrust authorities might create problems about the deal. Expedia expects the deal to close by the second half of 2015 in case all the approvals are achieved. [3]

As a result of the Orbitz acquisition, Expedia might own up to 75% of the U.S. online travel market, according to the 2013 market shares provided by PhoCusWright. The chief rivals on the U.S. online travel space till now were Expedia, Priceline, Travelocity, and Orbitz. Now only two rivals, Priceline and Expedia, remain as separate entities. However, online travel agencies together account for 16% of total gross bookings from the U.S. In a merger agreement filed with the Securities and Exchange Commision, Expedia has agreed to pay Orbitz, a $115 million termination fee, in the event of the fall-out of the deal due to legal issues. [4]

Our price estimate of $90 for Expedia is slightly below the current market price. We forecast the company to report revenues of approximately $6.5 billion for FY 2015. Our GAAP and non-GAAP diluted EPS estimates stand at $3.60 and $4.69, respectively.

TripAdvisor

On February 26, TripAdvisor (NASDAQ:TRIP) announced the launch of a new feature called “Neighbourhoods” to aid travellers in finding out and exploring neighborhoods within popular tourist destinations. This would ease the user’s efforts in finding restaurants, attractions and accommodations in their place of travel. The feature, currently available in Barcelona, Berlin, Dubai, Hong Kong, London, Los Angeles, Madrid, New York City, Paris, Prague, Rome, San Francisco, Singapore and Tokyo, is expected to be rolled out to more destinations in the future. [5]

Earlier, towards the beginning of February, TripAdvisor announced the acquisition of ZeTrip, Inc., a personal journal application which aid travellers in logging their travel related activities and photographs. ZeTrip employees have presently integrated with the TripAdvisor mobile application development team. (Read press release here).

Our valuation of $87 for TripAdvisor is marginally below the current market price. Our 2015 revenue estimate for the company stands at $1.7 billion. Our GAAP and non-GAAP diluted EPS estimates stand at $2.59 and $3.02, respectively.

Ctrip

Analysts surveyed by Bloomeberg forecasted that in 2014, Chinese OTA leader, Ctrip‘s (NASDAQ: CTRP) growth rate will be lagging behind significantly, when compared to that of its rival, Qunar. Qunar, a major Chinese search engine and online travel information provider, is expected to grow sales by over 71% in 2015. Qunar’s growth rate is expected to be more than double of what will be achieved by Ctrip in 2015. This growth rate difference is attributed to the differing revenue strategies undertaken by the two companies. While Ctrip’s travel-agency approach allows it to make commissions on bookings, Qunar lets users view inventories from a wide array of suppliers, and gets paid by directing traffic on the supplier websites. [6]

Our Ctrip price estimate to $43 is almost in line with the current market price. For FY 2014, we forecast a revenue of approximately $1.27 billion. Ctrip is yet to release its fourth quarter 2014 earnings report.

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Notes:
  1. Priceline to Buy Rocketmiles for About $20 Million, Wall Street Journal, February 18, 2015 [↩]
  2. Priceline Positions Itself for 2015 Acquisition Spree With $1.13 Billion Note Offering, Skift, February 24, 2015 [↩]
  3. Expedia to buy Orbitz in cash deal worth $1.6 billion, tnooz, February 12, 2015 [↩]
  4. Expedia Will Pay Orbitz $115 Million if Antitrust Complications Scuttle Acquisition, Skift, February 13, 2015 [↩]
  5. TripAdvisor Launches Neighborhoods Feature to Help Travelers Explore World Cities, NASDAQ, February 26, 2015 [↩]
  6. Qunar Eclipses Ctrip as Revenue Growth Surges: China Overnight, Bloomberg, February 23, 2015 [↩]