Priceline Versus Expedia: Where Do They Stand Currently?
Priceline (NASDAQ: PCLN) and Expedia (NASDAQ:EXPE), the two largest OTAs in the world, delivered strong performances in the first nine months of 2015. Both the OTA leaders banked on strategic alliances and investments to fuel growth. While Priceline’s Booking.com met with huge success in the global front, Expedia strengthened its presence in the domestic North American market with its acquisition of Orbitz and Travelocity. Though online travel still occupies a small part of the entire travel industry in the U.S., and both Priceline and Expedia together might contribute only around 10% of the travel market, yet it is noteworthy that after the acquisitions, Expedia now enjoys almost three-fourths of the online travel market in the U.S. The rising trend of online bookings does speak of a brighter future for Expedia. Priceline, on the other hand, derives around 88% of its gross bookings from the international markets. Currently, Priceline’s top line and bottom line growth had been thwarted to a great extent due to the strengthening of the U.S. dollar against international currencies. Expedia, on the other hand, improved its bottom line significantly post its eLong divestiture. The table below gives a quick preview of both the companies’ performance in terms of some important parameters over the first nine months of 2015.
(Source: Google Finance)
(Source: Google Finance)
In this article we discuss in detail how the two companies are gearing up for the future.
See Our Complete Analysis for The Companies Here
Ctrip Is A Mutual Friend
Last May, Expedia sold its 62% stake in the Chinese OTA, eLong, because of the latter’s persistent weak performance. Ctrip, bought around a 40% stake in eLong from Expedia. Consequently Ctrip and Expedia went into a partnership to share inventory in specific geographies, mainly in the air and packaged tours segment. You can read more about it here. Currently, Expedia is using several channels to expand its China presence. In the future, Expedia is also contemplating the launch of the Expedia brand in China.
Shortly after Expedia’s partnership with Ctrip, Priceline also increased its investment in Ctrip. Again in December 2015, Priceline declared fresh investments of $500 million. After this decision, Priceline’s total investment in Ctrip since 2014 amounts to around $2 billion. Post the issuance of the new bonds, the company might own up to a 15% stake in Ctrip.
China’s travel market is the most important in the world right now and Ctrip is the biggest player in China with around 50% revenue share. Ctrip’s position in China’s online travel domain has further strengthened due to its alliance with its two biggest rivals–eLong and Qunar (where it had recently gained a 45% stake).
In 2014, China’s GDP grew by 60% of that of the U.S., however, the leisure travel market grew by just one-third of that of the U.S. Hence, there is scope for further growth which speaks volumes about the future prospects of market leaders such as Ctrip.
In Q1 2015, China’s online travel market transactions reached ~95 billion Yuan ($15.28 billion) reflecting an over 50% year-on-year growth. [1] Currently, China has a 46% internet penetration. China’s online travel market is expected to continue its double-digit growth and cross $75 billion by 2017. [2]
(Source: China Internet Watch)
Phase Of Consolidation
Both Priceline and Expedia had been aggressive with acquisitions over the last few years. Priceline’s important acquisitions include: Agoda.com, Kayak, Rentalcars.com, and OpenTable. Expedia on the other hand took over big players including Trivago, Travelocity, Orbitz, and HomeAway. The consolidation efforts by these big players allow them the advantage of offering a wider portfolio of products and services from the same platform, while still controlling the price related competition. This, in turn, boosts customer acquisition and profitability, significantly.
Priceline’s Featuring On Instant Booking Versus Expedia’s Strengthening Of Trivago
How Is The Current Situation And What About The Long Run?
Priceline’s larger presence in the markets outside the U.S. left it susceptible to currency headwinds on account of a stronger dollar. Expedia on the other hand derives only around 40% of its bookings from the international market. [5] This difference has led to Expedia demonstrating a stronger growth rate in terms of important parameters as was demonstrated in the first table.
However, we should not forget that losses due to currency fluctuations are temporary setbacks. Priceline’s greater exposure to the international markets give it the opportunity to tap emerging markets with a higher potential for future growth. For example, Priceline currently has the option to own almost 15% of the Chinese OTA leader, Ctrip. Priceline’s minority stake in Brazil’s top OTA, Hotel Urbano will aid the former in gaining a substantial share of the Latin American market, which is touted as one of the fastest growing markets in the online travel sales domain. [6] Priceline maintains a symbiotic relationship with these regional online travel leaders. It aids the commercialization and global expansion of the local brands in these emerging economies and, in turn, benefits from the upside.
Hence, we can conclude by saying that both the OTA leaders are using their competitive advantage to gain market shares and strive for dominance. From a global perspective, however, Priceline’s huge international presence, coupled with its strategic collaboration with TripAdvisor, does give it some amount of edge over Expedia.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
Notes:- China Online Travel Market Exceeded US $15 billion in Q1 2015, China Internet Watch, May 21, 2015 [↩]
- Chinese Travel Platform Qunar Raises $500M, Turns Down Ctrip Acquisition Offer, Tech Crunch, June 1, 2015 [↩]
- Booking.com Hits Record 1 Billion Guests Since Inception, Priceline Press Release, Nov 9, 2015 [↩]
- The Untold Story of Booking.com’s Growth in 21 Million Rooms, Skift, Nov 9, 2015 [↩]
- Better Buy in 2016: Priceline or Expedia?, The Motley Fool, Jan 16, 2016 [↩]
- Interview: Hotel Urbano CEO on Using Big Data to Battle Booking Rivals, Skift, October 17, 2014 [↩]