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Online Travel Continues to Boom

Posted on Wednesday, Sep 11th 2013

According to RBC, within the U.S., online travel sales account for 43% of total travel sales. That number is projected to increase marginally to 44% by the end of next year. Analysts believe that increased online sales will be driven by the continued adoption of mobile devices. Meanwhile, online travel sites are expanding their international operations and adding inventory, as well as enhancing mobile operations to ensure they capture a bigger slice of this pie.

Priceline’s Financials

Priceline’s (NASDAQ:PCLN) revenues grew 27% over the year and 29% over the quarter to $1.68 billion, ahead of the market’s projections of $1,65 billion. EPS of $9.70 was significantly ahead of the market’s estimates of $9.38 for the quarter.

By segment, Priceline’s merchant business grew 5.3% over the year to $580.22 million, and the agency business grew 37.9% over the year to $1,064.64 million. Revenue growth was driven by a 38% increase in global hotel reservations and 46% growth in car rental days. Airline ticket bookings grew 1.8% over the year.

For the current quarter, Priceline projects revenues to grow 23%-30% over the year compared with market growth projections of 28%. EPS for the current quarter was projected at $15.30-$16.30, compared with the Street’s projections of $15.80.

Priceline’s Continued Growth in Europe

The continued economic crisis in the European markets may have hurt other companies, but Priceline performance in the market has remained steady. Itcontinued to add hotel rooms in the quarter and grew by 30,000 rooms in hotel inventory for Booking.com. According to market reports, Booking.com holds the largest hotel inventory in the continent, in part because they have the lowest commission rate. The site’s share in European markets grew to 47% in June compared with 45% in February 2013.

Priceline Continues with Tie-ups

Priceline continued to build relationships with merchants to increase market penetration. Earlier last month, it announced a tie-up with Universal Orlando Resort Hotels. As part of the agreement, Booking.com will now be able to hold inventory for Orlando resort hotels. Within the airline segment, Priceline entered into an agreement with Frontier Airlines to enable customers to book tickets for Frontier Airlines destinations through its website.

The market is very pleased with Priceline’s performance. The stock is poised to cross the $1,000 mark and is trading at $977.50, with a market capitalization of $50.34 billion. It touched a 52-week high of $994.98 last month.

Expedia’s Financials

Competitor Expedia (Nasdaq:EXPE) is having a tough time keeping up with Priceline’s performance. Revenues for the quarter grew 16% over the year to $1.21 billion but fell short of the Street’s projections of $1.26 billion. But the market was most disappointed by the miss in earnings for the quarter. EPS was $0.64 compared with the market’s expectations of $0.81 for the quarter. The earnings performance sent the stock down 25% within a day. Expedia attributed the miss in earnings to increased spending on sales and marketing.

By channel, revenues from the merchant business accounted for 71% of the quarter’s revenues and grew 17% over the year. Agency sales grew 15% and brought in 22% of the quarter’s revenues, while advertising revenues grew 74% and contributed the remaining 7% of revenues.

Expedia’s Travelocity Agreement

After a disappointing quarter announcement, Expedia plans to woo the investors by announcing a tie-up with Travelocity. As part of the agreement, Expedia will now power the search results on Travelocity. Expedia will now be responsible for Travelocity’s operations and will take care of picking up orders, collecting fees, and paying Travelocity a commission for the sales generated on the Travelocity platform.

Expedia’s stock is trading at $51.84 with a market capitalization of $7.71 billion. It touched a 52-week high of $68.09 earlier this year.

Orbitz’s Financials

Orbitz, (Nasdaq: OWW) another online travel player managed to surpass market expectations. Q2 revenues grew 12% to $225.8 million and were ahead of the market’s projections of $218.9 million. EPS of $0.17 was also ahead of the Street’s target of $0.09 for the quarter.

For the quarter, gross bookings for the site grew 4% to $3.1 billion driven by growth in hotel room nights sales, which reported a 20% increase in the quarter.

For the current year, Orbitz projected revenues of $214 million-$220 million, ahead of the Street’s projections of $213.8 million. Revenues for the year were projected at $840 million-$850 million, also ahead of the market’s expectations of $831.4 million.

Orbitz’s Mobile Upgrade Continues

Orbitz continued to increase investment in its mobile offerings. It recently re-launched Orbitz Flights, Hotels, Cars app for Android that will help add speed improvements and single-screen booking for flights, hotel rooms and car rentals. Android Devices, the rebuilt app, was designed specifically for Android. The app comes with features such as “lightning-fast search and book” capabilities, access to mobile-only hotel discounts and deals, and a simplified user interface to simplify travel booking. In addition, Gmail users who have signed up for Google Now will also get flight status on the day of travel and other reminders such as hotel check-in. Through the app’s integration with Google Maps, consumer Android app users will now be able to see a map-based view of hotel searches.

Orbitz’s stock is trading at $9.86 with a market capitalization of $1.06 billion. It touched a 52-week high of $13.26 last month.

TripAdvisor’s Financials

Finally, travel review site TripAdvisor (Nasdaq:TRIP) saw Q2 revenues grow 25% over the year to $246.9 million. EPS of $0.47 was also ahead of the market’s projected earnings of $0.41.

By segment, revenues from click-based advertising grew 21% to $182.8 million and revenues from display advertising grew 18% to $31.4 million. Subscription, transaction, and other revenues grew 68% over the year to $32.7 million.

TripAdvisor’s Business Model Change

TripAdvisor is shifting its revenue model to metasearch based instead of cost-per-click based. Metasearch-based sites earn revenues by letting users book hotels and other travel directly, whereas in the cost-per-click model, the website earns revenues when it directs traffic to another website. TripAdvisor released its metasearch feature in June 2013, and now users have access to real-time hotel and flight pricing and availability on the site, thus doing away with the need to access other sites through their websites. Because of this transition, TripAdvisor should see click-based revenues decrease, while overall revenues will grow on account of higher listing fees and providing higher booking rates for travel vendors.

The stock is trading at $72.62, with a market capitalization of $10.38 billion. It touched a 52-week high of $82.19 last month.

 

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