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Online Travel: Priceline, Expedia, Orbitz

Posted on Tuesday, Mar 3rd 2009

The recession is having a mixed impact on travel habits and, of course, on travel companies. Let’s take a look at three companies that recently announced results.

The $3.5 billion online travel major, Priceline (PCLN) surpassed the market’s expectations in its Q4 results. After having slipped in the last quarter, Priceline is now regaining some of its lost valuation.

Q4 revenues of $406 million exceeded the market’s expectations of $377 million to grow 21%, impressive in such a depressed economy. EPS of $1.29 was also higher than the expectations of $1.06 and grew 34% over the year. Bookings of $1.5 billion for the quarter grew 23% over the year.

The company’s international business grew 28% over the year despite currency headwinds. Q4 domestic bookings grew 31% over the year.

For the full year, Priceline grew bookings 53% to $7.4 billion and recorded revenues of $1.9 billion with an EPS of $5.96. Revenues grew an impressive 36% and EPS 48% over the year.

Booking.com continued to enlarge Priceline’s supply base, and the company now boasts of nearly 60,000 hotels in over 70 countries. They continued to invest in distribution in their online channels and recently announced an agreement to provide hotel booking services to Ryanair. With supply from airlines and hotels becoming more attractive, they saw an increase in overall domestic consumer demand.

But they also saw hotels, in response to the poor economy, reduce their average daily rates to counter declining occupancy. This resulted in domestic ADRs slipping 5% over the year. International ADRs were down 7% during the quarter.

With respect to the US market, Priceline’s offerings seem to be well balanced. Their retail business and the agency business are getting to be a big part of their business model and these segments are growing well. In Europe, however, they are still at the lower end of the value chain and are gearing up to ensure that they have the best prices and availability at preferred destinations. They will probably be looking at discounted offering in some international geographies, but as of now that is not their priority.

Priceline expects revenue growth of 5-10% in the coming quarter with EPS of $0.85-$0.95.

The stock reacted favorably to the results, rising 14% to $78 in after-hours trading. It is currently trading at $84.86, still far below its dot-com peak.

The same dismal economy had an opposite reaction on Expedia, which had to record a one-time write-down of nearly $3 billion in the quarter on the erosion of market capitalization.

Expedia’s Q4 revenues of $620.8 million were 7% lower than the previous year and EPS of $0.22 was flat. The Street was expecting revenues of $630 million and EPS of $0.24. For the year, Expedia recorded a revenue growth of 10% to $2.94 billion with EPS of $1.25.

During the quarter, they saw growth of 10% worldwide room night growth in their hotel volumes. However, like Priceline, they saw a significant decline in ADR: their ADRs were down 10% overall, with a 19% decline on a worldwide basis driven by hotels’ tending to discount their room nights and the currency erosion in the current quarter. However, they are hopeful that the lower prices will stimulate demand.

During the year, they made significant improvements in search engine optimization (SEO) capabilities. They also increased their property listing at hotels.com and now have over 99,000 properties worldwide; the increase was aided by the acquisition of Venere earlier this year. They launched Expedia Partner Central, which allows their hotel partners to better manage their rates, inventory and exposure in a given marketplace.

When advertising growth has been troubling most others, Expedia saw significant growth in Q4 of 29%. Going forward, they are going to expand efforts in travel media, meta-search and vacation rentals in China. They are building an innovative meta-search product. Earlier this year Expedia purchased majority stake in FlipKey.com, an online vacation rental review site, to boost TripAdvisor’s vacation rental product range. Later in the coming year, they will launch a user-generated content product in China.

To manage costs, they are freezing salaries at current year levels and have significantly cut their annual bonuses. They are expecting further efficiencies through recent global restructuring of the organization and are looking at savings of $20 million in opex reductions.

The disparity between Priceline and Expedia is apparent in the differences in their airline revenues. While Expedia recorded a 16% reduction in the quarter in its airline segment, Priceline actually sold 44% more tickets in the same period. It looks as though Priceline’s no-booking fee strategy is helping them gain additional mileage.

Expedia’s stock fell 7.4% after the results announcement and is now trading at $7.36 with a market capitalization of $2.11 billion.

The third travel major, Orbitz (OWW), also did not have a great year. Its stock has crashed to its all-time low of $2.13, taking its market capitalization to a mere $178 million.

Q4 revenues of $180 million were short of the Street’s expectations of $187 million and declined 9% over the year. EPS of $0.19 was, however, significantly higher than the Street’s expectations of $0.07 and grew 58% over the year. Orbitz closed the year with revenues of $870 million, growing 1% over revenues of $859 million the previous year. EPS of $0.28 fell considerably from $0.67 a year ago.

During the quarter, their domestic bookings were down 7% and international gross bookings were down 18%, primarily due to currency movements. On constant currency terms, international bookings were down 2% while international net revenues declined 39% over the year.

Over the coming quarters, Orbitz will be focusing on strategic investments in technology that will make using their services easier and faster for their customers. They are looking to improve their SEO and CRM capabilites to ensure that they expand their hotel business and geographical reach.

Earlier in the year, they launched the price assurance initiative, which has been well-accepted by their customers. They are planning to extend the initiative to the hotel and packaging areas. Cost saving initiatives launched during the year are expected to save Orbitz nearly $40-$45 million in annual opex.

The online travel industry’s woes will likely continue in the year. The recession might give the people the time to travel, but prices will have to continue to drop to ensure that the travel volume picks up. Until the economy picks up, some of these fundamentally strong consumer Internet stocks will continue to suffer.

This is, however, a good time for the online travel industry to look at its advertising budgets and streamline outlays for PPC ads that primarily go to Google. My assessment is that there is a lot of fat in that process, and needs to be scrutinized carefully, new technology evaluated to achieve the same objectives without paying so much.

This segment is a part in the series : Online Travel

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In the first place EXPEDIA should blame itself since its poor performance is because they have been cheating travelers (click on my name to read how they tried to scam me 1254.95 U$D).
Only after that they can the global crisis.

John Wednesday, March 4, 2009 at 3:31 PM PT