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Acquisition Spree in Online Travel

Posted on Tuesday, Sep 2nd 2014

According to recent reports, the US online travel market was estimated to be worth $157 billion in 2013. PhoCusWright estimates that online adoption of travel services will continue to increase in the US from 41% in 2012 to 43% by 2015. An eMarketer report published earlier this year pegs the US online travel market to grow 5.9% over the period 2012 through 2017, much lower than the 20% rate projected for China. Little wonder then that the online travel market leaders are investing in alternate businesses and international markets.

Priceline’s Financials
Priceline (NASDAQ: PCLN) may have the lowest share in the country, but its international presence is formidable. For the recently ended second quarter, revenues grew 26% over the year to $2.12 billion, but fell short of the market’s projections of $2.14 billion. EPS of $12.51 was significantly ahead of the Street’s projections of $12.06.

Gross bookings for the quarter grew 34% to $13.5 billion driven by a 37% growth in international bookings, which now account for 86% of their bookings. Domestic bookings grew a comparatively modest 21% over the year. Global hotel room reservations improved 29%, airline ticket bookings rose 22% and car rental days grew 14% over the year.

By segment, agency revenues grew 39% to $1.47 billion while merchant revenues fell 2% to $0.57 billion. Kayak’s acquisition helped improve advertising revenues to $81.9 million.

For the current quarter, Priceline projected revenue growth of 15%-25% over the year, falling short of the market’s expected 23.4% growth target. EPS of $19.61-$21.10 was also significantly short of the Street’s estimate of $21.28.

Priceline’s Acquisitions
Priceline’s biggest news during the quarter was their $2.6 billion acquisition of restaurant reservation service OpenTable at a price significantly higher than the $1.8 billion they paid for Kayak last year. The move will help Priceline expand their travel services to the restaurant reservation category as they believe that there are a lot of similarities between what the two companies do. OpenTable has helped seat more than 15 million diners across the 31,000 restaurants that are registered with it. For now, it will continue to operate as an independent entity. Analysts believe that the deal has huge potential for Priceline as they would be able to expand their travel services now to include dining options and leverage OpenTable’s services to fuel international growth as well.

Additionally, to cater to the more than 20% growth rates that are expected in the Chinese market, Priceline recently acquired a 10% stake in CTrip, a China-based online travel provider. The investment cost them $500 million. China is sill migrating to an online travel market and currently sees only 15% of their travel bookings made through the Internet, thus offering a huge growth opportunity.

Last quarter, they had also acquired Buuteeq, a digital marketing platform for hotels for an undisclosed sum. Seattle-based Buuteeq was founded in 2010 to help hotels manage their online presence. The company offers services such as hotel website designs and analytics to help them maximize revenue. Prior to the acquisition, they had received $17 million in funding from Concur Technologies and Madrona Venture Group. The acquisition will help Priceline expand the services they provide to their hotel partners.

Priceline’s stock is trading at $1,244.31 with a market capitalization of $65.3 billion. It touched a 52-week high of $1,378.96 in March this year.

Expedia’s Financials
Expedia’s (NASDAQ: EXPE) second quarter revenues grew 24% over the year to $1.49 billion, ahead of the Street’s projections of $1.44 billion. EPS of $1.03 was also significantly ahead of the market’s expected earnings of $0.75 for the quarter.

Gross bookings for the quarter grew 29% over the year to $13.05 billion. By segment, revenues from their Leisure customers grew 25% over the year and their Corporate segment grew 8% over the year.

The merchant segment accounted for 65% of their revenues and grew 47% over the year. Agency revenues grew 14% to bring in 27% of the quarter’s revenues while Advertising and Media services grew 54% to contribute the remaining 8% share.

Expedia’s Acquisitions
Not to be left behind, Expedia too has been growing their business inorganically. During the quarter, they announced the acquisition of Germany-based Auto Escape group for an undisclosed sum. The acquisition will bring the brands of Auto Escape and Car del Mar to Expedia’s sites. The sites cater to more than 300 car rental suppliers across 125 countries with a focus on the European markets. The move will help Expedia grow their car rental services in the region.

As part of international expansion plans, they also acquired Australia-based Wotif group for an estimated $658 million. The Wotif group provides online travel services to the Australian region through their web sites, which include Wotif.com, Lastminute.com.au, Travel.com.au, Asia Web Direct, LateStays.com, and GoDo.com.au. The acquisition will help Expedia grow their offerings in the Australian region.

Expedia’s stock is trading at $85.90 with a market capitalization of $10.9 billion. It touched a 52-week high of $88.28 last week.

Orbitz’s Financials
Meanwhile, Orbitz’s (NASDAQ: OWW) second quarter revenues grew 10% to $248.1 million, ahead of the Street’s projections of $246 million. For the quarter, EPS came in at $0.06 compared with the market’s forecast of $0.15.

During the quarter, room nights improved 20% helping improve total gross bookings to 9% over the year. Revenue from flight bookings improved 5% and vacation packages grew 12% during the quarter.

For the current quarter, Orbitz projected revenues of $249 million-$254 million with an EBITDA of $41 million-$46 million. They expect to end the year with revenues growing 9%-11% and EBITDA growing 7%-10%. The Street was projecting revenues of $242.3 million for the quarter.

Orbitz’s Dining Expansion
It is not just Priceline that believes in dining to be the logical expansion for travel services. Orbitz too is following that path. Recently, Orbitz expanded their loyalty program and launched dining rewards as well. Orbitz Rewards Dining is a dining program that lets Orbitz Rewards members earn 5% in Orbitz Rewards loyalty points when they dine at participating restaurants. At the time of the launch, Orbitz had tied up with more than 11,000 restaurants across North America for this program. Users can sign up for free for the program and register their credit cards with the program to start earnings points.

Orbitz’s stock is trading at $8.20 with a market capitalization of $904 million. It touched a 52-week high of $10.70 in September 2013.

TripAdvisor’s Financials
TripAdvisor’s (Nasdaq:TRIP) second quarter revenues grew 31% over the year to $323 million, ahead of the Street’s projected revenues of $320 million. EPS of $0.48 missed the market’s expected earnings of $0.53 due to growing marketing expenses.

By segment, revenue from click-based advertising grew 28% over the year to $235 million. Display-based advertising revenues grew 19% to contribute 11% of the quarter’s revenues. Subscription and transaction revenues improved 55% to $51 million.

Revenues from Americas improved 50% to $174 million while EMEA markets saw a 47% improvement to $107 million and APAC’s revenues increased 40% to $42 million.

TripAdvisor’s Acquisition
Continuing with their acquisition spree, TripAdvisor announced the $200 million acquisition of Viator, a leading provider of destination activities around the world. They have more than 20,000 bookable tours and attractions available in 10 languages and currencies. Travelers can book these tours through their mobile app. They also have tie ups with nearly 3,000 partners to provide travelers with local experiences. Their website also acts as a repository of travel reviews and hosts over 600,000 reviews, photos, and videos submitted by travelers

TripAdvisor’s Uber Expansion
To leverage the growing popularity of ride sharing service provider Uber, TripAdvisor also added Uber’s capabilities to their services. The app will now let travelers reserve a ride on Uber directly through both the smartphone app and the TripAdvisor website.

Their stock is trading at $99.09 with a market capitalization of $14.2 billion. It touched a 52-week high of $111.24 in June this year.

 

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