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A Year of Transition for Online Travel

Posted on Monday, Mar 21st 2016

According to a Phocuswright report, the global travel market is expected to grow 7.7% in 2016 to $1.4 trillion. The online travel market, which accounts for about 10% of the total travel market has seen much consolidation over the past few years with Expedia and Priceline going on an acquisition spree.

Expedia’s Financials

Expedia’s (NASDAQ: EXPE) fourth quarter revenues grew 25% to $1.7 billion. Net loss was $12.5 million or $0.09 per share. Adjusted EPS was $0.77, which was short of analyst expectations of $1.01 per share on revenue of $1.72 billion.

For the fiscal year 2015, Expedia reported revenue of $6.67 billion, up 16% over the year and profit of $764.5 million or $5.70 per share. About 44% of its revenue was international and 56% domestic.

During the fourth quarter, gross bookings grew 40% over the year to $14.95 billion with hotel room nights improving 39% over the year. The strong growth was driven by 44% growth in core online travel agency (or OTA) and 13% growth in Egencia bookings.

By segment, revenue from core OTA grew 30% to $1.5 billion, trivago grew 27% to $110 million, and Egencia grew 7% to $107 million.

Expedia added more than 18,000 directly contracted properties to its global portfolio. Offset by removal of nearly 20,000 third-party properties, the total hotel count stands at 269,000. The HomeAway acquisition was completed on December 15, 2015 and contributed $20 million in revenue. It is expected to add 1.24 million properties across 190 countries to Expedia’s hotel count.

For 2016, the company expects its recent acquisitions of HomeAway, Orbitz Worldwide, and Travelocity to drive growth of 35% to 45% in its adjusted earnings. Analysts on an average expect 2016 revenue to grow 32% to $8.85. Expedia had spent close to $6 billion on its acquisitions in 2015 including $3.9 billion for HomeAway.

It is currently trading around $111.48 with a market cap of $16.79 billion. It hit a 52-week low of $88.40 in early February and a 52-week high of $140.51 in November.

Priceline’s Financials

Priceline’s (NASDAQ: PCLN) fourth quarter revenues grew 8.6% over the year to $2 billion, beating the analyst estimate of $1.96 billion. Net income was $504 million or $10 per share. Adjusted EPS was $12.63 surpassing analyst estimates of $11.80.

For the fiscal year 2015, revenue grew 9.2% to $9.23 billion and net income increased to $2.55 billion or $49.45 per share. Adjusted EPS was $58.33 compared to $53.31 a year ago. It ended the year with cash and cash equivalents of $1.47 billion.

Gross travel bookings for the quarter increased 12.7% to $12 billion. Priceline continues to see strong growth from its international operations. During the quarter, they saw a 15.9% growth in international bookings while US bookings declined by 7.6%. Globally, room nights booked grew 26.6% to 99.1 million. Rental car business reported a 10.6% growth in rental car days.

By segment, Agency revenues grew 7.3% over the year to $1.4 billion. Merchant revenues fell 3.7% to $446 million and Advertising and other revenues improved 85% to $153 million.

For the first quarter, Priceline expects revenues to grow 9%-16% over the year and EPS of $9-$9.6 compared with analyst estimate of $9.65 on revenue of $2.12 billion.

It is currently trading around $1,346.86 with a market cap of $66.83 billion. It hit a 52-week low of $954.83 in early February and a 52-week high of $1473.99 in November.

TripAdvisor’s Financials

TripAdvisor’s (NASDAQ:TRIP) fourth quarter revenues grew 7% over the year to $309 million, beating analyst estimate of $298.5 million. Net income was down to $3 million from $36 million a year ago. Adjusted EPS was $0.45 compared to analyst estimates of $0.33.

For the fiscal year 2015, revenue grew 20% to $1.5 billion and net income decreased to $198 million or $1.36 per share. Adjusted EPS was $2.05 compared to $1.93 a year ago.

Fourth quarter revenues from the Hotel segment grew 4% over the year to $260 million and the Other segment grew 32% to $49 million.

By product, revenues from click-based advertising at $180 million fell 1%, Display-based advertising grew 17% to $42 million, and Subscription and transaction revenues grew 23% to $87 million.

User reviews and opinions reached 320 million at December 31, 2015, covering 995,000 hotels and accommodations, 770,000 vacation rentals, 3.8 million restaurants, and 625,000 attractions. They have 350 million average monthly unique visitors.

TripAdvisor also announced that it has partnered with The Priceline Group as well as 8 of the top 10 major hotel chains to provide users the ability to book 450,000 hotels around the globe on its instant booking platform.

TRIP is currently trading around $65.31 with a market cap of $9.49 billion. It hit a 52-week low of $53.48 in early February and a 52-week high of $94 in July.

While Priceline’s growth is under pressure due to its exposure to international bookings and the strengthening of the US dollar, Expedia has benefitted from its eLong divestiture. The recent acquisitions of HomeAway, Orbitz, and Travelocity also give Expedia an edge in the domestic market. However, it will be a year of transition for it as it integrates these acquisitions. I reckon there won’t be any acquisitions this year as almost all the prospects have been picked up over the past two years.

The instant booking platform holds promise for TripAdvisor. TripAdvisor and HomeAway have recently decided to follow AirBnB’s model of charging vacation rental consumers a booking fee. It will be interesting to see if Priceline’s Booking.com will follow suit.

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