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Competition Heating up in Online Travel

Posted on Tuesday, Mar 28th 2017

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According to a Phocuswright report, the total travel market is expected to reach over $400 billion in 2020. US online travel agents’ (OTA) market share will reach 41% by 2020. The online travel market has seen much consolidation over the years and the duopoly of Expedia and Priceline now dominates the industry.

Expedia’s Financials

Expedia’s (NASDAQ: EXPE) fourth quarter revenues grew 23% to $2.09 billion. Net income was $79.5 million or $0.51 per share compared to a loss of $12.5 million or $0.09 a year ago. Adjusted EPS was $1.17, which was short of analyst expectations of $1.37 per share on revenue of $2.07 billion.

During the fourth quarter, gross bookings grew 8% over the year to $16.1 billion with hotel room nights improving 15% over the year. Domestic bookings grew 24% and international bookings grew 17%.

By segment, revenue from core OTA grew 13% to $1.7 billion, Trivago grew 65% to $183 million, Egencia grew 9% to $116 million, and HomeAway was $166 million.

For the full fiscal year 2016, Expedia reported revenue of $8.7 billion, up 31% over the year. Net income was down 63% to $281.8 million or $1.82 per share. About 44% of its revenue was international and 56% domestic.

For 2017, the company expects expecting adjusted EBITDA growth of 10% to 15%. The integration of its $1.3 billion acquisition of Orbitz is still underway, and it is expected to underperform in the first half of 2017.

It is currently trading around $127.8 with a market cap of $19.25 billion. It hit a 52-week low of $96.58 in June and a 52-week high of $133.55 in October.

Priceline’s Financials

Priceline’s (NASDAQ: PCLN) fourth quarter revenues grew 17.5% over the year to $2.35 billion, beating the analyst estimates of $2.32 billion. Net income was $673 million or $13.47 per share. Adjusted EPS was $14.21 surpassing analyst estimates of $13.01.

Gross travel bookings for the quarter increased 25.8% to $15.1 billion. Globally, room nights booked grew 31% to 129.7 million.

By segment, Agency revenues grew 23.5% over the year to $1.7 billion. Merchant revenues fell 1.3% to $439 million and Advertising and other revenues improved 12.4% to $172 million.

For the fiscal year 2016, revenue grew 16.4% to $10.7 billion. Net income decreased slightly to $2.1 billion or $42.65 per share from $49.45 a year ago due to a huge impairment charge taken in the third quarter on the $2.6 billion Open Table acquisition in 2014. Adjusted EPS was $65.63 compared to $51.92 a year ago. It ended the year with cash and cash equivalents of $2.1 billion.

For the first quarter, Priceline expects room nights booked to grow 20%-25% and gross travel bookings to grow 17% -22%. EPS is expected to be $8.25-$8.65.

In February, Priceline announced its plans to acquire travel metasearch engine Momondo Group for $550 million. The acquisition will be integrated in its metasearch site Kayak and is expected to help Kayak expand in Europe. UK and Denmark-based Momondo Group generated revenues of $102 million in 2016.

The market has reacted positively to its recent performance and acquisition. It is currently trading around $1,772 with a market cap of $87.37 billion. It hit a 52-week low of $1,148.06 in June and a 52-week high of $1,776.69 this month.

TripAdvisor’s Financials

TripAdvisor’s (NASDAQ:TRIP) fourth quarter revenues grew 2% over the year to $316 million, missing analyst estimates of $326.5 million. Net income was down 67% to $1 million or $0.01 per share. Adjusted EPS was $0.16 compared to analyst estimates of $0.31.

Fourth quarter revenues from the Hotel segment fell 3% over the year to $252 million and Non-Hotel segment grew 31% to $64 million.

User reviews and opinions grew 45% to reach 465 million, covering over 1 million hotels and accommodations, 835,000 vacation rentals, 4.3 million restaurants, and 760,000 attractions. They have 390 million average monthly unique visitors. TripAdvisor has also launched the Instant Booking feature to build its booking capabilities.

For the fiscal year 2016, revenue fell 1% to $1.48 billion and net income decreased 32% to $120 million or $0.82 per share. Adjusted EPS was $1.40 compared to $2.07 a year ago.

TRIP is currently trading around $42.52 with a market cap of $6.13 billion. It hit a 52-week low of $40.45 early this month and a 52-week high of $71.69 in July.

Increasing Competition

While Expedia and Priceline were struggling to integrate their huge acquisitions in 2016, the competition has heated up in the online travel space.

Airbnb is getting to be a bigger threat. It has expanded beyond its core short-term rental business into tours and activities. Expedia’s selling and marketing expenses grew 29% in its efforts to make HomeAway more competitive with Airbnb.

Airbnb is now looking to expand to flights with a new tool. Momondo could have been an attractive prospect for it and Priceline’s acquisition foils any such attempts.

Google Flights is also gaining traction. Google’s search engine capabilities also allow it to highlight its product and give it an edge over Expedia and Priceline. TripAdvisor is also building its booking capabilities.

While it might not be easy to threaten their duopoly, Expedia and Priceline definitely need to have their eye on the ball.

And soon, AirBnB will be public, competing for investor attention as well.

Photo Credit: Moyan Brenn/Flickr.com

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