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Priceline, Expedia Making Me Dizzy

Posted on Monday, Nov 16th 2009

The Travel Industry Association estimates that total travel spending in the United States has fallen to $712 billion in 2009 from $772 billion a year ago. Recovery is expected in 2010, with travel spending expected to grow 5% to $745.2 billion driven by improvement in leisure travel sales. By 2012, total travel spending is expected to rise to $866.5 billion. According to a Forrester research report, online leisure and business travel spending grew marginally from $111 billion in 2008 to $117 billion in 2009. But things are expected to improve with spending projected to rise to $158 billion by the year 2013. The recovery is already visible in the performance of the online travel stocks, which are rising high after the recent announcement of their quarterly results. Perhaps a bit too high!

Priceline (NASDAQ: PCLN) remained the leader of the pack with revenues growing 30% over the year to $730.7 million. EPS climbed 44% over the year to $3.45. Analysts were projecting revenues of $694 million with EPS of $2.92. This was the fourteenth consecutive quarter that Priceline beat analysts’ estimates hands down.

The number of unique U.S. visitors to the company’s sites grew 48% over the year and 33% sequentially. The site also saw significant traffic growth of 52% over the year and 29% over the previous quarter.

Gross travel bookings increased 32.8% over the year to $2.7 billion led by a rise across all segments. Hotel room night reservations grew 56%, airline tickets sales grew 30.2%, and rental car days grew 11.6% over the year.

Priceline’s stellar performance can be attributed to the successful expansion of its international operations. On a local currency basis, international sales grew 49% over the year, compared with domestic sales growth of 25%. The regular addition to the company’s inventory also helped to drive revenues. now boasts of over 73,000 hotels in more than 70 countries. The site already has a sizable distribution pool in the United States and Europe, and with Agoda, they are adding to the pool in Asia. Priceline is looking at entering the Middle East, South Africa, and Brazil markets in the future.

Priceline has also benefited from its strategy of increasing marketing spending when other players were reducing it. The company increased its spending on online channels and was able to drive demand growth despite lower unit prices.

For Q4, Priceline projects revenues to grow 24% to 28% over the year compared with analysts’ expectations of 25% growth. Projected EPS of $1.52 to $1.62 was also higher than the market’s expected EPS of $1.49.

The stock recently crossed new highs of $209.19 and is now trading at $201.93, taking its market capitalization to $8.85 billion. Despite the company’s excellent results, perhaps the stock run up is getting a bit dizzy!

Expedia (NASDAQ:EXPE) also performed better than expected this quarter. Revenues for the quarter of $852.4 million grew 10.7% sequentially and 2.3% over the year. Analysts were expecting revenues of $828.9 million. EPS of $0.48 also managed to exceed analysts’ expected $0.42.

By segment, 70% of revenues came in from the merchant business, which grew 1.7% over the year. The agency business grew 6.1% over the year and contributed 20% of overall revenues. The company saw significant uptick in its advertisement & media revenues, which increased 5.1% over the year to contribute the remaining 10% of revenues.

Expedia’s revenue growth was driven by the significant reduction in its fee programs. The company recently announced the elimination of all booking fees for flight, car rental, hotel, or cruise reservations booked over the phone. They became the first travel agency to offer such a freebie. Earlier this quarter, Expedia even lowered cruise booking fees. Its Italy, Australia, and New Zealand sites have removed air booking fees on flights, and almost all of its worldwide sites have removed change and cancellation fees on hotel bookings. The impact of these initiatives could be seen in the growth of gross bookings, which rose 9.3% over the year to $5.9 billion.

This strong growth was witnessed across all of Expedia’s key brands. room nights in Europe, APAC, and Latin America grew 40% for the second consecutive quarter and exceeded the 2 million mark for the first time ever. Hotwire saw room nights increase over 45% in the quarter. And, Expedia is looking to improve its hotel inventory.

The company is continuing to grow internationally, and TripAdvisor recently launched its thirteenth international Web site, offering Canadian travelers over 25 million global reviews and opinions of destinations. TripAdvisor also expanded into rail reservations within Canada and became the first online travel agency in the country to offer reservations on the Canadian national passenger rail service.

Expedia also recently announced its intention to acquire the Chinese travel site, is currently the second largest online travel-related Web site in China, and its acquisition will help Expedia leapfrog in the Chinese market. Earlier this year, Expedia entered the region through the acquisition of, which focuses on localized reviews and is a community site for Chinese travelers. According to a recent market research report, online travel resources currently contribute only 11% of the $6.9 billion Chinese travel market. The contribution is expected to grow to 20% by 2011. With these two acquisitions, TripAdvisor will become one of the leading online travel-related media and search businesses in China

In a bid to drive more demand, Expedia launched more innovative programs this quarter. The “Drive Getaway” tool allows users to select destinations which are at a driving distance from their homes, and to cater to the current demand for low-cost travel, they launched a “Great Escapes under $199” scheme that lets users select travel destinations based on low flight fares.

The stock is trading at $23.68 with a market capitalization of $6.8 billion after having reached a 52-week high of $27.37 a few weeks ago.

Orbitz (NASDAQ:OWW) managed another profitable quarter but fell shy of the market’s expectations. Revenues fell 22% to $187 million compared with the $202 million projected by analysts. Net income of $0.08 per share grew significantly over the loss of $3.44 per share a year ago. Analysts were expecting earnings of $0.12 per share.

Gross bookings fell 6% over the year in the quarter and were down 12% over the year during the 9-month period, driven by lower air fares and lower average hotel room rates, partially offset by an increase in transactions. Air gross bookings fell 7% over the year and non-air gross bookings fell 5% over the year. Domestic gross bookings fell 5% over the year while international gross bookings were down 13% over the year and down 6% over the year on a constant currency basis.

By segment, Airlines’ revenues of $60 million fell 31% over the year, led by a 32% drop in Domestic air revenues driven by the removal of booking fees. The removal of these fees has helped to increase the number of transactions; domestic air transactions grew 27% over the year.  International air revenues fell 29% over the year because of lower air ticket prices. Hotels revenues of $52 million fell 27% over the year due to lower hotel room rates and lower hotel booking fees. However, both revenue and transactions grew for the ebookers brand, signaling the strength of Orbitz’s new technology platform. Dynamic packaging net revenues fell 5% to $30 million.

To help drive more transactions, Orbitz removed all change and cancellation fees on hotel bookings on its sites. The company is continuing to expand its hotel base and now have nearly 97,000 hotels, of which 40,000 properties are in EMEA and 14,000 in Asia Pacific.

As part of its Web site revamping, Orbitz made several enhancements to improve the customer experience. It launched new pages for and The HotelClub’s refreshed Web site now includes a new user interface with significantly improved graphics and a more search engine optimization-friendly format. The new page for also offers more consistency to Orbitz’s brands across Europe.

The company ecently announced an additional $100 million equity investment plan. Travelport Limited has agreed to purchase $50 million in newly issued Orbitz shares. Additionally, PAR Investment Partners has agreed to a $49.7 million debt-for-shares swap. Orbitz expects these transactions to enable it to reduce debt and increase cash, giving the company additional operating flexibility to pursue “the global hotel distribution opportunity.” The deals are priced at $5.54 a share and are expected to close in January 2010. Following the transactions, Travelport will hold a 54.5% stake of Orbitz’s common shares.

The significant travel deals being offered by various airlines and hotels are driving leisure travel traffic on the online travel sites. Orbitz too is witnessing the trend, where, for instance, hotel room nights in Europe grew 100% over the year. Management believes that it will still be some time before business travel returns to pre-recession levels.

The stock is trading at $6.01 with a market capitalization of $503 million after having reached a 52 week high of $7.35 late last month.

A PWC report on the hotel industry revealed that despites rates having fallen 9% this year, occupancy fell 8% to 55.4% for the year. Rates are expected to fall by another 2%, marginally impacting occupancy levels, which should inch up to 55.8%. No wonder hoteliers are trying to offer bigger deals in 2010. Expedia, Priceline, and Orbitz have already cut out their booking fees, and while the falling rates at zero booking fess will help drive transactions, growing revenues and margins will become a bigger challenge. It will not be easy for the likes of Priceline to maintain their current stock prices of more than $200.

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Hi Sramana,

Based on my experience in the travel industry it is not a surprise that Priceline is doing well given the economy and that Expedia and Orbitz are struggling to keep up relatively speaking.

Hype has always outpaced reality (profit, etc.) for most if not all of this industry. You can throw Travelzoo (Nasdaq: TZOO) into this mix…they are down from roughly $95 five years ago to $15 today. While simple transactions lend themselves well to online booking, research and more complex transactions are a mixed bag online.

Rob Wald Monday, November 16, 2009 at 1:48 PM PT

EXPEDIA should be out of business. Thay have been scamming travelers. Source:

JOhn Tuesday, November 24, 2009 at 2:25 PM PT