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Online Travel Industry Focused on International Expansion

Posted on Wednesday, May 15th 2013

According to an eMarketer report, total travel sales worldwide are projected to grow from $962 billion last year to $1,131 billion by 2016. Online travel sales will account for $523 billion by the year 2016, growing from $374 billion last year. Online travel sales in the U.S. are expected to grow to $182 billion in 2016 from $151 billion last year. The European market is projected to grow from $141 billion to $176 billion over this period. Asia Pacific and Latin America see strong growth as sales more than double over the period to $131 billion and $34 billion, respectively. No wonder most online travel stocks are focusing on international expansion.

Priceline’s Financials

Priceline’s (NASDAQ:PCLN) growth continues unstopped. For Q1, they saw revenues grow 26% over the year to $1.3 billion, ahead of the Street’s target of $1.28 billion. EPS of $5.76 was also ahead of the market’s projected earnings of $5.29 per share for the quarter.

By segment, Priceline’s merchant business grew 11.9% to $528.56 million, and agency business grew 43.2% over the year to $769.93 million.

The outlook, though, failed to meet market expectations. For the current quarter, Priceline projects EPS of $8.87-$9.45, compared with the Street’s projections of $9.59. Revenue growth projected by the company of 15%-22% was also short of the market’s projected growth of 23.3% over the year.

Priceline’s Market Expansion

Despite Priceline missing outlook expectations, the market is pleased with the company as it expects Priceline to continue to grow through international expansion. Analysts believe that the company’s continuing inventory build-up at Bookings.com will help them grow. Booking.com ended the quarter with an inventory of more than 295,000 accommodations, reporting growth of 40% over the year. Priceline continues to invest in sales and marketing efforts to build on Booking.com’s business both in Europe and in other international markets. Booking.com is also benefiting from the mobile segment. The network saw total transaction value of mobile hotel bookings grow from $1 billion in 2011 to $3 billion in 2012 all attributed to the more than 20 million downloads that the app has seen over the last three years.

They also continued their tie-ups with other merchants and recently tied up with MapQuest to power MapQuest’s new feature of travel booking. Through the tie-up, MapQuest’s customers will be able to search, compare, and book hotel rooms across the world. MapQuest travelers will also have access to Priceline’s database of hotel specials, rental cars and airline ticketing.

Priceline’s stock is trading at 52-week high levels of $791.14, with a market capitalization of $39.6 billion.

Priceline–Kayak Merger

Kayak (Nasdaq: KYAK) recently reported their quarterly financials and continue to see strong growth in both financial and operational metrics. They recorded revenue growth of 12% over the year to $82.3 million. However, earnings declined, with adjusted EBITDA falling 0.4% to $13.1 million owing to increased investment in marketing efforts. During the quarter, the search engine processed over 358 million user queries, recording growth of 18% over the year. The mobile apps also saw increased penetration as the app has been downloaded more than 26 million times since introduction more than four years ago. The recent quarter reported three million downloads and a growth of 17% over the year.

After clearing all procedural and regulatory requirements, the long-awaited Priceline and Kayak merger was expected to be closed later last week. The deal will cost Priceline $1.8 billion in cash and stock, translating to a payout of $40 per share. Kayak’s stock is trading at $40.12 with a market capitalization of $1.56 billion. It touched a 52-week high of $42.75 in March.

Expedia’s Financials

Meanwhile, competitor Expedia’s (Nasdaq:EXPE) Q1 revenues grew 24% over the year to $1.01 billion, surging past the market’s expected revenues of $966.0 million. Adjusted EPS of $0.25 was short of previous year’s $0.26, but managed to beat the Street’s estimates of $0.23.

By segment, Agency revenues grew 28% over the year to $234 million, while the Merchant business grew 22% to $733 million. Domestic revenues grew 16% to $558 million, and international revenues grew 36% to $454 million.

Expedia Improves Site Features

Expedia has been focused on improving user interface through the addition of new features and deployment of their new platform. For instance, for Hotels.com they launched features such as self-service capabilities. Their research suggested that not only do the customers prefer the self-service method, but the service also helps them to control the costs of running a contact center.

Their Traveler Preference program is also seeing good traction. The program allows for the traveler to choose when he or she wishes to pay for the hotel – at the time of the reservation or at the time of check-out. Since its launch late last year, the inventory for the program has grown to 25,000 hotels. Expedia has also noted that the hotels which have signed up for the program have seen an improvement in room night growth by more than 500 basis points.

Expedia’s stock is trading at $60.76 with a market capitalization of $8.21 billion. It touched a 52-week high of $68.09 earlier this year.

Orbitz’s Financials

Orbitz’s (Nasdaq:OWW) investments in mobile apps and technology have stood them in good stead. Q1 revenues grew 7% over the year to $202.9 million, ahead of the Street’s projections of $198 million. Loss per share of $0.11 missed market projections of loss of $0.06 per share. Gross bookings for the quarter fell 1% over the year to $3.1 billion owing to lower air ticket volumes.

For the current year, Orbitz projects revenues of $214 million-$220 million, ahead of the Street’s projections of $212.6 million for the quarter.

Orbitz’s Investments

Orbitz is focusing on three key areas of investments to help grow their business. They remain focused on mobile, where they are seeing significant traction. During the last quarter, they generated nearly a quarter of their hotel reservations through mobile apps. Second, they are investing in building customer loyalty and recently launched a phased Orbitz.com Rewards Loyalty program. Customers can now earn free rewards, Orbucks, each time they book travel through Orbitz and use these Orbucks for future travel. Finally, as part of international expansion, the company is focusing on developing HotelClub and recently added currency support for Brazil, Russia, and China.

Orbitz’s stock is trading near 52-week high levels of $7.94, with a market capitalization of $837.3 million.

TripAdvisor’s Financials

Travel review site TripAdvisor (Nasdaq:TRIP) reported revenue growth of 25% over the year to $229.9 million, compared with the Street’s projections of $224.29 million. EPS of $0.43 was also 23% higher than previous year’s earnings and managed to surpass market expectations of $0.39 for the quarter. Among operational metrics, they averaged more than 200 million unique visitors per month during the quarter.

By segment, revenue from cost-per-click ads improved 24% over the year to $175 million. Revenues from display ads grew 14% to $25 million, and subscription and other revenues grew 51% over the year.

TripAdvisor’s Acquisitions

To grow their international footprint, recently, TripAdvisor announced the acquisition of Spanish travel site, Niumba. Niumba has an inventory of over 230,000 properties worldwide and boasts of the largest collection of Spanish vacation rentals. The site has access to more than 120,000 Spanish rentals. The acquisition will help build the vacation rentals business for TripAdvisor besides adding to international growth.

As part of their mobile expansion efforts, TripAdvisor had also acquired Beeem, the maker of the photo captioning app, Tiny Post. Tiny Post is an iOS app that lets users add captions to their mobile photographs in stylish fonts. TripAdvisor plans to leverage Tiny Post’s capabilities to improve the user engagement. TripAdvisor hopes that through the app, users will be able to share their own stories and experiences with others. Terms of both acquisitions were not disclosed.

Their stock is trading at 52-week highs of $58.01, with a market capitalization of $8.32 billion.

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