Expedia (EXPE) will be acquiring a 62% stake in Trivago, the European online travel meta search site at a $632 million valuation. Trivago, with an already established position in Europe is known for its unique feature of comparing rates online of more than 619,000 hotels with 143 booking sites. The company has expanded globally in 30 countries with its main market in Spain and Germany. Its team is known for building the biggest and fastest growing travel sites in Europe with ~100 million hotel searches every year. Trivago is already a known brand in two third of the consumers in Europe and will give Expedia an entry in the hotel meta-search business. Every month around 20 million people visit Trivago and this acquisition should proportionally increase traffic at Expedia. The deal will be closed in the first half of 2013.
Meanwhile Expedia's close competitor Priceline.com (PCLN) also acquired Kayak, a Meta search engine for $1.8 billion of which $500 million was paid in cash and $1.3 billion in Priceline's stock. Kayak is majorly known for developing internet applications that allows its users to compare hundreds of travel sites at once when searching for flights, hotels and rental cars. It will give Priceline a strong position in the United States as Kayak captures the maximum market share in the US. Revenue expected from the KAYAK acquisition is expected to be $376 million in 2013 and $475 million in 2014. Additionally Priceline's Booking.com acquisition which was done in 2005 is showing positive results generating 85% of its revenue. This acquisition has benefited the company significantly by increasing its hotel properties as in 3Q12 it reported 245,000 hotel properties in its network which is almost 44% up compared to last years. With such an outperformance the stock of the company is trading at ~$718 which is up 11% year to date.
Expedia also remains focused to reach its consumers via Mobile looking at the incremental trend of users making a shift towards the mobile platform for making online travel bookings. Expedia took this opportunity to increase traffic on mobile by launching various applications for iPhone and Android consumers. The company in October launched an Expedia Application giving one million flight and hotel options to its users where they can view and make bookings.
This application was further upgraded to give better visuals for 140,000 hotel properties worldwide. With its existing presence on iPhone and Android, Expedia has expanded its platform on Windows 8 too. The users can now have access to ~140,000 hotels and special mobile deals with up to 60% off. In Windows, Expedia is currently the only application which gives exclusive mobile deals to its users who can also earn reward points which can later be redeemed to make hotel or flight bookings.
In 2011 Expedia spun off TripAdvisor Inc. (TRIP), which holds a dominant position when it comes to travel reviews with 50 million users visiting its site every month. Recently Liberty Interactive purchased 4.8 MM shares of TripAdvisor for $300 million and now holds 22% of the equity and 57% of total votes. However, I don't think Liberty is here for a long haul, and they will make an exit from this position very soon. Talking about TripAdvisor's mobile growth TripAdvisor is making continuous efforts in the mobile and tablet segments by launching new apps on iPhone, Android and Nokia (NOK).
To increase its user engagement it launched an application Seatguru for iPhone and Android users which provides more than 700 seat recommendations from 100 airlines. TripAdvisor's monetization from Tablets is ~50% and from Smartphone is ~10% and these new initiatives will further improvise it. On the other side, its click based advertisements seems to be bidding well, which represents 80% of its total revenue. Its main customers in advertising include airlines, cruise packages, casinos, Hotel owners and Destination market services. In 3Q12 it reported a 15% increase in revenue from the click based advertisements as compared to the same quarter last year and is expected to be up 11% in 2014.
The Investing Opportunity
Coming back to Expedia, the company, with its acquisition of Trivago and mobile innovation, gives an optimistic view. While the Trivago deal will not shuffle up the positions of dominant OTAs in Europe, but it will definitely give Expedia a growth ride in Europe as well as slow down Kayak's unchallenged triumph. The performance of the stock is quite evident from the upside seen in the stock in the last one year and this also vouches for the excellent execution by Expedia management. I would be bullish on this stock anticipating further upside.