Orbitz Earnings Preview: Non Fee-Based Revenue Key

Online travel booking sites have all shown that their is a growing demand for their services. Both of the giants, Priceline.com Inc. (PCLN) and Expedia Inc. (EXPE), reported end of the year earnings in February. They both showed positive revenue growth and they both had an increase in the gross amount of bookings.

The only one left is Orbitz Worldwide (OWW), which is set to report earnings on Thursday at 11:00am. Even though the numbers are looking in favor of online booking, it seems as though all the funds have rolled into Priceline and out of the competition.

Nobody likes Orbitz right now except for the consumers; not the analysts and certainly not the investors. But the measurement for the underlying service that they provide, gross bookings (the actual dollar amount for which they successfully connected consumers to suppliers), is what I am looking at as a foundation for growth in this relatively new market. Though in Q3 their 11% quarter over quarter gross booking growth rate was short of both PCLN's and EXPE's, at the current price Orbitz offers the best gross bookings-to-market value ratio. The rest of the statistics are important for the short term fluctuations in price, but it is not like Priceline has a patent on offering its services without fees.

When Priceline announced that it would no longer charge an online booking fee the markets trembled. We saw shares of PCLN skyrocket and EXPE and OWW, the main domestic competition, plummet. At the same time, eLong Inc. (LONG) and Ctrip.com International Ltd. (CTRP) both took off. The lingering idea of operating profitably without fees brought the two Asian players a new set of prospects. But, that does not mean that Priceline has the competition beat; only a new strategy to approach that goal. Priceline CEO Jeffrey Boyd just announced that he plans to sell about $2 million worth of shares on Thursday, and profit taking by the CEO is an ugly signal.

Orbitz has a cloud of short term risks looming over its market value including fears of a recession on consumer travel, heavily fee-based revenue in a market that is going open source and the recent popularity of competitive online aggregation sites. But it also has a lot going in its favor. People are spending a lot of money on Orbitz's site (twice the amount that is being booked through Priceline and more than half the amount being booked through Expedia), the company has a growing international presence and great strategic partnerships.

During this Thursday's conference call, I am not going to be primarily focused on the reported earnings. My concern is going to be on how management is going to raise non fee-based revenue in keeping up with the competition. Optimism in that specific regard should be a good sign.

Disclosure: None