Online Travel Updates (Expedia, Booking, Tripadvisor, Trivago & AirBNB / Google)
I invested into Expedia in February 2018 after the stock had become cheap enough. The idea was that a stock in a secular growth sector (online travel) should do well in the long run. After pretty decent fulll year 2018 numbers, with double digit increases in both, top and bottom, line, the first quarter 2019 showed a clear slowdown. Topline growth slowed to ~4%. Excluding Trivago which is still shrinking, topline sales would have grown +6%. Underlying profitability has improved although the first quarter is always the weakest one.
What I found interesting is the fact that Expedia performed better than Booking com. Here is a stock price comparison (including Tripadvisor and Trivago):
Booking has underperfomed Expedia by ~ -20% whereas Tripadvisor performed in line and Trivago further tanked.
SKift as always has pretty good coverage. Expedia currently has some issues with slowing growth in their rental business. On the plus side, their stake in Indonesian Traveloka has increased significantly in value. In their 2017 funding round, Expedia bought 30% for USD 350mn, implying a company valuation of roughly 1 bn USD. Recently, Traveloka raised money at a 4 bn valuation, indicating a value of more than 1 bn uSD for the stake held by Expedia.
Booking.com is another story. Their top line revenue in Q1 2019 dropped by -3%, and net income was only better because it has been juiced up by some financial gains. My guess is that the drop in volume has to do with their reduction in performance marketing expenses which droped from 1.106 mn USD to 1.030 mn., whereas Expedia has still slightly increased their marketing budget. In the Q1 call, the Booking CEO seemed to have talked a lot about acquisitions which for me is not a great sign.
Interestingly I never wrote about Booking during my travel series as I found the company to difficult to value. Great business and great moat on one hand but also quite controversial and expensive on the other side. However if the stock gets cheaper I think I will have another look at them.
Tripadvisor’s Top line is still shrinking in Q1 2019 and is now on the level of Q1 2017. Profit went up but mainly due to a reduction in marketing spend which is clearly not a long term sustainable strategy. However Tripadvisor remains a “story stock” and commands a pretty significant valuation for a stagnating company.
Trivago is celebrating becoming profitable but achieved this by cutting advertising significantly and shrinking the topline by -20% YoY in Q1 2019. Again, this is not sustainable and it remains to be seen if their “aggregator on top of other aggregaor” business model is sustainable.
AirBnB, the private rental “unicorn” is on its way to a 2019 IPO. They seem to be “EBITDA profitable” already, Before their IPO they have announced some aggressive moves like slashing fees and started listing hotels alongside its core rental product. The fee structure is clearly attractive for hotels and might hurt Booking & Expedia in the lon term:
Perhaps Airbnb’s most attractive feature, at least for hotels that want to advertise on the platform, is the fact that Airbnb’s commission fee structure is significantly less costly than that of its online travel competitors, Booking and Expedia.
Whereas Booking and Expedia might charge hotels a commission fee that’s as high as 25 percent, Airbnb charges all of its hosts — hotels included — a commission fee that ranges from 3 to 5 percent, and it also collects a “guest fee” from the guest. It’s a similar model employed by Trip Advisor and HomeAway, for example. Chesky, however has publicly noted that he sees Expedia and Booking as his primary online travel competitors.
Airbnb also doesn’t require a contract from hotels like most of the online travel agencies do.
It is pretty clear that AirBnB will become a “full stack” competitor to Expedia and Booking. However, once they are a public company, it needs to be seen if and how they can continue to operate at this profitbility level. Maybe this is one of the reasons why they more recently seemed to have cooled down a little bit on the 2019 IPO target.
AirBnB clearly is an interesting comapny as this open Letter from their CEO shows, but if that justifies a valuation of 35 bn needs to be seen. A ~ 10x revenue multiple for a travel company is quite hefty, compared to 1.5x at Expedia and 5x at Booking.
Just a few days ago, Google announced that they now have a new combined tool called Google Travel. At first sight, it looks like a pretty serious competior to the likes of Trivago and Tripadvisor but so far they leave the booking part to Exepdia & Co. However in the long run, Google Travel will become a compeitor to Expedia and Co. as they themselves acknowledge:
But today, with launch of flights, hotels, packages and trip-planning features on desktop, as well as making them all available on mobile, Google has taken a large step toward becoming an all-encompassing travel planning and booking destination.
Yes, Google is letting its travel advertising partners, from airlines to hotels and online travel agencies, keep doing most of the booking, but it is a challenge to them, as well.
Why go to Expedia.com to make your travel plans, for example, when travelers can do it all in the Google search engine, along with everything else they use Google for all day long.
It’s no wonder then that Mark Okerstrom, the CEO of Expedia Group, which spent $1.53 billion on sales and marketing in the first quarter alone, said last year that Google is Expedia’s chief competitor. The lion’s share of that sales and marketing spend undoubtedly went into Google’s coffers
I am not 100% sure, but I think this is maybe a defensive move from Google. The big online travel companies are still the biggest clients of Google but as outlined above they are cutting online budgets and therefore Google needs to do something in order to increase revenues.
It still needs to be seen how well this would work. Google for instance also try to go into insurance comparison but failed to achieve any results.
Although the travel space is clearly one of the earliest sectors that went digital, the market is still very dynamic and competitive. So far, Expedia is doing well and seems to be one of the winners, so I will keep the stock for the time being.
However one needs to clearly pay attention to Google and AirBnB. In my opinion, the typical aggregator models like Trivaga and Tripadvisor are clearly doomed and will be hurt most especially by the new Google offerings.