Assessing Expedia performance versus its peers in the OTA space

Smita Nair

Expedia: A must-know overview and key takeaways for investors (Part 8 of 8)

(Continued from Part 7)

Expedia and its peers

We compared Expedia (EXPE) with its peers, the Priceline Group (PCLN), Orbitz Worldwide (OWW), the China-based Ctrip.com International (CTRP), and TripAdvisor (TRIP) in the OTA (online travel agency) space. Expedia P/E ratio is almost in line with its main peer Priceline. The world’s largest travel-review website TripAdvisor is ahead of its former parent with a 54.8x P/E. Expedia has a lower operating margin and profit margin as compared to its peers.

A comparison of the performance of U.S.-based OTAs since 2011 depicts that Expedia has been showing a steady growth since last year driven by gains in hotel bookings. An article in travelmarketreport that cited PhoCusWright’s U.S. Online Travel Overview Thirteenth Edition: Hotels & Lodging, said that the U.S. hotel market continues to outpace the travel industry as a whole fueled by limited gains in consumer confidence. Hotels have shown resilience and succeeded in improving average daily rates (ADR), despite a slow economic recovery and gross domestic product (GDP) growth. Improvements in transient and business travel trends; increased marketing spend by both chains and OTAs; vast and appealing content; and 24/7 accessibility via mobile devices are all helping to drive continued hotel gains, the report noted. These positive macro trends could boost prospects of online travel players.

According to the market research company Euromonitor International, growth in the global online travel market will be driven by investment in new technologies, allowing a more sophisticated user targeting and more customised service. Online travel consumers are constantly evolving as they increasingly embrace mobile internet devices, request more personalised real-time services, and enjoy sharing travel reviews and services with their peers. Emergence of new consumer trends have increased the importance of technology players like Google (GOOG) and Facebook (FB) and metasearch engines. Angelo Rossini, Travel Industry Analyst at Euromonitor said, “The online travel agency sector is seeing significant consolidation while competition between intermediaries and direct suppliers is heating up, and traditional tour operators are increasingly embracing the online channel.”

Based on Wall Street analyst assumptions, we believe Expedia is 17% undervalued to its intrinsic levels, depicted in the model in the first part of this series.

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