Why OpenTable is an excellent acquisition for Priceline (Part 2 of 5)
Until now, Priceline provided very little differentiation from its competitors
In the previous part of this series, we discussed the financials of Priceline’s (PCLN) acquisition of OpenTable (OPEN) and how OpenTable is an excellent acquisition for Priceline. Until now, Priceline’s business model provided very little differentiation compared to the services of its competitors, such as Expedia (EXPE) and Orbtiz (OWW). While Priceline gets most of its revenues from international markets, Expedia gets most of its revenues from the U.S. market, but both are online travel agencies. Google (GOOGL) is also trying to compete hard in this market, and it acquired ITA Software in 2011, while it also introduced its Hotel Finder service in 2012.
TripAdvisor (TRIP), on the other hand, caters to a slightly different segment of online travel, online travel review. TripAdvisor is the world’s largest travel review company, where people post and read other people’s reviews of hotels and travel experiences. Due to the narrow differentiation, Priceline’s stock has the lowest PE (price-to-earnings) ratio among its competitors in the online travel space, as the chart below shows.
OpenTable would help provide some much-required differentiation
Since OpenTable is in the business of online restaurant reservation, it will help Priceline offer bundled packages to its customers that include services such as flight booking, hotel booking, car rental, vacation packages, and now with OpenTable, special dining deals for travelers. Customers are generally attracted to bundled packages with big discounts, and Priceline, with its muscle power and complete package of services for travelers, can certainly attract more customers now.
Priceline would also benefit from mobile synergies with OpenTable
OpenTable has taken a lot of initiatives to ease customers’ experience, from restaurant reservations to bill settlements. The company has recently started a mobile payment initiative through which customers can settle their bills at the restaurant using their mobile phones without the help of a server. Priceline can use these kinds of initiatives to improve its own travel services for its customers from mobile devices and thereby gain another competitive edge.
Browse this series on Market Realist:
- Part 1 - Why OpenTable is an excellent acquisition for Priceline
- Part 3 - Competitors’ reactions to Priceline’s OpenTable acquisition
- Part 4 - Why OpenTable could help Priceline increase its US presence
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- Travel & Tourism