Stock pick: An investor's must-know guide to The Priceline Group (Part 5 of 7)
Intense competition in the OTA space has fueled consolidation, mostly led by Priceline and Expedia. Priceline said it has explored acquisitions, joint ventures, and partnerships to expand its current businesses and acquire innovative technology. In 2012, Priceline entered the meta-search business via the acquisition of KAYAK for $1.8 billion. KAYAK is a travel research site that allows people to easily compare hundreds of travel sites at once when searching for flights, hotels, and rental cars, and gives travelers choices on where to book. KAYAK, which primarily operates in the U.S., derives revenues from advertising placements on its websites and mobile apps and from sending referrals to travel service providers and OTAs. Priceline said the inclusion of KAYAK since its acquisition on May 21, 2013, had a favorable impact on online advertising as a percentage of gross profit, as KAYAK spends less on online advertising than the other brands.
Following Priceline’s acquisition of KAYAK, Expedia acquired a 61.6% stake in German metasearch company Trivago for $632 million in December 2012. The release said Trivago, which is a well-known brand in Europe, has doubled revenue each year since 2008 through its primarily cost-per-click revenue model and was expected to generate 100 million euros in net revenue for 2012. TripAdvisor, which spun off from Expedia in 2011, introduced hotel metasearch functionality last year and supports its meta-search service with offline advertising. The metasearch services space includes Google (GOOG) with its metasearch service Hotel Finder, HotelsCombined.com, and Qunar.com (QUNR), which is controlled by China’s online search giant Baidu (BIDU).
According to December 2012 data from PhoCusWright and Experian Hitwise cited by eMarketer, online travel agencies like Priceline and Expedia have a vested interest in metasearch, as 6% of its U.S. traffic came from these types of sites. eMarketer also cited stock analysis firm Trefis estimates in April 2013 and said that total searches worldwide on Kayak will triple to 3.6 billion queries by 2019, up from 1.2 billion in 2012.
In terms of other acquisition deals in the space in 2013, Priceline peer TripAdvisor (TRIP) acquired six companies, including Jetsetter (a members-only private sale site for hotel bookings), CruiseWise (a cruise research and planning site), Niumba a (Spain-based vacation rental site), GateGuru (a mobile app with flight and airport information around the world), and Oyster (a hotel review website).
In August 2013, Expedia and Travelocity, owned by Sabre Holdings, entered into an exclusive long-term strategic marketing agreement, whereby Expedia will power the technology platforms for Travelocity’s existing websites in the U.S. and Canada while providing Travelocity access to Expedia’s supply and customer services.
Apart from online travel agencies and traditional travel agencies and tour operators such as Carlson Wagonlit, American Express, Thomas Cook, and Tui Travel, Priceline also sees competition from social networking companies like Facebook, Groupon, and Living Social and search engines such as Yahoo Travel and Microsoft’s Bing Travel. Priceline also competes with regional OTAs, including Ctrip.com (CTRP), Baidu’s Qunar (QUNR), and eLong (LONG) in China, MakeMyTrip (India), Wotif, Webjet (Australia), and Rakuten (Japan).
Browse this series on Market Realist:
- Part 1 - A must-know overview of online travel leader The Priceline Group
- Part 2 - Why Priceline and Expedia clash over “opaque” hotel offerings
- Part 3 - Why Priceline’s international business is driving its growth
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