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Expedia to Expand in Asia-Pacific with Wotif.com Acquisition

Zacks Equity Research

Expedia Inc. (EXPE) has agreed to acquire Wotif.com Holdings Ltd. for a total cash consideration of A$703 million or $658 million based on the exchange rates as of Jul 4, 2014. The transaction is expected to be closed in the fourth quarter of 2014 subject to Wotif shareholder and other regulatory approvals.

Following the announcement, Expedia and Wotif.com Holdings shares surged 2.4% and 24.4%, respectively, in after-hours trading.

Australia-based Wotif.com is an online travel company that offers hotel rooms, airline tickets, and vacation packages in more than 69 countries. The company has a number of online travel brands in the Asia-Pacific region including, Wotif.com, lastminute.com.au, travel.com.au, Asia Web Direct, LateStays.com, GoDo.com.au and Arnold Travel Technology.

The Wotif.com acquisition will complement and enhance Expedia’s corporate travel portfolio with the addition of leading online travel brands. Additionally, the deal will help increase the company’s exposure in the Asia-Pacific region while boosting international revenues. In the last quarter, the company’s international business was down 1.8% sequentially but up 23.1% from last year.

We believe that it is important for Expedia to expand internationally, especially since China and other Asian countries being relatively under-penetrated offer good growth opportunity. Also, the strategy has worked well for its major competitor Priceline.com (PCLN), which owns Booking.com in Europe and Agoda.com in Asia.

To counter the increasing competition in the online travel industry, the company has been making acquisitions and entering strategic alliances. In June, Expedia agreed to acquire a European online car rental company, Auto Escape Group, to expand into the European car rental market. In 2013, Expedia signed a strategic long-term marketing partnership with Travelocity to share the workload related to searches, bookings and promotion.

We believe these alliances and acquisitions will help Expedia grow in the future.

Expedia, one of the leading online travel companies in the world, reported first-quarter earnings of 1 cent, in line with the Zacks Consensus Estimate. However, revenues were $1.20 billion, up 4.2% sequentially and 18.6% year over year. While growth rates across most brands were healthy, Expedia, Trivago and Hotels.com were the strongest in the quarter.

Expedia has a Zacks Rank #3 (Hold). Other stocks that are performing well at the current levels include Move Inc. (MOVE) and Everyday Health, Inc. (EVDY). All these stocks sport a Zacks Rank #2 (Buy).

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