Expedia Group may not have made any significant acquisitions since their 2015 purchase of HomeAway for $3.9 billion, but the global travel technology company says it refuses to let their formidable cash reserves go to waste, according to the company’s chief financial officer.
But Google’s recent partnership with Vacasa, which will promote homes listed by the vacation home rental website in its search results along with the selected destination’s hotel options, may force Expedia’s hand in considering another major acquisition to keep ahead of an ever-growing market that’s attracting competition with just as deep pockets as them.
And with Expedia stocks up 17 percent for the year-to-date and a boatload of cash to spend, Expedia CFO Alan Pickerill detailed the company’s current decision-making dilemma, weighing the options of either pursuing share repurchases as they did during a buyback in July or making acquisitions, two options that the company has fluctuated between over the years.
Expedia has already acquired a handful of branded travel booking sites, including the likes of Travelocity, Hotels.com, Orbits, AirAsia, Wotif, and Engencia, while expanding into travel media with the acquisition of Trivago back in 2012.
However, despite the fact that Expedia has recently favored share repurchases to preserve stock prices and increase earnings, and with Expedia stock up nearly 7.5 percent over the last three months, Pickerill revealed the company is more than open to another major acquisition should the right opportunity present itself.
“So we’re inclined to deploy that capital and to deploy the free cash flow,” Pickerill said Thursday during the Citi 2019 Global Technology Conference in New York City. “I won’t sit here today and promise that every year, year in and year out, we’ll deploy it all, but over the long term, we’re not inclined to kind of buildup that cash balance over a long period of time.”
And cash flow is one thing Expedia has in abundance, with the company sitting on $5.5 billion in cash and short-term investments as of June 30. The company’s unique business model accounts for much of that cash flow abundance, as Expedia receives payments in advance whenever a customer makes a booking within their merchant model hotel and alternative accommodations business. That money is then recognized as revenue at the time of travel.
According to Pickerill, the prepay model has proved to be a “good tailwind” for the company. With the alternative, known as the agency model, the business doesn’t receive payment until travelers check in to their hotels.
Booking Holdings, one of Expedia’s competitors, actually generated more revenue last fiscal quarter, $3.9 billion to Expedia’s $3.2 billion, for a total short-term investment and cash reserve of $6.8 billion. However, Expedia takes in a significantly higher percent of merchant model revenue sales than Booking does, as Booking Holdings works to further integrate that prepay model to its own travel accommodation business.
In terms of mergers and acquisitions, Pickerill claims that Expedia Group will not necessarily be looking for outside assistance when it comes to growing its activities and touring businesses, which accounts for $500 million a year in the company’s gross bookings revenue.
“We feel like we can build the business organically just fine but we will be opportunistic on the M&A side,” Pickerill added.
Expedia Group rivals TripAdvisor and Booking Holdings acquired their own tours and activities companies last year in a move to expand their corporate footprint beyond travel and hotel bookings and into the experiences market, a market Expedia has high hopes for as it continues to sign agreements with tour suppliers.
And while Expedia doesn’t seem to be looking for a major acquisition at the moment despite a desire to expand into urban market territory, Pickerill said “they’ve made some small acquisitions that give them some tools to operate more effectively in urban markets.”