On Thursday, shares of TripAdvisor, Inc. TRIP rallied on Priceline PCLN buyout talks. TRIP is up 2.54% to $42.42 per share. These two companies are no strangers on the buyout table. Buyout rumors have occurred a few times, but no deal was struck.
The trade chatter resurfaced after shares of TRIP have lost about 8.2% since its last earnings report in February. The company reported both earnings and revenue misses. Adjusted fourth quarter earnings of $0.05 per share missed the Zacks Consensus Estimate of $0.18 per share. TripAdvisor reported revenues of $316 million, which again missed the Zacks Consensus Estimate of $325 million.
While it may seem like TripAdvisor has some serious work to do on the business side, the company does possess valuable assets that another online agency can benefit tremendously from.
Why Would It Work?
By acquiring TripAdvisor, Priceline would make itself less dependent on Alphabet’s Google GOOGL for traffic to their website. It would gain TripAdvisor’s 390 million monthly active users, as well as the 465 million users-produced reviews and opinions that cover hotels, vacation rentals, restaurants, attractions, and experiences. While Priceline’s big platform, booking.com, is popular in Europe, it lacks traffic in the U.S. With TRIP, the marketing potential and presence in the U.S. will be significantly boosted.
“If you think about Priceline as mostly getting people to the destination,” said Motley Fool Analyst Matt Argersinger. “While TripAdvisor has things they can do when they get to the destination. Priceline becomes more of a one-stop shop.”
TripAdvisor’s instant booking business will also gain more recognition and leverage from Priceline’s presence.
Why Wouldn't It Work?
While it may sound extremely beneficial for Priceline to make the buyout, it might not be that easy.
TripAdvisor, Priceline, and Expedia EXPE are considered as the three big online travel agencies. If the TripAdvisor-Priceline merger does happen, it will hurt consumers, hotels, airlines, and rental companies because only the two big companies would be dictating the terms. It may be unlikely that the Department of Justice would approve the merger.
Karina Lubell, a writer for The Capitol Forum, noted, “When the DOJ cleared Expedia-Orbitz, it had little to do with their combined market share in travel booking.”
TripAdvisor has a more prominent presence compared to Orbitz, as most of the global hotel chains have signed as TripAdvisor Instant Booking partners.
Furthermore, Expedia and TripAdvisor have a connection through their shareholders. Liberty Interactive LVNTA, the venture company, has a controlling stake in both Expedia and TripAdvisor. Liberty Interactive and Barry Diller own Expedia. Greg Maffei is the CEO of Liberty Interactive and also the Chairman of TripAdvisor.
While the TripAdvisor merger will suit Priceline very well, as they will receive the tools needed to strengthen their foothold in the U.S. However, there are a few obstacles ahead if Priceline does consider purchasing TRIP.
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