Online Travel: Priceline Prospers, Expedia and Orbitz Slow

Last week, the key online travel players announced their Q1 results, and it was quite a mixed bag as expected by some of these companies.

A year ago, I had wondered if Priceline (PCLN) would ever reach its all-time dot.com high of $104/share again. It had already soared to new heights last quarter, and this quarter was no exception.

Priceline’s Q1 revenues grew by a phenomenal 41% year on year to $403 million beating the market’s views of $377 million. Its EPS of $0.76 also registered a substantial 77% annual increase and beat the street’s view of $0.60.

Its biggest revenue drivers were the international markets. Its gross bookings grew by 76% over the year, including 51% domestic growth and 100% international growth. The acquisition of Agoda last year also came handy with the company being able to grow in the South East Asian countries where competition is relatively low. Agoda itself added $25 million in bookings this quarter.

Going forward, Priceline is expecting Q2 bookings to grow by 65-75% annually with EPS of $0.80-$0.95. For the year, the bookings are expected to grow by 60% in the range of $7.5-$7.9 billion with EPS of $3.50-$3.90.

Priceline’s management attributes its growth to brand positioning, value proposition backed by good inventory and availability in diverse geographies and competitive pricing essential in beating the current economic gloom.

The Company’s stock rose by 15.2% to $142.58 and reached a new 52-week high of $144.34.

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On the other hand, Expedia (EXPE), despite its results being slightly ahead of the market’s views, had no such luck.

Expedia’s Q1 revenues of $688 million grew by 25% over the year beating the market’s expectations of $658 million. Its EPS grew by 33% to $0.24 compared to the market’s views of $0.23. Its international business accounted for 32% of the revenue compared with 27% a year ago, and the advertising and media business grew by 73% to account for 9% of their total revenue compared to 7% earlier.

There had been talks of Expedia wanting to spin off TripAdvisor.com. Thankfully, it hasn’t done that till now. The site had 15 million reviews and opinions this quarter, and is planning to launch a Japanese and a Chinese edition of the site by the end of the year. The company is also expanding its search engine marketing and search engine optimization expertise across its other brands.

The company continued to be innovative with its business model, adding Airfarewatchdog.com and Holidaywatchdog.com in the U.K., signing Air Berlin – Germany’s #2 airline to a full content multi-year agreement, launching its Summer of Adventure promotion which ties up with the upcoming release of Indiana Jones and the Kingdom of the Crystal Skull. It is even expanding its geographical reach by launching its Indian website expedia.co.in, but that market faces stiff competition from Yatra, Cleartrip and MakeMyTrip. It would, perhaps, be easier to just acquire one or more of those players.

It is wary of the economic conditions and projected a modest OIBA growth for Q2. The stock is down 1.7% to $24.82.

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The results of the third largest player, Orbitz WorldWide (OWW) were hardly exciting. Its revenues of $219 million marginally exceeded the street’s expectations of $213 million, but its loss of $0.05 per share slipped against the market’s expectations of profits of $0.04 per share.

The company’s gross bookings for Q1 were flat at $2.9 billion, with international gross bookings increasing by 41% to reach $488 million. The weakening U.S. economy impacted its domestic gross bookings which fell 6% in the first quarter to $2.4 billion.

Last quarter, the company’s management had identified weakness in its offline advertising which was not able to draw the required number of visitors to their website. Despite marketing expenses having risen 5% in the quarter to $85 million, it did not see much success this quarter either.

The company also doesn’t seem to be coming up with too many innovations as compared to its competitors, and it is no wonder that it is facing a decline in its domestic bookings. The only improvement was in its migration of the ebookers platform to a global platform with multi-lingual capabilities. It is about to launch its Belgian website which will have information in French and Dutch.

As competition in the industry increases and players like Expedia come up with more innovations and Priceline continues to expand its share, Orbitz has a tough task ahead. The management also tabled similar views by suggesting that the previously attained growth rates of 9-12% might be difficult. The stock fell 10.2% to $7.01.

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Disclosure: None

Comments

[CrossProfit]

SA editors,
Can we get a standard disclosure from Sramana Mitra?