- In addition to marking Expedia's entry in the meta-search
space, we believe that Trivago will help increase the company's
footprint in the European hotel market.
- Though Expedia attracts a higher number of unique visitors
in Europe compared to Priceline, the latter is known to have a
wider presence in the European hotel market: Expedia has an
global inventory of >145,000, whereas Priceline's
booking.com covers over 180,000 hotels in Europe
- The European online travel sales is expected to grow at a
CAGR of 5.7% till 2016 compared to 4.8% for the US online
- With a lower online penetration (compared to the US), a
fragmented hotel market and low OTA penetration in Eastern
Europe, the European online travel market offers considerable
growth opportunities for OTAs.
- Trivago conducts >100 million hotel searches annually
has 20 million unique monthly visitors and has
an inventory of 600,000+ hotels over 140 booking sites in
23 languages across 30 countries in Europe.
Leading US-based online travel agency (OTA) Expedia (
) announced its acquisition of German meta-search engine
Trivago in December 2012. Expedia plans to acquire a 61.6% share in
Trivago for an estimated 477 million euros of which 434
million euros will be in cash and the remaining in Expedia's
stock. The acquisition is expected to close in the first half of
In addition to marking Expedia's entry in the meta-search space,
we believe that Trivago will help increase the company's footprint
in the European hotel market. Conducting more than 100 million
hotel searches annually, Trivago is one of the leading meta-search
engines for hotel bookings in Europe. While growth in the U.S.
travel market has slowed, European markets
offer immense growth opportunities for OTAs. The
European online travel sales is expected to grow at a CAGR of 5.7%
till 2016 compared to 4.8% CAGR for the US online travel market. In
our view, a higher share in the European travel market will augur
well for Expedia's valuation.
In this article we discuss the factors that make Europe an
attractive market for OTAs and discuss how Trivago can help Expedia
leverage growth opportunities in the region.
See our complete analysis for Expedia
What are the growth opportunities in the European travel
As the US online travel market nears saturation, the rising
opportunities in the European travel market makes it an attractive
destination for OTAs. Despite the ongoing debt crisis, the European
online travel market accounted for 37.7% of the global market and
grew by 9% during 2011-12. In comparison, the US market increased
by 4% during the same period.
Online travel sales in Europe increased from $118 billion
in 2010 to $141 billion in 2012 and are estimated to reach
approximately $180 billion by 2016. OTAs currently contribute 37%
to the European online travel revenues and the proportion is
expected to increase in the future.
Here are some of the key trends that will drive growth in the
European travel market:
1. Fragmented hotel market -
The hotel market in Europe is much more fragmented with smaller,
independent lodgings compared to the US where the market is
dominated by large hotel chains. Hotel chains are more likely to
offer online bookings through their own websites while OTAs are
more appealing to small, independent hotels outside the US. Due to
the fragmented nature of Europe's hotel industry, the need for
standardization provides immense growth opportunities for OTAs. On
average, over three out of 10 hotel rooms in Europe are booked
online and the proportion is expected to rise in the future.
2. Increasing online penetration -
The relatively low internet penetration in Europe (63.2%) compared
to the US (78.6%) presents an upside to online travel industry as
customers increasingly access the Internet for travel planning.
3. Growth opportunities in Eastern Europe -
The penetration of OTAs in Eastern Europe is still comparatively
low and the market continues to be dominated by supplier websites.
However, as per PhoCusWright, the OTA market is increasing by
>25% annually, increasing their share of air tickets and hotel
bookings. It estimates OTA travel bookings share to increase to 10%
in 2013 compared to 7% in 2011. Additionally, while online
bookings contributed only 16% to Eastern Europe's total travel
market, the contribution is expected to rise to 23% by 2013.
Where does Expedia stand in the European hotel market?
How does it compare against Priceline?
As per PhoCusWright, the top five OTAs - Priceline (
), Expedia, Lastminute.com, Ebookers and ODIGEO - contribute more
than 60% to OTA bookings in Europe. ((
Led by Booking.com, OTAs Fuel European Online
, PhoCusWright, January 12, 2012)) Accounting for 40% of total
OTA revenue, Expedia's Hotels.com and Priceline's Booking.com
dominate the outbound hotel bookings in the region. ((
Eastern Europe: OTAs Poised for Consolidation
, PhoCusWright, August 2, 2012))
Though Expedia attracts a higher number of unique visitors in
Europe compared to Priceline, the latter is known to have a wider
presence in the European hotel market. Priceline's booking.com was
the main driver of OTA growth in Europe in 2011 and 2012 and is
currently estimated to account for 6% of the European hotel
Priceline's business is more hotel-focused compared to Expedia.
While hotel bookings contribute 97% to Priceline's total revenue,
the segment accounts for 74% of Expedia's earnings. Hotel bookings
is the fastest growing segment in the online travel market and with
more than 20% revenue margin (revenue earned by OTAs as a
percentage of gross hotel bookings), it is also the most profitable
compared to airlines (~2%) and car rentals & cruises (~9%).
How can Trivago's acquisition help increase Expedia's
footprint in the region?
Expedia's Hotels.com currently offers an inventory of only
145,000 hotels globally. In comparison, Priceline's booking.com
covers over 180,000 hotels in Europe alone. We believe that
the acquisition of Trivago will provide greater visibility to
Expedia in the European market and will help expand its hotel
portfolio in the region.
Trivago has managed to double its revenues each year since
2008. Building direct relationships with hotels has been one of its
key strategies. Trivago has an inventory of more than 600,000
hotels over 140 booking sites in 23 languages across 30 countries
in Europe. With close to 20 million unique monthly visitors,
Expedia claims that Trivago was one of the fastest growing channels
which generated rising traffic for its website last year.
Though the two companies will operate as separate entities after
the acquisition, we think that Expedia's collaboration with Trivago
will increase its visibility in the European market which in turn
will lead to rising user traffic on its website.
Our current price estimate of $63.12 for Expedia is at a slight
premium to the current market price.
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