) revenue margin on hotel bookings (calculated as a percentage of
total hotel bookings) made through its various websites
(Expedia.com, Hotels.com, Hotwire.com) increased from 23% in 2007
to above 25% in 2009 due to declining consumer demand in the
2008-2009 recessionary period, forcing hotels to offer higher
discounts to online travel agents (OTA) to attract
bookings. Expedia competes with other online travel agents
like Priceline (
), Orbitz (
) and Travelocity as well as hotel chains that offer their own
online booking services.
Hotel bookings constitute more than 55% of Expedia's stock value
by our estimates, and hence the company's value is sensitive to
revenue margins from this business segment. Going forward, we
anticipate Expedia's revenue margin from hotel bookings to decline
gradually to 22.5% due to mounting competition from online travel
agents and large hotel chains offering their own online services.
Trefis members, however, project margin improvement towards 25%,
implying upside of 8% to our price estimate for EXPE stock.
We currently maintain a
$38.57 price estimate for Expedia's stock
, well ahead of market price.
Increasing Competition from Large Hotel Chains
As the travel industry is increasingly moving towards online
reservations, large hotel chains are offering their own online
services for travel bookings. The intent behind the move is to
eliminate the middle man, the travel agents, thereby earning higher
margins and gaining greater control over pricing. By using their
own websites for bookings, hotels can run loyalty programs which
not only promote repeated guest visits but also enable hotels to
cross-sell additional value-added services, thereby earning higher
revenue per guest.
… As Well As Online Travel Agents
Hotel bookings offer the highest revenue margin to online travel
agencies (OTAs) at close to 25% compared to less than 4% for air
ticket bookings and less than 10% for car rentals and cruise
bookings. Hence OTAs are focusing on hotel bookings and trying to
gain share in this highly profitable niche. With the number of
players increasing in this segment, we expect Expedia's revenue
margins on hotel bookings to decline gradually.
See our full analysis and $38.57 price estimate
Trefis Community Forecast
Trefis community members forecast that revenue margins earned on
hotel bookings will increase from 24% in 2010 to 25% by the end of
our forecast period, compared to the baseline Trefis estimate of a
decrease to 22.5% during the same period. The member estimates
imply an upside of 8% to our
price estimate for Expedia stock.