) recently announced what looks like a promising partnership with
Groupon. Groupon is creating a special section on its site called
that will offer deep discounts to the tune of 50% on travel-related
services by tapping Expedia's inventory of hotel rooms and travel
services from its 135k hotels as well as car rental and cruise
options across the globe. Expedia competes with other leading
online travel service providers such as Priceline (
) and Kayak.
Like the rest of Groupon, Getaways will promote limited-time
deals requiring customers to make an upfront payment in exchange
for a voucher that can then be redeemed within a certain period of
We value Expedia with a
$30.60 Trefis price estimate of its stock
and think this move could add additional upside to our forecast.
Our price estimate is over 10% ahead of the current market
In an attempt to put some numbers on the potential impact of
this deal, here's how we break down Groupon's contribution:
- Groupon's subscriber base increased from 600k in 2009 to
almost 40 million by Dec 2010. We expect its staggering growth
rate to continue from over 60 million in 2011 to over 200 million
mark by the end of our forecast period.
- If 1 in every 20 subscribers (5%) bought travel coupons on
Groupon, even once a year, it would translate to incremental
bookings for Expedia of around 1.5 million more bookings in the
second half of 2011 rising to around 10 million additional
bookings by the end of our forecast period.
- To get this estimate, we forecast that on average 2 people
stay per hotel room and for 2 nights per stay leading to an
additional 1.5 million (1.5 million bookings/2 per room x 2
nights per stay) hotel night bookings in 2011 rising to about 10
million (10 million bookings/2 per room x 2 nights per stay)
hotel night bookings in the coming years.
- However bookings through Groupon will come at a discounted
price (~50% of the Average Daily Rate for hotel night stay).
Hence, 2 hotel night bookings through Groupon shall otherwise be
equivalent to 1 hotel night booking at Expedia's website.
The net impact is around 750k additional hotel night stays in Q2
2011, which could grow to almost 5 million additional hotel night
stays booked by the end of our forecast period. This would increase
our market share estimates to almost 2.5% implying about 2%
potential upside to our current
$30.60 Trefis price estimate
of Expedia's stock.
If however, Groupon had a greater impact on Expedia and its
market share rose to around 3% by the end of our forecast period,
this would imply around just over 10% additional upside to our
price estimate and a combined potential upside of around 25% to the
You can drag the graph below to see the impact on Expedia's
stock price estimate.
View our detailed analysis for Expedia and Groupon here.