It was a week of extremes in the online travel trades.
Shares of travel research websiteTripAdvisor (
) soared 16% on Thursday, breaking out of a base and grabbing a
new high, after a strong second-quarter report. Online travel
) reported after Thursday's close its Q2 earnings fell well short
of analyst expectations. The stock dived 27% Friday, erasing a
year's worth of gains.
Both reports point to critical challenges as the industry
develops around consumers adapting to online travel venues.
TripAdvisor's Q2 results showed revenue from "click-based"
advertising rose 21% during the quarter to $183 million, or 74%
of overall sales. Revenue from display ads rose 21%. Subscription
and other revenue jumped 68%.
Unique monthly visits swelled 57%, to more than 220 million.
More than 79 million of those visits came via smartphones or
tablet computers -- a 216% increase over year-ago levels, and a
key metric across the online travel industry.
Players throughout the online travel trades are directing
capital spending strategies into new mobile apps and technology
with an aim to boost sales. When that payoff might come is
subject to broad debate. But at a base level, aside from the
migration toward a mobile audience, the travel industry's
fundamentals are arguably sound.
Despite the current uncertainty with macro-economic
conditions, revenue across the travel industry is expected to
rise more than 5% this year, according to RBC Capital Market
"Most current metrics of the travel industry are positive and
are likely to remain so near term," says Ascendiant Capital
Markets analyst Edward Woo in a report initiating coverage
onOrbitz Worldwide (
Woo placed a buy rating on Orbitz, although it is not growing
nearly as fast as some rivals.
Market leaderPriceline (
), for example, is seen growing sales by nearly 27% to $5.3
billion during 2013, according to analysts polled by Thomson
Reuters. Likewise, No. 2 TripAdvisor's sales are expected to take
off nearly 23%.
Struggling in the No. 3 slot, projections initially saw
Expedia's 2013 revenue up 20%. Analysts are scrambling to
recalculate, after the Bellevue, Wash.-based operation's weak
Orbitz revenue lags even further behind, seen growing a
comparatively mild 6.6% for the year.
"Priceline and TripAdvisor continue to enjoy much stronger
growth in unique visitors and visits than Expedia and Orbitz,
which saw continuing declines," wrote Jefferies Equity Research
analyst Brian Fitzgerald.
Most online travel companies make the lion's share of their
sales through hotel, flight and vacation-package bookings. A
growing piece of revenue comes from targeted advertising. And
Wall Street is decidedly bullish on the sector -- especially
Priceline, which is rated as a buy by 25 of the 27 analysts
polled by Thomson Reuters.
Analysts are intrigued that the online travel agent group
seems to be outpacing the total U.S. online travel industry. That
industry's growth -- which includes travel booked through online
travel agents, as well as travel booked online through hotel
websites and other more direct bookings -- is actually seen to be
slowing to just 7% in 2013, according to research from RBC
Capital Markets. That's down from 11% in 2012, and slower than
the 8% that's expected in 2014.
Expedia has struggled to hold its position vs. aggressive
competition in that slowing market. Its quarterly results showed
selling and marketing spending up 33% (although the company said
its German travel site Trivago reportedly accounted for about a
third of that increase).
Priceline's fixed-price Express Deals service appears to be
taking share from Expedia's Hotwire discount site.
Despite the slowing and the battle for market share, Wall
Street is betting that the online travel industry has room to
grow. Even at its current size, U.S. online travel sales account
for just 43% of the overall U.S. travel-sales market, according
to RBC. That'll inch up to 44% next year, and there is plenty of
elbow room after that.
Where's that growth going to come from? Most companies are
betting on consumers' shifting to mobile buying.
"... we expect domestic online travel spending could grow in
the high-single to low-double digits in 2013, aided by the
ongoing shift to mobile," says Benchmark analyst Daniel
Booking Rooms On The Fly
Despite heavy investment in new mobile websites, apps and
search-ad technology, there's little visible evidence that the
strategy is so far paying off. When smartphone users go directly
to a hotel website, they generally visit about 3.4 pages. That's
a shorter stay than the 4.7 pages that a traditional PC visitor
makes, according to Adobe Systems data.
Nonetheless, mobile booking is expected to pick up
"Like everybody else, we are investing in it," Priceline CEO
Jeffery Boyd told analysts on a Q1 conference call.
Boyd also says hotel booking on mobile seems to be taking off
most easily, and mobile is "driving substantial share" of rooms
That's probably because travelers sometimes need to book a
hotel quickly, or at the last minute. There's a whole host of
upstart companies battling for that just-in-time business. They
include Hotel Tonight and Airbnb, among many others.
Paying The Tab For Mobile
In April, Expedia executives said the company's mobile app had
been downloaded by some 30 million users, though they declined to
say what percentage of all bookings took place through the app,
as opposed to traditional desktop.
"But you've seen the download numbers, and they're very
healthy," said CEO and President Dara Khosrowshahi. "Mobile,
again, we think, is a great positive for us."
Expedia previously said it was seeking to have 20% of sales
through mobile by the end of 2014.
But all that mobile growth has come at a cost. Expedia spent
$100 million in 2012 on software and content, up from $73 million
in 2011 and $61 million in 2010.
) also increased its marketing spending to boost app downloads.
More than 2 million users have downloaded that app. And the
company's now working to develop a new hotel-booking app, hoping
to capitalize on users' growing willingness to book via their
smartphones or tablets, says CEO Christopher Loughlin.
That's a change for Travelzoo, which had focused on sending
travel deals via email, much in the way thatGroupon (GRPN) does
with retail deals. Only about 21% of sales made by Travelzoo in
Q2 started with a visit to the company's website or mobile
website, but the company wants to change that.
"Because email was our primary form of communication, we
didn't focus on the product development of our websites and
mobile products," Loughlin told analysts on July 18. "Indeed, we
saw these as repositories for our (emailed) push deals."
The investment is costing Travelzoo, but it's also bringing
the company "closer to when the company can leverage and benefit
from its recent investments," wrote analyst Woo.
Growth in mobile use isn't necessarily yet translating into
sales boosts, writes RBC Capital Markets analyst Mark
In TripAdvisor's Q1 results, mobile traffic boomed, but most
seemed only to be window shopping. Second-quarter results
suggested they were getting more serious, but still lagged the
"Smartphone hotel shoppers grew over 100% year over year, but
monetized at about 20% the rate of desktop" shoppers, says
There will likely be a "sizeable delta" between growth and
spending as these companies continue to seek out mobile shoppers
for "some time to come," that analyst says.
Keeping An Eye On Google
U.S. markets are leading the shift to mobile and to online
booking in general. The 43% rate for online bookings in the U.S.
easily leads Asia, for example, where only 24% of travel is
booked online, writes analyst Woo. But those rates will jump as
mobile technology seeps into new countries, the analyst says.
For the last few years, the competitive threat overshadowing
much of the travel industry has beenGoogle (GOOG). The search
giant tends to dominate any market it enters, and has been
gradually assembling a stable of travel-related companies. It has
launched, among other services, a hotel search feature and
several flight-finding aides.
But it remains immaterial, for now at least, say
"Over the past couple of years, Google has been increasing its
travel-related services," says Woo, "but currently does not sell
travel products and only directs consumers to other
That "should temper concerns" about Google taking on the
industry, at least now, says Woo.
Even at that, Google is a big player in online travel, if only
because it "represents a significant source of organic traffic"
via Web searches for sites like TripAdvisor, says analyst
Mahaney. That's a risk when investing in a travel booker, he
wrote in a July 22 research note.
"Google's increased activity in the travel space," Mahaney
wrote, "needs to be monitored carefully."