- 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 alone.
- 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 travel market.
- 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 ( EXPE ) 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 2013.
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.
Where does Expedia stand in the European hotel market? How does it compare against Priceline?
As per PhoCusWright, the top five OTAs - Priceline ( PCLN ), Expedia, Lastminute.com, Ebookers and ODIGEO - contribute more than 60% to OTA bookings in Europe. (( Led by Booking.com, OTAs Fuel European Online Travel Growth , 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 market.
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.