Both companies’ share prices have increased since the one-for-two reverse stock split on December 20, 2011, although TripAdvisor’s has jumped at a much faster clip.
Expedia shareholders unlocked the pent-up value in TripAdvisor that they likely envisioned. Before the spinoff, on December 1, 2011, for example, Expedia’s market cap stood at $3.81 billion and yesterday the combined market cap of the two companies was a whopping $18.57 billion, with TripAdvisor sporting a considerably larger market cap than its amicably divorced parent.
But, looking at it from the perspective of Expedia as a business operation going forward, you have to wonder if Expedia has some spinoff remorse.
What Expedia Lost
Expedia lost a high-margin, fast-growing media business in TripAdvisor, which makes Expedia now reliant to a great extent on a single, transactional revenue stream.
Expedia also now finds itself somewhat dependent on TripAdvisor as one of Expedia’s largest marketing channels, and Expedia disappointed Wall Street with its second quarter financial results because TripAdvisor’s new hotel metasearch product has not taken off as fast as both companies expected.
And, on December 21, 2012, one year to the day after Expedia spun off TripAdvisor, Expedia announced it would take a controlling stake in Germany’s Trivago, a hotel metasearch/media company, in what some observers see as an acknowledgement that Expedia may have been remiss in letting go of a very hot TripAdvisor.
In addition, there’s the possibility that in the future TripAdvisor could become a direct competitor of Expedia if TripAdvisor takes the next step, and one day transitions from hotel metasearch into becoming an online travel agency in its own right.
Douglas Quinby, PhoCusWright’s vice president of research, acknowledges that any strategic decision carries risks.
“But, you just can’t call the spinoff a mistake,” Quinby says, referring to its financial implications. “It’s one of online travel’s great success stories.”
If you are talking about mistakes, Expedia’s largest was falling behind Priceline in the global hotel business, Quinby says.
Expedia didn’t immediately respond to a request for comment about its TripAdvisor spinoff.
On the other hand, Henry Harteveldt, travel industry analyst at Hudson Crossing, thinks it was an error on Expedia’s part not to retain a stake in TripAdvisor, although he concedes TripAdvisor might not have had the flexibility it needed if it hadn’t become a separate company.
“I certainly think there are people at Expedia now, doing some Monday morning quarterbacking on investment strategy, who are saying we should have held onto a little bit of TripAdvisor,” Harteveldt says.
In spinning off TripAdvisor, Expedia lost a social and media “icon,” Harteveldt says. “It would be like Kimberly-Clark spinning off Kleenex.”
Harteveldt, too, sees Expedia’s Trivago deal as containing an element of back-tracking, viewing it as a hedge against Priceline’s acquisition of Kayak, but also “a way to reclaim some lost ground that TripAdvisor owns.”
Now that Sequoia Capital has made a huge bet on Skyscanner’s future, Expedia’s decision to divest itself from TripAdvisor is looking worse by the minute.
Regardless of the strategic challenges that Expedia may face in the future because of the TripAdvisor spinoff, this is an example of short-term financial considerations dominating.
And you can never say “never” about these sorts of things. After all, divorced couples are known to sometimes get remarried, shack up, or have an affair with their former spouse’s best friend from time to time.
Anything can happen.