When you consider the growth numbers that Germany-based hotel metasearch company Trivago is posting and the inroads it is making in markets such as the U.S., you can only imagine the leadership at rival Kayak musing “if only” — if only Expedia Inc. had acquired Kayak instead of its ending up in the Priceline Group.
That may be a crude, impolite thought, but just consider the widely divergent strategies that Expedia, which acquired Trivago in March 2013, and the Priceline Group, which bought Kayak two months later, are deploying.
In its fourth quarter and full-year 2014 earnings call yesterday, Expedia Inc. revealed that Trivago grew its revenue 68 percent year over year to more than $410 million in 2014.
Expedia is Aggressively Investing in Trivago
CEO Dara Khosrowshahi said Expedia is making key investments in Trivago’s top-line growth, sacrificing near-term profits, to fund global expansion. Trivago benefited from an estimated $108.5 million TV advertising campaign in the U.S. alone — the largest of any online travel brand — and generated just $4 million in adjusted EBITDA in 2014.
Trivago’s relatively paltry profits and outsized sales and marketing expenses aren’t a huge concern for Expedia because, as Khosrowshahi put it, Expedia is willing to forego Trivago’s profits in the short-term in exchange for “long-term value.”
Interviews with hoteliers indicate that Trivago, already the leading hotel metasearch player in Europe, is gaining market share in the U.S., as well.
Priceline Wants Kayak to Grow on a Profitable Basis
The Priceline Group’s approach with Kayak couldn’t be more different than Expedia’s tack with Trivago.
The Priceline Group is slated to report its fourth quarter earnings two weeks from now so there may be more visibility into Kayak’s journey under Priceline at that point.
But during the Priceline Group’s third quarter earnings announcement on November 3 and in a Skift interview about three weeks later, CEO Darren Huston emphasized that the company does not intend to invest in Kayak at a loss and wants to see its currently North America- and flight-focused metasearch property grow in a sustainable way.
Huston also isn’t a huge fan of metasearch and would prefer not to see Priceline’s flagship Booking.com unit and its other brands get overly commoditized through price-oriented, metasearch-style marketing.
The Acquired’s Remorse
Kayak’s shareholders received a 29 percent premium for the Priceline Group’s $40 per share deal to acquire Kayak in May 2013 so they had to be fairly pleased at the deal’s girth even though the premium wasn’t humongous by today’s standards.
Still, in looking to expand into new markets, a task that Kayak has historically had some difficulty in doing, it isn’t far-fetched to suspect that Kayakers have to be more than a little jealous about the resources that Expedia Inc. is pouring into Trivago versus the measured way the Priceline Group is investing in Kayak.
Kayak CEO Steve Hafner doesn’t see it that way.
“I couldn’t be happier with our progress, our ownership, and our profitability,” Hafner says. “If we thought it made good business sense to spend more money on marketing, we would do so. Priceline has never held us back.”
“I love our cards versus Trivago,” Hafner adds. “Let’s play a few more hands.”
Still, if current trends hold, the battle between flight-oriented Kayak and hotel-only Trivago won’t even be a fair fight.