Expedia's acquisitions versus the Priceline Group's "competitive moat." Rock, paper, scissors. It's an interesting contest and in the $1.4 trillion global travel market, both companies can be winners. Expedia is trending upward and Priceline is showing strong growth, as well.
While Expedia dominated headlines with its more than $6 billion worth of acquisitions in 2015, the Priceline Group needs to win the narrative back and CEO Darren Huston made his case about his company’s competitive advantages.
“Our capabilities and scale in partner acquisition, customer experience, and efficient demand generation plus our large installed base of accommodations and loyal travelers give the Priceline Group a competitive moat that is deep and wide,” Huston said. [For Huston’s elaboration on these points, see excerpts from the Priceline Group’s fourth quarter earnings call February 17 at the bottom of this post.]
If there were any doubts that Huston’s comments were at least in part an answer to some of Expedia’s gains, including Expedia’s 39 percent fourth quarter growth in room nights sold, although they were pumped up by acquisitions, then consider this Huston zinger:
“Our customers made reservations for over 432 million room nights on Priceline Group platforms in 2015, over twice as many as our next biggest competitor,” Huston said.
He added: “We don’t take any competitor lightly, and we compete ferociously every day, continuously seeking a higher executional gear in every facet of our business.”
Beyond all of the rhetoric from the Priceline and Expedia camps, we decided to compare some of their most important fourth quarter of 2015 metrics despite the fact that they are very different businesses. The Priceline Group is more hotel-oriented and derives more of its revenue from non-U.S. points of sale while Expedia Inc. offers a more well-rounded assortment of products, including a much bigger airline-tickets business, cruises and tours and activities.
Priceline and Expedia Q4 2015 Comparisons
|Expedia Inc.||% Change||Priceline Group||% Change|
Source: Expedia Inc. and the Priceline Group
Priceline indeed has a much larger hotel business than Expedia as the Priceline portfolio of companies, including Booking,com, Agoda and Priceline.com, generated 99.1 million room nights in the fourth quarter compared with Expedia’s 52.8 million.
Priceline has long talked about the prospect of its room night growth eventually decelerating and that indeed has been happening. The company noted in its 10-K report filed with the Securities and Exchange Commission February 17: “… for the year ended December 31, 2015, our accommodation room night reservation growth was 25%, a deceleration from 28% in 2014, 37% in 2013 and 40% in 2012. Given the size of our hotel reservation business, we expect that our year-over-year growth rates will continue to decelerate, though the rate of deceleration may fluctuate.”
Some 15 percentage points of Expedia’s 39 percent growth in room nights, from half the base of Priceline’s, was tied to acquisitions.
Revenue and Gross Bookings
Priceline was a slightly larger company than Expedia in terms of fourth quarter revenue, $2 billion versus $1.7 billion, although Expedia’s revenue grew faster, 29 percent versus 8.7 percent. Of Expedia’s 29 percent revenue growth, 19 percentage points were tacked on by acquisitions. That means that Expedia’s organic revenue growth was just a tad faster than Priceline’s.
Expedia generated higher gross bookings than Priceline in the fourth quarter, $14.9 billion versus $12 billion, and Expedia’s gross bookings grew faster, 40 percent versus 13 percent. Expedia attributed 28 percentage points of its 40 percent gross bookings growth to acquisitions.
Gross bookings are the total value of travel booked while revenue is the amount that accrues to a company’s top line. Revenue is arguably the more important metric.
Priceline Is Way More Profitable Than Expedia
Because of its business mix, scale and execution, as well as the deal and integration costs that Expedia saddled itself with, Priceline was a much more profitable company than Expedia in the fourth quarter of 2015.
Priceline’s adjust EBITDA grew 11 percent to $790 million in the fourth quarter while Expedia’s adjusted EBITDA increased around the same pace, 12 percent, to just $280 million. Expedia, though, reported that deal and integration costs adversely impacted its adjusted EBITDA by $39 million in the fourth quarter and dragged down Expedia’s adjusted EBITDA growth by four percentage points.
That’s the tale of the tape, and the following is Huston’s telling of why Priceline’s competitive position is so solid.
Huston on Priceline’s Competitive Advantages
“Our capabilities and scale in partner acquisition, customer experience and efficient demand generation plus our large installed base of accommodations and loyal travelers give The Priceline Group a competitive moat that is deep and wide.
“Let me expand on this point a bit, being a leader on online travel and building and experienced marketplace isn’t achieved by simply electronically connecting demand with supply. It may be a surprise to some but about two-thirds of our employees are working in either the supply or customer service organizations. Only KAYAK, our one media asset does not have a similar model.
“Our employees work out of 239 support offices in 173 cities around the world working daily with partners and customers to deliver the absolute best booking experience wherever our customer comes from and wherever they’re going.
“On the supply side, we added 200,000 properties during the year on Booking.com covering everything from igloos to shared estates while maintaining stable take rates and a fee-free model to the customer. Booking.com now has over 850,000 hotels, homes and other places to stay in over 220 countries and territories across the globe, up 34% from last year.
“The hard work of making this a daily reality is achieved by thousands of dedicated and energetic people around the world having these properties and then working with our partners on an ongoing basis to ensure that our customers have the most choices of places to stay at the best prices available.
“We offer by far the most directly bookable lodging choices to our customers, with over 22.6 million rooms potentially available on our websites, including 6.9 million rooms in vacation rentals and other non-hotel properties. With our worldwide team and market-leading profitability, we are expanding this low friction model more aggressively into the single-owner, single-room market as it continues to mature. We strongly believe that this fee-free experience-centric model, which makes booking homes and apartments as easy and trustworthy as booking a hotel, will be the winning model long term.
“On the customer experience side, the complexity of providing a world-class digital experience for customers becomes more daunting each year with various browsers and operating systems offered on desktop and mobile devices. On top of that, you have new platforms and capabilities being built every day, and for each of these, we need to make an intelligent decision about where and how to participate. The good news is the tools are becoming better and customers continue to want to live more of their lives digitally.
“We have over 2,500 talented developers and other technology professionals working across our brands to offer our customers the best online booking experience on our desktop and mobile websites and app optimized through hundreds of thousands of experiments.
“We believe Booking.com has the highest converting online accommodation reservation path in the world, achieved through a deeply ingrained culture of innovation, the result of experimentation at a transactional data scale and velocities that few companies can match. Our content is best in class with high-resolution photos, detailed property descriptions and 77 million plus verified and fresh reviews for properties in even the most far-flung destinations.
“We have thousands of customer service professionals stationed all over the world, helping our customers in 42 languages 24 hours a day, 7 days a week. We think our approach adds up to a great experience for our customers, which helps us continue to grow the direct share of our business with outstanding everyday pricing and repeat traffic versus the alternative, which is to buy the business with coupons or discounting, transaction by transaction. Booking.com surpassed 100 million customer accounts during 2015 and had our one billionth guest stay at one of our partners, approximately 300 million of those in 2015 alone, another testament to our success at earning long-term loyalty.
“We invested $3 billion in marketing during 2015 to build our brands around the world and bring new customers to our websites at profitable ROIs. Our historical competitive strengths on the desktop have translated very well to mobile. Our talented teams use proprietary quantitative tools to manage bidding on hundreds of millions of multilingual keywords across desktop and mobile platforms, successfully balancing ROI discipline with strong growth.
“We continue to command a leading share of the demand channels we participate in, profitably converting shoppers into buyers and buyers into loyal long-term customers.
“Every year is an investment year at The Priceline Group. Well, every year is also an opportunity to deliver outstanding bottom line results. We evaluate every opportunity with a long-term lens, requiring that it deliver value for our brand franchises tomorrow beyond just delivering transactions today. 2016 will be no different as we invest in exciting new opportunities like OpenTable’s international expansion or BookingSuite cloud software offers, or Booking.com for Business while maintaining superior operating margins that will allow us to win in the face of heated competition.
“And you can be confident that we’re not standing still. The Priceline Group will continue to work hard to stay a step ahead of the competition with our unique combination of institutional knowhow, culture, systems and focused passion. We don’t take any competitor lightly, and we compete ferociously every day, continuously seeking a higher executional gear in every facet of our business.
“Booking.com, of course, makes up the majority of our business. However, the group also has a portfolio of valuable and complementary brands, each of which makes money and has the aspiration to grow and build vertical mastery in their respective area of focus. We have new leadership at Priceline.com and OpenTable and both businesses are responding with a renewed energy and a strong commitment to profitable growth. Agoda and Rentalcars.com both continued to improve and differentiate their respective products and both look to drive more business direct and through improved mobile experiences.
“And finally, Kayak is an outstanding business that is being smartly run and continues to contribute to the group beyond our initial expectations. I give these other brand teams a lot of independence, and this has engendered a real performance-driven culture. Through our portfolio of brands we aspire to achieve the group’s mission to help people experience the world and become a global marketplace for experiences.”
Here’s Huston being interviewed on CNBC February 17:
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Photo credit: Priceline Group CEO Darren Huston appearing on CNBC to discuss Q4 2015 earnings. CNBC