TripAdvisor Is a Smart Acquisition for Someone Right Now

Nearly three months after we wrote that it would make sense for the Priceline Group to acquire TripAdvisor, speculation about TripAdvisor getting acquired is heating up.

In fact, Goldman Sachs reportedly opined in a research note this week about potential travel and non-travel acquisition targets that there is a 10-30 percent chance that TripAdvisor gets scooped up by another company.

Much of the speculation hinges around the fact that TripAdvisor’s stock, which opened at $65.43 yesterday, is considerably down from its 52-week high of $94 per share. In other words, TripAdvisor’s market cap stands at around $9.4 billion — or more than $4 billion less than on July 23, 2015 so an acquisition of the world’s largest travel site by traffic would be relatively cheap.

One of the reasons we think TripAdvisor could benefit from an acquisition — especially by the Priceline Group — is that Priceline’s Booking.com could provide substantial marketing and content assistance to TripAdvisor as it expands its book on TripAdvisor feature, Instant Booking, to locales around the world where Booking.com has a higher profile than TripAdvisor.

The Instant Booking rollout, which has seen TripAdvisor’s revenue-per-hotel shopper nosedive, has investors on edge as the company tries to work out the kinks in the transition from the predominance of metasearch clicks toward collecting commissions from hotel bookings on TripAdvisor.

“The rollout of Instant Book has given rise to a black box for investors over the near term as the company works through headwinds from monetization changes,” states PiperJaffray in a report about online and hotel trends. “Over the next 6-12 months we believe mid-/down-funnel conversion improvements and monetization improvements will drive a return to revenue per hotel shopper growth and upside in 2017+.”

The Priceline Possibility

With its $64 billion market cap, recent raises of low-interest debt and ample free cash flow, the Priceline Group has the means to acquire TripAdvisor, which is considered among the top marketing vehicles in travel. Former Priceline Group CEO Darren Huston, who left the company several months ago, wasn’t a big fan of TripAdvisor-style metasearch — regardless of Priceline’s ownership of Kayak — but Huston is out of the picture now.

The Priceline Group, which is known to have coveted TripAdvisor for several years, currently has an interim CEO in former CEO Jeffery Boyd. With a search under way for a permanent CEO, some may wonder whether this would be an awkward moment for Priceline, which hasn’t made a large acquisition since buying OpenTable for $2.6 billion in 2014, to snatch TripAdvisor.

Having an interim CEO shouldn’t make a difference, says Dan Wasiolek, senior equity analyst at Morningstar. “If the right asset at the right price is there, it shouldn’t,” Wasiolek says. “Business goes on. Plus Boyd is a guru and knows better than anyone what this company needs. Boyd should stay as chairman once a permanent CEO is in place and provide guidance to that person.”

Priceline.com, too, has an interim CEO, Brett Keller, following the departure of CEO Paul Hennessy, although that situation wouldn’t likely have much of an impact on the question of whether the Group would try to acquire TripAdvisor.

There could be numerous other potential acquirers of TripAdvisor ranging from Google to Alibaba and Amazon. We hesitate to include Expedia Inc., which has been on an acquisition tear over the last couple of years, on this list because Expedia already owns metasearch site Trivago. In addition, Expedia used to own TripAdvisor and spun it off in 2011.

TripAdvisor turning to the Priceline Group or another suitor could parallel a dynamic executed by HomeAway, which fell into Expedia’s arms when HomeAway was faced with big risks tied to substantial business model changes.

Buying TripAdvisor would be a very large — albeit relatively cheap — acquisition given its current stock price. Still, one very significant impediment to an acquisition, especially for Priceline, is the fact that Liberty TripAdvisor Holdings, which has historic ties to Barry Diller’s Expedia, controls TripAdvisor. Expedia is the Priceline Group’s largest online travel agency rival.

But for the right price Liberty TripAdvisor Holdings would have to consider a sale of its prized asset as TripAdvisor goes through a very challenging and prolonged transition.