Google’s substantial revenue growth  — 24 percent — in the fourth quarter suggests that its largest travel advertisers, including the Priceline Group and Expedia Inc., continue to face pressure in their digital marketing spend and margins as their spend with Google is likely outpacing their revenue growth.

Google’s revenue growth trajectory at well over 20 percent in the fourth quarter, as disclosed Thursday, suggests that we should expect to see digital advertising remain an area of modest operating deleverage for the online travel agencies. This means that advertising spending grows faster than revenue and leads to margins decreasing.

The caveat would be if the online travel agencies have been able to improve return on investment from each ad dollar spent, then we could see revenue outpace advertising spend once again.

Our base assumption is that advertising spending continues to modestly outpace revenue growth for Priceline and Expedia, but other operational cost line-items would counteract the advertising margin impact where operating expenses increase slower than revenue growth given scale efficiencies.

Smaller Travel Companies Under pressure too

For TripAdvisor, its fourth quarter results would likely be more heavily impacted by its Instant Booking transition than digital advertising trends.

Expedia is slated to report its fourth quarter and full year results February 8, Priceline and Tripadvisor on February 15, and Ctrip on March 15.

It has become incredibly difficult for smaller online travel companies to attempt to compete against the largest companies in a mobile world, where conversion is more difficult, and the large online travel players spend billions of dollars annually with Google to drive traffic.

In Skift Research’s 2017 Outlook on Metasearch in Travel report, we discussed how online travel companies need scale to succeed where the massive online travel agencies have the budgets to spend on branding and marketing, technology, building inventory, and enhancing the user experience.

It is becoming increasingly difficult for private companies to compete with Priceline, Expedia, TripAdvisor, and Ctrip on a global scale. Online travel agency consolidation is evident in the many Expedia-owned booking brands. The online travel agencies also gobbled up metasearch brands with Expedia owning Trivago, Priceline owning Kayak, and Ctrip recently purchasing Skyscanner.

Skift expects the large online travel agencies will use metasearch as the next wave of consolidation where smaller players and niche companies move into larger metasearch companies housed within the large online travel agencies.

Google’s Click Metrics Show Mobile Transition Has Accelerated

Google’s total paid clicks increased 36 percent in the fourth quarter while cost-per-click (CPC or how much Google gets paid per each click) was down 15 percent year over year.

Solely on Google Websites, clicks were up 43 percent and CPC was down 16 percent.

This suggests that the move from desktop to mobile continues to accelerate. Mobile, by its nature, is used more and generates more clicks, but tends to have less conversion into sales and garners lower CPC rates than desktop.

As the online travel agencies get better at conversion on mobile the increased number of clicks should turn into a tailwind over time.

Upcoming fourth quarter results will provide insights into whether TripAdvisor is improving mobile monetization given its struggles of late on mobile amid its effort to become a hotel-booking site. For Priceline and Expedia, mobile has not really been a meaningful headwind.

Currency Will Likely Negatively Impact Results

On a regional basis (in constant currency) for Google, the U.S. grew 24 percent, UK 21 percent, and the rest of world 26 percent. It is worth noting that the UK faced severe currency headwinds post-Brexit where GAAP revenue increased less than 10 percent.

Currency will likely be a drag on a reported revenue numbers for the online travel agencies. This is more of an issue for Priceline with its global behemoth Booking.com driving results. However, this headwind is not meaningful to true business fundamentals.

Photo Credit: Google saw its revenue jump 24 percent in the fourth quarter and other metrics point to continued pressure on online travel agencies. Google