Are Expedia’s best days behind it?
After Expedia, Priceline and TripAdvisor all hit third quarter speed bumps, some are wondering whether the incumbent online travel leaders are entering a new, less-expansive era with up-and-coming players such as Airbnb, Google and Ctrip, for example, poised to assert a new dominance.
We put that question to Expedia Inc. CEO Mark Okerstrom, who cautioned that short-term financial and operational metrics and difficulties should not be viewed as indicative of future trends.
“The math is absolutely in our favor,” Okerstrom said, referring to things such as the global shift from offline to online booking, the growth of middle classes in developing countries, and the fact that online travel companies still account for only a mid-single-digit share of $1.6 trillion global travel market.
“I think strategy is in our favor,” said Okerstrom, who was speaking during a media session Thursday at the Expedia Partner Conference in Las Vegas.
On the strategy front, Okerstrom argued that Expedia is the largest “and only truly global platform” and will use that position to its advantage. In the third quarter, Expedia edged the Priceline Group in gross bookings, but Priceline was far more profitable.
Okerstrom said Expedia is engaged in rebuilding its businesses. For example, HomeAway, which he said has a “massive opportunity,” is adding vacation rentals, making investments in technology and marketing, and opening new points of sale, he said.
Asia Will Be Very Important
Asia is a big part of Expedia’s strategy, although Okerstrom acknowledged he’d like Expedia one day to have a larger presence in China’s domestic travel market after having sold its eLong unit to Ctrip in 2015. Expedia currently powers some international hotels for Ctrip and various other players in China, he pointed out.
Expedia’s business in Japan is growing 40 percent year over year, and the company is showing great progress in South Korea, Okerstrom said. Expedia recently invested $350 million in Indonesian online travel agency Traveloka, which is expanding in Southeast Asia.
In an era where new technologies such as artificial intelligence and voice search are emerging, Okerstrom argued that the data that Expedia gathers from 650 million monthly site visitors is an incredible advantage because it includes not only travel intent, but also what actions users take.
” Not even Google has that,” Okerstrom said.
He acknowledged that competitors are making strides, though.
Booking.com, which is the biggest part of the Priceline Group’s portfolio, “is a wonderful beacon as to what we can achieve,” Okerstrom said.
Google is improving its travel offerings, and Airbnb and Ctrip have both done a great job, Okerstrom said.
Without offering specifics, Okerstrom said Expedia’s Trivago unit needs to “step up its game.” Trivago notched an $8 million loss in the third quarter and found itself bogged down with the fallout from platform changes as its largest advertiser, the Priceline Group, reducing advertising in Trivago.
Still, Okerstrom expressed optimism about Expedia accelerating its growth, and about the prospects of the “overall travel industry.”
Two financial analysts Skift contacted generally agreed with Okerstrom’s upbeat assessment of Expedia’s prospects even as some investors bailed on the stock after the company’s lackluster third quarter results announcement.
“I think that Expedia will continue to be able to grow at premium rates (double digits) for the next 3-5 years,” said Mark Mahaney, managing director, RBC Capital Markets.
Mahaney said Expedia will continue to benefit from online adoption, the rise of middle classes in emerging markets, and the growth “of a more experience-oriented millennial generation.”
“I continue to think Homeaway is a very good asset and really provides Expedia with an excellent hedge against the alternative acocmodiations market and Airbnb,” Mahaney said.
In Expedia’s third quarter results’ discussion in October, Okerstrom announced that HomeAway wouldn’t reach previously disclosed profit targets for 2018 because of increased technology costs and marketing investments.
Trivago, too, has its challenges, having recorded an $8 million loss in the third quarter as Priceline reduced its advertising, and the hotel-search site overspent on marketing.
Mahaney characterized Trivago as Expedia’s “problem child.”
“It’s unclear to me how long it will take them to get this child back on the right path,” Mahaney said.
Dan Wasiolek, senior equity analyst at Morningstar Research Services, believes that both Priceline and Expedia have scale advantages over the competition that are supported by their traffic and content. He added they are “two well-positioned companies in a large and growing market.”
The investor pullback from Expedia and Priceline shares after third quarter results were triggered by concerns over the rising cost of investments and margin pressures in upcoming quarters, Wasiolek said.
“But in our opinion, investment spend is being done for offensive (large market opportunity) versus defensive (competition) reasons,” Wasiolek said. “This is supported by the company’s recent results that showed healthy bookings and take-rates (especially true in Priceline’s case).”
He added that Expedia and Priceline have great growth potential because they still only have mid-single digit share of what he estimated is the $1.4 trillion global leisure and unmanaged business travel market.
As Okerstrom said, the math — and overall trends — seem to favor Expedia, in particular, and online travel, in general.
Still, sometimes things that add up on paper don’t always turn out that way.