Skift Take

The deal surprised analysts, some of whom didn't see an obvious logic for it. Yet one thing is sure: Online hotel sales are a bit like an old-fashioned butter market. A big chunk of butter changes hands multiple times and everyone gets their hands greasy.

Booking Holdings said on Monday it would acquire Sydney, Australia-based HotelsCombined to expand the company’s travel price-comparison, or metasearch, offering.

Booking Holdings’ intention with the deal will be revealed in the steps it takes with HotelsCombined by either investing in it or gutting it but keeping the name.

Those moves will reveal whether Kayak plans to be a global brand, whether it is shopping for better technology, and how dependent it sees itself on acquiring customers through paid advertising on Google.

Booking Holdings didn’t reveal the price tag.

A handful of analysts and industry players estimated it paid between about $250 million and $300 million.

If true, that range would probably represent a very small amount above the company’s likely annualized revenue. HotelsCombined did not disclose revenue. But it did claim to have facilitated $2 billion in hotel accommodation sales globally in 2017.

Statements from other travel metasearch players suggest that the industry standard for typical commissions in metasearch are relatively low.

For example, an auditor’s report by Deloitte had found that the Danish brand of Momondo, part of the Momondo Group, had suffered several years of losses prior to its acquisition by Booking Holdings last year for $550 million.

The losses included a $5 million loss on revenue of $17 million in 2016, the year before the acquisition. The group as a whole did not reveal its financials. But the example suggests margins aren’t fat in this segment.

Analyst Views

Views of analysts Skift spoke with were mixed, and Booking Holdings’ stock price didn’t change on the news.

“HotelsCombined has relatively low traffic and mobile share, according to data from analytics firms SimilarWeb and App Annie,” Dan Wasiolek, senior equity analyst at research firm Morningstar, said in an interview.

Wasiolek said: “According to App Annie its strongest mobile app exposure is in Asia — it is pretty strong in South Korea [with about 50 percent of the company’s recent mobile app installs] — and in the Middle East — Lebanon is fairly strong, which are growing regions.”

“Still, we [at Morningstar] are a bit surprised that Booking acquired the company given its platform already has high awareness in many Asian and Middle Eastern nations, based on mobile app rankings from App Annie,” Wasiolek said.

Another analyst for a research firm following Booking Holdings was unimpressed with the deal but declined to go on the record with comments.

A third noted the deal seemed like a wash. The gains in metasearch and affiliate, or reseller, sales are incremental, given that they take a cut of a cut of revenue — making the model less lucrative than flagship brand’s online travel agency model.

A positive research note came from SunTrust Robinson Humphrey analyst Naved Khan, who wrote Monday that the “deal makes strategic sense.”

One reason given was that HotelsCombined might help the conglomerate gain market share in countries where Kayak’s metasearch brand has been slow to woo fans.

“We saw higher Google search interest for HotelsCombined vs. [Expedia Inc-backed] Trivago in South Korea,” Khan said, citing one market as an example.

Why Do the Deal?

Industry experts floated a few theories to explain the acquisition.

One was that Booking Holdings wanted to fill some country gaps.

The conglomerate may have decided it would be cheaper and faster to acquire a company, HotelsCombined, that was a market leader in select countries than to invest in its metasearch brand Kayak to grow its own share of consumer demand and regional supplier relationships.

The test of this theory will be if Booking Holdings continues to invest in the brand.

Another theory was that Kayak needed better technology for selling hotels, an area it is weaker in than in selling air. Perhaps HotelsCombined has some processes that are superior at luring a visitor to its website or mobile app to click on a supplier’s ad.

Alternatively, perhaps one of HotelsCombined’s tools for dealing directly with suppliers like hotel chains — such as its Revato product for hotels to manage how their advertisements appear on 9,000 sites — might be superior to Kayak’s technology and processes.

The test of that theory will be whether Kayak keeps HotelsCombined’s technology or brings the acquiree entirely onto its existing technology platform — just as Kayak installed its search engine in Momondo within a year of acquiring it.

Affiliate Play

Expanding its affiliate, or reseller revenue, business may be another strategic reason why Booking Holdings nabbed HotelsCombined.

More of HotelsCombined’s revenue came from its sales from affiliates, or third-party resellers, than from its consumer sales business.

Companies such as TravelSupermarket, and tourism boards, such as Destination New South Wales in Australia, used HotelsCombined’s technology and commercial deals to sell hotel rooms, such as under a white label. For example, Momondo appears to have supplemented its inventory via content from HotelsCombined.

A major player in gross volume bookings for affiliate sales has been arch-rival Expedia Affiliate Network, or EAN. While Booking Holdings does offer affiliate networks, too, such as Agoda’s, adding HotelsCombined’s affiliate business helps challenge EAN more directly.

HotelsCombined claimed to have 18,000 affiliates, or online businesses, using it to resell travel. But it wasn’t clear if the actual active number of users was more like 9,000.

In comparison, EAN doesn’t break out numbers but when is believed to have about as many active affiliate partners as HotelsCombined and to convert more people into buyers than the smaller rival.

Advertising Efficiency

The most cynical guess as to why Booking Holdings wanted HotelsCombined was that it plans to gut the brand and use it as a shell that resells existing Kayak inventory.

In other words, a couple of investment analysts saw the acquisition partly as a way for Booking Holdings to become more efficient at how it spends money advertising on Google.

Having multiple brands offering essentially the same inventory helps the conglomerate drive more traffic from Google. It’s a bit like a cereal maker like Kellogg’s flooding a grocery store aisle with sister brands that offer minor variations on the same product.

For context, we need to look at a similar acquisition from a year ago.

In the summer of 2017, Booking acquired the deeply discounted assets, such as the domain and user information and the mobile apps, of the Brazilian metasearch company Mundi, then one of the best-known names in online travel price-comparison in Brazil.

Kayak does not appear to have invested in the brand other than to essentially have it as a white-label offering for Kayak’s inventory. In this way, the acquisition appears in hindsight to have been primarily a search engine optimization play.

If a supplier like a hotel or Kayak itself gets the top slot in Google search engine results, Booking Holdings inventory can now also appear under the Mundi name in a separate position and under sister brand Momondo in follow-up slots.

A similar logic may apply to Booking Holdings’ decision to acquire HotelsCombined. This theory will be tested in the next couple of years as Kayak chooses — or chooses not — to invest in the brand as a standalone entity.

Supporting this theory is that HotelsCombined differed from Trivago and other metasearch players in not offering much Expedia Inc. content. Based on analysis of SimilarWeb outgoing desktop referrals, in June, 2018, received 38 percent of the clicks generated outbound from HotelsCombined, while HotelsCombined’s own booking path received 14 percent. Expedia brands seemed to have a negligible traffic volume from HotelsCombined in June.

Maintaining the brand and its technology might prove costly. Based on SimilarWeb data, HotelsCombined web visits were down by about 30 percent, year-over-year, to 10 million in June, 2018, versus 15 million in June, 2017. So more marketing expenditure, such as TV ads and online ads, might be required.

A gutting of HotelsCombined might affect consumers. The core audience of HotelsCombined were price-sensitive shoppers who were eager to try to find rates that undercut the ones posted on better-known brands like

Several of the smaller online travel players HotelsCombined supported as advertisers were small companies that often offered rooms at wholesale rates that hotels didn’t want available widely online.

As an independent company, HotelsCombined escaped pressure from hotels to clamp down on such rogue online wholesalers. But a public company like Booking Holdings might be pressured to clamp down on such activity. Such a clampdown, in turn, might reduce the appeal of the HotelsCombined brand to consumers.

But a clampdown on smaller players could boost overall traffic to flagship brand

Who Might Booking Holdings Buy Next?

A few other metasearch businesses are similar to HotelsCombined and might make attractive acquisitions by either Booking Holdings or one of its competitors.

Avisasales stands out as an online travel group that serves Russia, where about 80 percent of its sales take place, and other neighbors and Central European countries.

Aviasales is smaller than HotelsCombined. In the past year, ending June 30, 2018, the amount of paid transactions originating from Aviasales’s group of online properties amounted to $1.135 billion, the company’s CEO Max Kraynov said in an interview. That’s less than the $2 billion in bookings HotelsCombined claimed to have generated for suppliers in 2017.

Aviasales booked about $35 million in revenue in the past year — an amount the CEO plans to grow by at least 30 percent in the next year. Compare that to Booking Holdings, which boasts annual revenue growth of about 17 percent.

The Aviasales group, headquartered in Phuket, Thailand, has consumer-facing price-comparison search brands like and JetRadar in geographies where Booking Holdings, Expedia Inc, and Ctrip are relatively weak.

For example, in Russia gets 20 percent of its referral traffic from Aviasales, more than it gets from its own branded site and mobile app, according to SimilarWeb.

In Russian online travel metasearch bookings, Aviasales claims that it has nearly half the market in Russia, with Skyscanner having about a third. Yandex — a search engine that supplements its online travel agency results with data from Icelandic travel metasearch company DoHop — has about a tenth of the market. Momondo and Kayak together have at another tenth of the market, Aviasales claimed.

Like HotelsCombined, the Aviasales group, which has 145 employees, also has an affiliate network, Travelpayouts, that appears to be thriving. Travelpayouts incorporates deals sourced from Aviasales and Jetradar. It also redistributes offers from brands like, BlaBlaCar, GoEuro, Viator, and others.

Unlike HotelsCombined, Aviasales has raised outside funding, namely, $10 million from iTech Capital. Also unlike HotelsCombined, 80 percent of its business is in air tickets, which tend to have lower commissions than hotels.

Another price-comparison company similar in profile to HotelsCombined is Wego, which is strongest in the Middle East and in Asia Pacific. For more, see Skift’s recent Wego profile.

Meanwhile in Europe, claimed to have sold more than $117 million in airplane tickets in June 2018 alone. See Skift’s profile of fast-growing

Metasearch Is Back

Senior Skift Research Analyst Seth Borko said, “Clearly, Booking still sees a potential for metasearch so long as it is not perceived to be a direct threat.”

Advertising efficiency aside, Borko noted: “This acquisition is a further vote of confidence in Kayak’s leadership team within the Booking Holdings organization,” Borko said. HotelsCombined will sit under Kayak.

Booking Holdings’ “Advertising and Other” revenue line item, which includes Kayak, OpenTable, and Momondo, among others, was $930 million over the last four quarters, or nearly seven percent of the total company.” Note: Last month, OpenTable was reorganized to report to Kayak.

Borko said, “The HotelsCombined transaction gives us a little bit of insight into Booking Holdings’ approach to advertising.”

It turns out that the company is not down on metasearch as a customer acquisition model, even though it recently pulled back on advertising in some metasearch channels like Trivago and TripAdvisor. For example, it trimmed its share of advertising expenditure on Trivago from 43 percent of Trivago’s revenue in full-year 2016 to 38 percent in the first-quarter of 2018, Borko noted.

A Vote for Kayak

Glenn Fogel, CEO of Booking Holdings, has said he has been “concern[ed] since some of [advertising] partners use our advertising dollars to compete with us in the advertising funnel.”

Fogel also made a vote of confidence in metasearch when he okayed the acquisition of UK and Denmark-based metasearch site Momondo Group for $550 million in cash in February, 2017.

Fogel is a known wheeler-and-dealer, though. So expect the company to remain in a shopping mode.

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Tags: booking holdings, hotelscombined, kayak, mergers and acquisitions

Photo credit: A still from a TV advertisement for travel price-comparison search company HotelsCombined that played in South Korea this spring. The brand was snapped up by online travel conglomerate Booking Holdings on Monday. HotelsCombined

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