Expedia Group’s Conundrum: Acquisitions or Share Repurchases?

Expedia Group hasn’t pulled off a major acquisition since buying HomeAway for $3.9 billion in 2015, but in thinking about the intervening years, the company’s chief financial officer made it clear Expedia won’t sit idly by with piles of cash.

The issue basically comes down to doing share repurchases or making acquisitions, and the company’s preferred option has ebbed and flowed over the years. Expedia Group favors share repurchases and reducing its share count to boost earnings, but it intends to be open to acquisitions if the right opportunity comes along, according to Expedia Group CFO Alan Pickerill.

“So we’re inclined to deploy that capital and to deploy the free cash flow,” Pickerill told attendees at the Citi 2019 Global Technology Conference in New York City Thursday. “I won’t sit here today and promise that every year, year in and year out, we’ll deploy it all, but over the long term, we’re not inclined to kind of build up that cash balance over a long period of time.”

As of June 30, Expedia Group had $5.5 billion in cash and short-term investments. Much of that is a product of the company’s merchant model hotel and alternative accommodations business, where Expedia Group receives prepayments at the time of bookings, but recognizes revenue at the time of travel.

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Pickerill characterized the prepay merchant model — as opposed to the agency model, when travelers pay the hotel at check in — as a “good tailwind” for the business.

In contrast, Booking Holdings, which generated more second quarter revenue than Expedia ($3.9 billion versus $3.2 billion) had $6.8 billion in cash and short-term investments on hand. Expedia gets a much higher percentage of its revenue from merchant model sales than does Booking, which is ramping up that prepay model as it grows its alternative accommodations business.

Acquisitions on the Table?

When it comes to mergers and acquisitions, Pickerill said Expedia Group thinks it can take a go-it-alone approach when it comes to building its tours and activities business, which already does some $500 million per year in gross bookings.

“We feel like we can build the business organically just fine but we will be opportunistic on the M&A side,” Pickerill said.

While Expedia intends to grow its tours business organically, rivals Booking Holdings and TripAdvisor both acquired tours and activities technology companies in 2018 as a foundation for their respective businesses.

Pickerill said Expedia Group has high hopes for its experiences business, and the company has been busy signing agreements with tour suppliers.

Because of technology improvements across the sector, the CFO said, “we’re increasingly able to get automated supply acquisition.”

Vrbo Wants to Go Urban and Global

On the alternative accommodations front, Expedia’s former HomeAway unit, which it has rebranded as Vrbo, doesn’t appear to have major acquisitions on the front burner although Pickerill said “they’ve made some small acquisitions that give them some tools to operate more effectively in urban markets.”

He said Expedia Group has some advantages in leveraging its various brands to build the homesharing business without making big acquisition deals. Among the tactics, Expedia.com — and not just Vrbo — contracts directly with vacation rental management companies and owners. Expedia’s Hotels.com might be in on some of the homesharing action, too.

Of course, in the current era, where Big Tech is facing a backlash, substantial acquisitions by major travel companies may be subject to increased scrutiny.

Just ask Sabre and Farelogix, which saw the U.S. Department of Justice intervene to try to block their deal.

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