Growth in the U.S. online travel market has witnessed a slowdown, which resulted in online travel agencies (OTAs) such as Expedia Inc (NASDAQ:EXPE) exploring other profitable markets. The Asia-Pacific region is a rapidly growing market, especially for the online travel industry. At present, Expedia possesses a 4% market share in the Asian-Pacific online travel market.
It must be noted Expedia’s revenue generated from international markets increased from 35% during 2008 to 45% in 2012. Going forward, one would expect it to draw more than 50% of its revenue through international markets.
In order to successfully expand its international footprint, it must have a long-term vision and a superior growth strategy for unexplored markets. I believe the underlying growth potential in the Asia-Pacific region can certainly drive Expedia Inc (NASDAQ:EXPE)’s revenue in the future. Hence, I have a bullish view on this stock.
Asia Pacific offers plenty
According to a research offered by eMarketer, online travel sales from the Asia-Pacific region are expected to increase 15% to $91 billion during 2013. Furthermore, the market is estimated to grow at a CAGR of 18% until 2016. This underpins my belief that Asia-Pacific is one of the fastest-growing online travel markets in the world.
In addition, the entire region reported robust economic growth despite the global meltdown of 2008 and 2009. It is noteworthy that from 2007 to 2012, the average per-capita disposable income in the Asia- Pacific region grew 19%.
Moreover, per-capita consumer spending from this region is expected to grow by around 37% during the next seven years. The travel industry in this region has flourished primarily due to relatively higher consumer spending. It is well comprehended that discretionary spending has a direct relationship with disposable income.
A recent research published by Internet World Stats revealed that broadband penetration in Asia is relatively lower than in Europe and the U.S. At present, Asia stands at 27.5%, while Europe and the U.S. are at around 63.2% and 78.6%, respectively. However, the constantly growing demand for broadband from the the Asia Pacific region will enable Expedia to penetrate newer markets and expand its global footprint.
Initiatives to bolster market share through local partnerships
Expedia Inc (NASDAQ:EXPE)’s presence in the Asia-Pacific region so far has been fairly limited. However, forming strategic partnerships with local players will enable the company to enter newer markets with a better understanding of local preferences.
Recently, Sabre and Expedia took their global technology partnership to another level by expanding into Asia in order to provide Expedia’s users a wide range of travel options at extremely competitive prices.
Further, during July 2012, Expedia partnered with Thomas Cook Group plc (LON:TCG) India in an effort to provide end-to-end visa services to its customers. India is a fast-growing outbound market with an estimated growth rate of 16%. Thomas Cook’s strong presence in India will help Expedia to gradually capitalize on the rapidly growing Indian market.
Expedia Inc (NASDAQ:EXPE) also entered into a knowledge-sharing agreement with China’s leading OTA eLong, Inc. (ADR) (NASDAQ:LONG), in an attempt to grow its presence in China. Expedia is a major shareholder in eLong, and the new agreement is expected to improve the relationship. With a massive population and a rapidly growing economy, China is a highly lucrative market for Expedia. According to Expedia’s internal estimates, the Chinese online travel market is expected to surpass the $100 million mark by the end of this year.
Competitive landscape
Expedia Inc (NASDAQ:EXPE) competes directly with Priceline.com Inc (NASDAQ:PCLN). So far, Priceline has relied on strategic acquisitions in order to expand its footprint in the U.S. market.
At present, Priceline faces a serious threat from Expedia, although it surpassed Expedia in terms of revenue during 2010. Nonetheless, Expedia Inc (NASDAQ:EXPE) still dominates the U.S. market with a staggering 43% market share relative to which Priceline only holds 11% share.
Recently, Priceline completed its acquisition of Kayak for a whopping $1.8 billion. The company plans to strategically leverage this acquisition, similar to what it has consistently done in the past. With more than a 50% share in the meta-search market, Kayak’s acquisition is expected to facilitate Priceline in penetrating deeper into the U.S. market
Currently, the company is completely dedicated to capitalizing on the rapidly growing travel market in Asia. Nonetheless, so far it has experienced maximum traction from the European region.
Priceline reported a revenue growth rate of 33% in the last fiscal year. The staggering increase in revenue was primarily underpinned by strong growth witnessed in the European travel market.
The online travel agency has successfully created its presence in the large European market; nonetheless, with rapidly rising competition, it faces a serious threat of losing ground to more accomplished local players. Therefore, it becomes essential for the company to consistently develop on its existing presence in Asia in order to sustain overall growth.
Tripadvisor Inc (NASDAQ:TRIP) is another direct competitor to Expedia. As the industry is rapidly growing, thus, TripAdvisor also posted a 20% increase in its 2012 revenue. The strong growth was predominantly through increases in hotel shoppers and consistently growing international users.
The steady increase in revenue can be attributed to the growing traffic on its website through international markets. It is noteworthy that approximately 60% traffic on its websites is through international markets and only the remaining 40% comes through primary markets such as the U.S. and the UK.
To further bolster its presence in the international markets and enhance overall user engagement, TripAdvisor has started to produce website content in local languages. Going forward, this will provide the company with a distinct competitive advantage over its peers.
TripAdvisor launched its mobile website approximately three years back, in addition to offering mobile apps on several Internet-enabled devices. It is noteworthy that TripAdvisor’s app is the second most downloaded app after Google Inc (NASDAQ:GOOG) earth. To further bolster its revenue, TripAdvisor entered into a contract with Samsung, enabling its offering to be the only standalone pre-installed travel app on mobile devices.
Key takeaway
With markets such as the U.S. and the UK nearing saturation, several OTA companies are targeting international markets in order to sustain a healthy growth rate. In the present scenario, Asia Pacific is the fastest-growing market, hence, several OTA companies are attempting to enter the growing market by forming strategic alliances with local players.
I believe the initiative to form strategic partnerships will enable Expedia to deeply comprehend the local markets and augment its services accordingly.
While entering the fast-growing markets will help Expedia in the long run, the heavy investment required to sustain such a move may impact its margins and cash flow in the near term.
However, in the long term, Expedia Inc (NASDAQ:EXPE) seems primed to develop the underlying growth that Asia–pacific offers, hence, I advise investors to be patient and hold on to its stock.
Kiran Gulati has no position in any stocks mentioned. The Motley Fool recommends Priceline.com and TripAdvisor. The Motley Fool owns shares of Priceline.com and TripAdvisor.
The article Why Should You Be Bullish on Expedia? originally appeared on Fool.com.
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