No deal on OTA market share steal by Amazon, say analysts

Third quarter results for The Priceline Group and Expedia Inc. triggered a nervous reaction on Wall Street after the online travel giants respectively experienced notable declines in their stock values.

But several of the analysts who spoke on the panel “Executive Roundtable: Street Talk,” during the 2017 Phocuswright Conference in Fort Lauderdale, sought to assuage those fears.

Expedia stock jumped 46% in 2015 while Priceline came off of 2016 with 13 straight quarters of beating analysts’ expectations, but not even their respective market caps of $18.9 billion and $87 billion –the latter greater than that of Marriott and Airbnb combined—can buy them immunity from the cyclical nature of the market.

Mark Mahaney, managing director at RBC Capital Markets, points to the buying opportunity currently at hand.

“They’re extremely good assets and extremely well positioned and it will take a couple of quarters to see if their growth rates are more like 10 or 20 percent, but they’re staples and long-term projections haven’t changed nearly as much as stocks might imply.”

There was consensus between UBS managing director Eric Sheridan and Lloyd Walmsley, analyst at Deutsche Bank Securities, over the fact that management changes at both Priceline and Expedia have likely made investors skittish, with Walmsley noting “a change in strategy unnerves investors who like stability.”

Both also dismissed the possibility of Amazon potentially stealing online travel agency market share, agreeing that Amazon’s repeated attempts in the travel space have never born fruit and scaling up comparable inventory would be a long, slow road for the online retailer.

Developing the requisite technology and global marketing reach would also be costly.

Google, however, is already a recognized competitor as a metasearch engine to Priceline’s Kayak and Expedia’s Trivago.

UBS is betting that’s as far as Google will go. Sheridan says:

“Our view is that Google wants to own more of the top of the funnel of than the bottom.”

Deutsche Bank Securities is more cautious and Walmsley suggests that because businesses worldwide need a presence on Google consumers tend to begin their searches here, the company has the potential to move further down the funnel.

The Phocuswright white paper “Travel Metasearch –Just Google It?,” released at the conference, supports the rise of travel metasearch –43% of US travel shoppers used it in 2016, compared with 28% in 2010—as well as Google’s lead position among metasearch sites.

Google has gained in flights, surpassing market leader Kayak in 2015 and it also sends traffic downstream to more airlines and hotel websites than other metasearch platforms.

In fact, in the first half of 2017 hotel websites have enjoyed some gains from Google, TripAdvisor and Trivago’s metasearch platforms, compared with the same time period in 2015.

But Rachael Rothman, senior analyst at Susquehanna Financial Group, attributed gains in hotels’ direct bookings to the power of hotel brands and their loyalty programs.

“Ninety-two months into the recovery, I think brand power will start to come into effect and hotels that move away from brands to OTAs will suffer and underperform.

“Scale is working and occupancy and stocks are at an all time high and there’s no sign of waning demand. True, there’s no pricing power, but demand is the issue.”

Rothman also describes loyalty programs as “a big deal that will become a bigger deal.”

Sheridan and Walmsley offered different views. Sheridan doesn’t put much stock in rewards programs because they don’t drive much velocity in travel and have more appeal to business travelers than the consumer market place.

Walmsley based his take on the perspective of asset owners:

“loyalty irks owners who underwrite the loyalty expense and who are not pleased about the pricing involved or having to fund it.”

Related reading:

Priceline Group’s goal: a starring role in the vacation rental market

Expedia Inc. Q3s home in on HomeAway

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