EXPE Stock in Great Shape after HomeAway Acquisition
Online travel bookings giant Expedia Inc. (NASDAQ:EXPE) announced plans to buy property rental marketplace, HomeAway, Inc. (NASDAQ:AWAY) in a $3.9 billion acquisition deal last week. Of the many acquisitions this year, this is one deal that’s truly making sense. Here’s why I believe EXPE stock will witness good days ahead.
2015 marked the year of major business consolidations in the travel industry as we saw rivals coming forward to take stakes in each other’s businesses. TripAdvisor joined hands with Priceline; in China, Ctrip and Qunar Cayman Islands ended up taking indirect stake in each other; and earlier this year, Expedia successfully completed its acquisition of Orbitz Worldwide. The looming threat of new entrants has online travel agents (OTAs) sweating. Consolidation remains the only means of survival.
Expedia’s latest acquisition of HomeAway comes at a time when HomeAway’s close competitor, Airbnb, is gearing up for its initial public offering (IPO). Airbnb, also a rent lodging travel web site, has been becoming increasingly popular amongst millennials for its low-priced rental inventory.
The move to acquire HomeAway comes with the intention to drive Airbnb out of the market before it can gain further ground. The threat from Airbnb is real and one can gauge it from the fact that Airbnb is valued way over HomeAway even before going public. Should it go public, it’ll be able to raise enough capital to take on industry bigwigs Expedia and Priceline.
The fundamental difference between Expedia and Airbnb has been their target market, as Expedia served to the higher price points. But Airbnb’s rising popularity amongst millennials raised concerns at Expedia HQ. We have been seeing Expedia slowly changing its strategy, as it shifted its focus from sales price to sales volume. The company has been cutting down on margins through its loyalty programs and deal offerings to give a boost to bookings volume. For instance, in the latest quarter, hotel room rents were slashed, resulting in a growth in room bookings both domestically and abroad.
Likewise, albeit slowly and on a smaller scale, Expedia has been adding apartment-style rental property to its inventory. The latest acquisition of HomeAway will help Expedia counter the threat from Airbnb. Airbnb has a strong and growing rental property inventory which puts a pressure on hotel bookings. With HomeAway’s acquisition, Expedia will be able to step up its rental inventory.
Coupled with Expedia’s online dominance and heavy marketing, the acquisition will unlock greater synergistic value from the deal than what HomeAway could have achieved by itself. Expedia’s acquisition of Orbitz Worldwide earlier this year has also proved a boon to its business, boosting its air ticketing side. The only downside I see is the acquisition-related costs that will add up with the ones from the last acquisition. But with a strong cash position, manageable debt and an expected boost to future revenue, EXPE stockholders have little to worry about.
The Bottom Line on EXPE Stock
These are good times for the travel industry to win big business from the hundreds of thousands of baby boomers who are retiring this decade, and Expedia’s dominance in the industry well-positions it to achieve it. Also, Expedia’s acquisition comes just in time to strengthen the company before new entrants like Airbnb make it to the market.
With a history of a strong dividend payout that has increased consistently for the last six years, EXPE stock is poised for huge gains as we move into 2016.