Expedia Inc (NASDAQ:EXPE) and Priceline Group Inc (NASDAQ:PCLN) are the two biggest players in the online travel market space. Both companies have gone on a buying spree the last few years, gobbling up most of the competition. Expedia and Priceline now control about 95% of the U.S. market, making any competition from small rivals almost non-existent. (Source: “An Investor’s Complete Guide to Expedia,” Market Realist, September 28, 2015; http://marketrealist.com/2015/09/expedia-global-heavyweight-travel-industry/.)
Over the past year, Expedia stock and Priceline stock are up about 27% and 15.5%, respectively, but which of these two stocks has more upside potential?
To answer that question, let’s compare some metrics and see which stock is the winner…
For this measure, we will be using earnings before interest, taxes, depreciation, and amortization (EBITDA). Because EBITDA makes these exclusions, this metric will give us a clearer picture of each company’s core profitability. In the latest quarter, EBITDA growth for Expedia and Priceline both came in at 11%.
Over the next five years, Expedia is expected to growing earnings at an average annual rate of 21.75%, while Priceline is expected to grow earnings by 18.56%. It’s close, but Expedia wins this metric by a hair.
Number of Listings
The number of listings is an indicator of each company’s competitive advantage. The more listings a company has on its site, the more people are likely to visit the site. And the more people visit the site, the more likely there will be more listings, as hotels want to advertise on the site with the most visitors.
Using this metric, there’s not even a contest.
Priceline’s Booking.com is the world’s largest travel booking site, and accounts for the majority of Priceline’s revenue. In the fourth quarter of 2015, Booking.com had more than 850,000 hotel and accommodations listed on its site. (Source: “The Priceline Group Reports Financial Results for 4th Quarter and Full-Year 2015,” Priceline Group, last accessed March 14, 2016.)
By comparison, Expedia has only 269,000 hotel and accommodations. (Source: “Expedia, Inc. Reports Fourth Quarter and Full Year 2015 Results,” Expedia Inc, last accessed March 14, 2016.)
If you’re a dividend investor then you may weigh more importance on this metric. Expedia is the automatic winner, since Priceline does not currently pay out a dividend. Expedia pays a dividend of $0.96 per share and at its current price, the stock has a yield of 0.84%. Expedia has been paying a dividend since 2010 and has been raising them every year for the past four years.
We also want to determine how cheap the stocks are by comparing its earnings to the price of the stock. Both stocks are reasonably priced. Expedia and Priceline trade at 28.10 and 20.31 times forward earnings.
The Winner Is…
Both Expedia and Priceline are great picks for any investor’s portfolio. Both companies are growing at about the same rate, but Priceline has a huge competitive advantage in the number of hotel listings on its site. Priceline is cheaper, too. Using those two metrics, it might be better to consider Priceline for a growth-ordinated portfolio.