TripAdvisor, Inc. (NASDAQ:TRIP) gained a whopping 25% in Wednesday’s trading when it announced its partnership with The Priceline Group Inc. (NASDAQ:PCLN). The heavily shorted TRIP stock now has the shorts tripping, but is the stock going to continue its rally? Likely. Here’s why.
TripAdvisor had been in talks with Priceline for months now in hopes that Priceline would agree to this partnership. Priceline was initially reluctant to give in to the deal with fears that the partnership will drive away traffic from Priceline’s portfolio of travel web sites, shifting the traffic to TripAdvisor’s site. Priceline has finally given the green signal to TRIP to integrate Priceline’s hotel inventory from its portfolio web site Booking.com on TripAdvisor’s bookings platform known as “Instant Booking.”
What It means for TripAdvisor Stock
The new integration will allow TripAdvisor users to make their bookings within its Instant Booking platform without ever leaving TripAdvisor’s web site or app. With the new Instant Booking platform, customers will not only be coming to TripAdvisor for planning trips, leaving ratings, and authoring/reading reviews; they will also be able to instantly book their stays from a massive integrated hotel inventory from Booking.com.
It’s a win-win deal for both parties, since the bookings will ultimately be taken care of by Booking.com, so Priceline takes its share out of each booking. Likewise, TRIP stock is winning, since the new platform will make the customer’s experience quicker and more seamless, driving in more traffic and attracting returning traffic to TripAdvisor.
The move is going to strategically bring TripAdvisor near the top of the tourism industry that stands at a massive $960 billion today. It’s interesting to note, too, that TripAdvisor, which spun off from Expedia, Inc. (NASDAQ:EXPE) in 2011, is now partnering with its previous parent company’s biggest rival, Priceline. The two companies, Expedia and Priceline, are the biggest online travel agents, or OTAs, that jointly hold the biggest share of worldwide travel bookings.
TripAdvisor had already preempted the looming threat to its local presence from startups like Airbnb, another rental services web site that allows users to book their short-term stays online. TRIP launched the Instant Booking feature last year in the U.S. and has subsequently been trying to spread its footprint across the globe. The integration of Booking.com, the most popular bookings web site in Europe, is set to increase TRIP’s European presence.
The online travel industry is becoming increasingly competitive with new entrants and strategic mergers happening right and left. Expedia’s latest acquisition of Orbitz Worldwide, Inc. has brought it head to head with Priceline. Airbnb is the next emerging name in the industry as it gears up for its stock market debut in an initial public offering (IPO).
TripAdvisor and Priceline’s partnership has come at the right time, allowing both TRIP stock and PCLN stock investors to gain from the deal in the long run. If all goes well, two other PCLN web sites, the namesake Priceline.com and Agoda.com, will also be integrated with TripAdvisor going forward. TripAdvisor stockholders should expect more synergies to follow.
Plus, further good news for TRIP stockholders is coming out of Amazon.com, Inc. (NASDAQ:AMZN) this morning, which has decided to shut down Amazon Destinations, the company’s travel and booking service, amid the transforming industry landscape that is evidently changing in favor of TRIP.
The Bottom Line on TRIP Stock
Despite the negative impact of a strong greenback on international revenue, TRIP managed to report great double-digit revenue growth in the last quarter. Revenues and earnings have consistently grown over the years, and the company has an attractive balance sheet with low debt and high liquid cash reserves. With another travel season around the corner, I see a great quarter up ahead.
Bottom line: $100.00 per share may be a bit optimistic for this security, but investors should keep their eye on TripAdvisor stock.