Airports are busy as travelers finally disembark after a two-year hiatus. During the long hiatus in the global travel market, a new competitor – Alphabet’s Google Travel (GOOG 1.19%) (GOOGL 1.28%) – was born. The growing Google Travel service has advantages over Expedia (EXPE 3.26%) and other online travel platforms. As travelers return to normal business operations, Expedia may not. Here’s why.
New sheriff in town
Online travel platforms like Expedia and its subsidiaries — Hotels.com, Vrbo, Travelocity, Hotwire, Orbitz, and trivago — have rapidly grown their revenue metrics for over a decade. For example, Expedia had just over $3 billion in revenue in 2010. Read also : Food prices are pushing the poorest and richest countries. Through acquisitions and organic growth from travelers using online platforms, Expedia grew its revenue an impressive 16.7% per year to $12 billion in 2019 before the coronavirus slowed travel overall.
Most online travel platforms are commercial in that hotels, airlines and car rental companies offer their services on the platforms for a fee. In turn, Expedia and other platforms generate traffic to their websites and sell services that otherwise would not have been sold.
The system was symbiotic until Google stepped in. Last year, Google parent company Alphabet allowed hotels and flights to be listed on Google Travel for free, effectively bypassing online travel platforms. The move came at a fairly innocuous time as the travel industry was still licking its wounds from the coronavirus. However, hotel operators and airlines have sought to cut costs during the slowdown. The free Google Travel platform may have been just what the doctor ordered.
Expedia may also list its services on Google Travel. In 2022, the percentage of times Expedia appeared on Google Travel with the cheapest hotel dropped to a fraction of what it was in 2020. At the same time, listings from hotels’ official websites on Google Travel gained significant traction. In response to the proliferation of Google Travel as a competitor, Expedia CEO Peter Kern noted, “We accept their game as it’s given to us and we have to play it.”
Now what?
A possible changing of the guard could not have come at a worse time. The stock is down over 50% this year as airlines struggle with staff shortages holding back pent-up travel demand. Travel spending is projected to hit $1. See the article : Walk Back Time With Street View and Map Archives.1 trillion in 2022, down just 10% from 2019. Expedia investors hoping for a breath of fresh air as bottlenecks are fixed shouldn’t hold their breath.
Google Travel probably won’t bring Expedia to its knees, but it could sting. Google dominates internet search. As a result, Expedia may need to increase its advertising budget and get creative in getting travelers to go directly to their websites instead of Google.
Additional costs of competing with Google Travel could eat away at Expedia’s already thin margin. Excluding 2020 and 2021, the company’s net margin has averaged 5.6% since 2012. If new competition or customers bypassing Expedia and its other platforms push it to lower net margins, the stock may not return to its previous highs. Worse, if Expedia posts negative earnings, it will be difficult for investors to find any value in the stock at all.
Global inflation and recession fears appear to have gripped equities this year, creating many great opportunities for savvy long-term investors. Expedia may not be one of them.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. BJ Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. BJ Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.
