The online travel industry is booming and is the place to be, from an investment perspective. In terms of returns for shareholders, a classic example is TripAdvisor (TRIP). The company has given a return of 220% in past two years. Further, MakeMy Trip Limited (MMYT) and Expedia (EXPE) can potentially be the next big thing. Let us look at what are the upside triggers for these companies
Upside Triggers for TripAdvisor
TripAdvisor is an online travel research company which features reviews, opinions of travelers about destinations, accommodations, recreations and activities through the TripAdvisor brand. The company operates as tripadvisor.com in U.S. TripAdvisor also has a localized version in 30 countries and operates as brand daodao.com in a major market, China.
emarketer estimates that the global advertisement spending will be $163 billion in 2016, increasing from $103 billion in 2012. TripAdvisor's major source of revenue is click and display-based advertising, which is likely to benefit from this growth. For TripAdvisor, user traffic has increased from 32 million in 2008 to 260 million unique monthly visitors in 2013. Higher user traffic will translate into higher click rates and therefore robust revenue growth. The company has introduced metasearch on its website for users to compare the best price offered by different advertisers. This will establish a sense of competition among the partners wherein their frequency of bidding with the company will rise. An increasing number of bids will give a better solution to the users and hence a boost to the company's user base. This Meta session has been rolled out to 100% of the traffic and is expected to increase the clicks per session.
The other traffic growth drivers for the company are increasing use of mobile and tablets. Rising global Internet penetration and online ad spending are the prime reason for the company to invest in mobile and tablets. The company has already launched its application in partnership with Facebook and according to Appdata; TripAdvisor is the most popular app on Facebook with an average of 39 million monthly visitors. The company's upgraded app on tablets has delivered an estimated 20% rise of in revenue from tablet devices. The company also has plans to release its own Android and iPhone app for a better user reach. These initiatives are likely to boost growth for Tripadvisor in the coming years and it should translate into meaningful stock price appreciation.
Upside Trigger for MakeMy Trip
MakeMy Trip is an India-based online travel agency with immense growth potential. The company was listed in U.S in 2010. Investors stand to benefit from the rising Internet penetration and improving disposable income in India. The country has the third largest Internet population globally and is second fastest growing online population. The number of Internet users in India has grown at a CAGR of 20% over a span of four years and it is expected to increase by another 50% in the next two years.
Source: Company Presentation
Also, with e-commerce expanding in India, it has become easier and more convenient to use tablets and smartphones for booking online. With a population of 1.2 billion and an increasing Internet penetration, MakeMy Trip still has a significant untapped market. Another positive for MakeMy Trip is the company's balance sheet. The company has a robust cash position of $84 million. The company also has negligible debt on the balance sheet, which gives flexibility to borrow for future growth.
Upside Triggers for Expedia
Expedia had seen a steep decline in stocks during August 2013; this might have resulted in some skepticism among investors. But the company has recovered from its year low of $46 to $76.9. This recovery could be attributed to the company's growth initiatives.
The most important initiative is the company's stake in trivago, a hotel meta search engine. An important point to note is that the hotel research engine is the most profitable segment for online travel agents. A stake in such a company, which has a hotel inventory of over 700,000 hotels and 195 websites, would give a boost to Expedia's hotel inventory. Moreover, Expedia can leverage tech and mobile expertise to apply to trivago's business in Europe. This will help Expedia to compete and grow against Booking.com and PCLN in Europe.
Expedia is the largest stakeholder in eLong, an online hotel reservation company in China. eLong gives a platform for Expedia to expand into the Asian market. Expedia can gradually capitalize on the vast population in the Asian region, increasing per capita income and rising living standards. Moreover, the company's primary target is to attract customers going from China to other countries. Statistics show that for 2012, there have been 84 million outbound tourists in China, an increase of 18.4% from 2011. I can see significant growth for Expedia's coming from China's increasing outbound travelers.
Travel needs have become diverse and online travel agencies help to provide customized products at a comparable price. In my view, TripAdvisor with its unique metasearch engine and use of technology, MakeMy Trip with its expansion plans in India, and Expedia with its stake in two of the most appropriate hotel search and reservation companies, can be considered as a good investment opportunity.
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