Bank Of America Analyst Sees 7% FY15 Growth For Online Travel, Notes Google As A Threat

The online travel market will grow 7 percent in the coming year while lower oil prices should spark more travel, an analyst said Tuesday.

In the meantime, stiff competition will require high spending on marketing by online travel companies, while a strong dollar will hurt profits, according to Bank of America's Justin Post.

Priceline Group Inc PCLN is Post's "top pick" in the sector, with a $1,310 target because of its growth outlook and stock price. Post also maintained a Buy rating on Expedia Inc EXPE with a $91 target, citing confidence in its earnings forecasts.

HomeAway, Inc. AWAY got a Neutral rating and $37 target from Post, who tagged Tripadvisor Inc TRIP with Underperform and $81 target, citing the two companies' high spending on marketing and competition with online travel agencies.

Priceline currently has an estimated 13 percent share of the world's market for hotel rooms, according to Post, "leaving room for further penetration."

Despite its recent slowdown in international bookings growth, Priceline is gaining market share from offline and regional competitors at twice the rate of Expedia, while its stock price relative to its growth rate is cheaper than peer companies, Post said.

Post likes Expedia's stable growth trend, 6 percent hotel market share, and what he sees as improving performance by its management. The company is at risk, however, from competition for its European traffic as well as from the increasing availability to hotels of lower-cost distribution channels.

Expedia's stock has proven highly volatile in response to travel industry trends according to Post, "and this volatility could increase due to increasing economic uncertainty."

A threat hanging over the entire online travel sector is Google Inc GOOGL.

"It seems like Google is beginning to experiment with executing bookings," Post said, which may be a prelude to "a more aggressive posture by Google in the travel vertical."