The online travel agency sector is structurally challenged, and the competitive threat from Airbnb poses a major challenge both now and over the long-term, according to many bears. But this isn't the case at all, a Morgan Stanley analyst said this week.
Earlier this week, Morgan Stanley's Brian Nowak upgraded Expedia Inc EXPE's stock from Equal-weight to Overweight with a price target lowered from $170 to $160.
Myth: Structurally Challenged Industry
The OTA sector isn't structurally challenged and still has room for growth, Nowak said in an industrywide report. (See the analyst's track record here.)
Online travel penetration stood at 48 percent in the U.S. and 44 percent in Europe in 2017, and online penetration is projected to experience a "healthy" growth rate of 225 to 300 basis points in 2018, By 2019 the penetration rate should grow to 53 percent in the U.S. and 50 percent in Europe, Nowak said.
Myth: Consumers Don't Like The OTA Model
Younger consumers, especially millennials, are more likely to use an OTA as opposed to booking directly from a brand's website, the analyst said. Among the 18-to-34 age group, 37 percent of survey respondents use an OTA platform versus 13 percent using meta search and 19 percent using a supplier website.
The OTA space will likely continue gaining share as the platform offers a broader choice and selection, more reviews, more offerings and superior mobile apps, according to Morgan Stanley.
Myth: Airbnb Will Take Over
Airbnb is viewed as a game-changer for the online travel agency sector, but this isn't proving to be the case, Nowak said. For instance, the analyst's latest Airbnb survey found that adoption is actually slowing in developed markets and the OTA channel continues to grow.
"If anything, OTAs are becoming larger threats to Airbnb as potential online travel one-stop shops," Nowak said. "Over the long-term, we see the sites that offer consumers the most selection across hotel and alternative accommodations as likely being well positioned for repeat traffic and strong brand equity."
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