DA Davidson Projects Increased Competition Between Expedia, Booking Holdings, Takes Neutral Stance On Trivago

Online travel giants Expedia Group Inc EXPE and Booking Holdings Inc BKNG, formerly Priceline Group Inc, both changed their name in 2018 to better reflect the global services they provide.

D.A. Davidson initiated three companies in the sector in a report out Tuesday. 

The Analyst

Analyst Tom White initiated coverage on Booking Holdings with a Neutral rating and $2,260 price target. White initiated coverage on Expedia with a Buy rating and $132 price target. The analyst initiated coverage on Trivago with a Neutral rating and $7.30 price target.

'Elevated Competition' Between Booking Holdings, Expedia 

Priceline’s Group’s recent name change to Booking Holdings was made in part to better reflect the company’s commitment to the shifting travel landscape that continues to skew toward more alternative accommodation and emerging travel destinations like Asia.

The alternative accommodation and emerging growth travel market is very fragmented, and White said Booking Holdings, the global leader in hotel bookings, is positioned better than anybody to capitalize on the market's fragmentation.

Still, Booking Holdings is not without fierce competition, and it will see an aggressive property supply push from Expedia, which is following a similar trajectory in expanding into more alternative accommodation methods, the analyst said. 

“BKNG's primary competitor EXPE has renewed its focus on expanding its lodging supply, and we expect elevated competition for hotel contracting in key European/Asian destinations. It's unclear what impact, if any, EXPE's push might have on Booking.com's access to room inventory at its hotel partners or its revenue margins,” White said.

Expedia's Three Growth Drivers

Expedia is banking on its loyalty program and broader suite of travel products to drive growth, neither of which Bookings Holdings offers, White said. 

Expedia CEO Mark Okerstrom’s vision for reigniting growth has concentrated on three areas, according to D.A. Davidson: ramping lodging property supply, increased customer focus and faster speed of execution.

“Aggressive property supply expansion gives EXPE its best shot at materially closing its historical growth and profitability/margin gap relative to its largest competitor over time, in our view,” White said.

Supply appears to be one of the most critical factors facing Expedia, as the company's inventory lags behind Bookings Holdings in key European markets, the analyst said. Expedia has one-third of the supply and half the number of properties in key Asian destinations, he said. 

Trivago: Wait And See 

Meta-search travel agency Trivago NV-ADR TRVG is facing a challenging monetization landscape, and White said investors should wait for more concrete evidence that the company is on the path to consistent profitable growth.

Online travel agencies are allocating their spending to other marketing channels, effectively squeezing Trivago’s margins with lower cost per click fees, the analyst said. 

“In response, TRVG is re-orienting its customer acquisition marketing toward 'higher-quality' traffic that is likely to eventually (vs. immediately) convert. This response makes sense to us, but will push out any meaningful recovery until 2H18 at the earliest in our view." 

Price Action

Trivago shares were down 2.55 percent at the close Wednesday, ending at $6.50. Expedia shares gained over 2 percent and closed at $109.26. Booking Holdings gained 0.17 percent to end the day at $2,071.01. 

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