Sally White analyses recent events at the world’s biggest OTA and considers the feasibility of a tie-up between two of the biggest names in online travel and a likely Huston successor
Brokers are cheering even if shareholders are not so sure. The recent change of regime at Priceline is being seen on Wall Street as a chance for business - a signal to line up take-over stories. Writers at news agency Bloomberg have spotted a good one. The favourite rumour is that maybe now that he is back in harness as CEO (albeit temporarily), the legendary Jeffrey Boyd might like to take over TripAdvisor.
After all, unlike Darren Huston, the just-displaced CEO who largely believed in organic growth, when Boyd ran Priceline (2002-2013) he was an out-and-out M&A man. He took over Bookings.com in 2005 and then Kayak. As far as analysts are concerned Booking.com, now world leader in online accommodation booking, has been the making of Priceline.
Not that Boyd is short of things to do. Not only has his successor, groomed for the job for two years, left abruptly after breaking company rules by having a ‘personal relationship’ with an employee, there has been a second exodus in a key part of the company. Paul Hennessy, who has acted as CEO of the Priceline.com brand since 2015, has gone. (He has moved over to head Vroom, a leading player in the US used car market, at $450 billion pa this is the country’s largest retail market. It moves double the number of new cars sold annually, and is mainly online.)
Now back running Priceline, suggest the Bloomberg writers, Boyd may not want to make any big changes ahead of new management coming in. However, no one knows the company better than he does and TripAdvisor is a deal opportunity he might not want to miss - or let Expedia get a hold of.
Playing a different game
Following dramatically different tactics in the $1.4 trillion global travel market, Expedia has continued on a buying binge. Thus Expedia has been growing faster than Priceline as it added brands such as Travelocity, Orbitz Worldwide and Homeaway to its portfolio.
For analysts, this drama has come at a good time for the travel shares’ business. Investors have been selling as China slows, marketing costs soar and on the succession of terrorist attacks and plane disasters impacting on key tourist destinations. Plus, following the law of large numbers, Priceline’s growth story is seen on Wall Street as slightly less wonderful than of yore as its size catches up with it. So, a bid is a story that could create buyers of stocks!
Not that Priceline is in bad shape - it is not at all! Huston took good care of the business and its money. Its operating performance is great in comparison to peers (as noted by Capitalcube investors’ site), it has relatively high profit margins, earnings increases are impressive (if sales less so), its high returns to investors look sustainable, debts are relatively low and it can well cover interest payments. He did invest in China’s Ctrip and Latin America’s Hotel Urbano and buy OpenTable, but these were seen as small beer. Analysts have been less than impressed by the latter’s subsequent pace of growth.
Priceline's Q1’s report to shareholders said it all. While those months’ earnings rose by 12% and revenue by 17%, guidance was that growth is slowing. The steer for Q2 figures was earnings in the range of $11.60 - $12.60 - analysts had been looking for around $14.96. The fear is that continuing tough global economic conditions will cut hotel rates.
During Huston’s four-year tenure, numbers soared - room nights booked tripled, profits rose from $1.4 billion to $3.26 billion and the group’s value on the stock market climbed by 173% to $66 billion. He was ahead of the game in introducing business services to the hotel industry. Professionally, he left on a positive note.
So, to TripAdvisor. This is the travel industry’s last major publicly traded acquisition target in the US. Recent weakness in TripAdvisor’s share price mean it could be a good time for someone to try to take it.
Despite the industry headwinds, and its falling share price however, it would not come cheap. Here is a very rare chance to gain precious market share for a company wanting to expand its global footprint. Around 52% of TripAdvisor’s business is in the US, 32% Europe and Middle East and Africa, 11% in Asia Pacific and 5% in Latin America. The Bloomberg writers put a price on it of around 45 x earnings before interest and depreciation - around the same ratio that Priceline had to pay for OpenTable.
Another deterrent could be TripAdvisor’s complicated ownership structure.
Meanwhile, Boyd has also got to find a permanent replacement for Huston. He could decide to go for someone who does not have to go through a huge learning curve and promote from internal candidates. Yet Wall Street is speculating that with so much flux in the industry he will go for someone with a perspective from outside travel.