by Alyssa Oursler | August 23, 2013 11:20 am
If you bought Expedia (EXPE) stock on its big earnings dip late last month, you’re having a pretty good Friday morning.
The travel stock opened to 7% gains today thanks to news of a long-term strategic marketing agreement with privately owned rival Travelocity.
The plan is that Expedia will power the technology for Travelocity’s existing U.S. and Canadian websites. Meanwhile, Travelocity will gain access to Expedia’s services.
And the move could be just what a struggling Expedia stock needs. EXPE — even after its jump — is sitting deep in the red year-to-date, all while sister site Tripadvisor (TRIP) and other online travel companies like Priceline.com (PCLN) and Orbitz (OWW) have soared.
Why? Well, while Expedia has made moves to improve its presence in Europe — including dropping over $500 million for a 62% stake in German hotel search website Trivago back in March — tough U.S. competition has been weighing heavily on the stock.
Around the start of the year, the company warned investors that Booking.com — owned by much larger rival Priceline.com — was expanding in the U.S., and that it might hurt Expedia stock. And increased competition across the board was part of the reason for the company’s second-quarter earnings miss and subsequently lowered guidance.
Teaming up with Travelocity, though, is expected to generate more volume and add further scale to the company, according to CEO Dara Khosrowshahi. That means the stock could be equipped to handle tough competition, even if recent booking wars become the new norm.
Plus, Expedia’s deal could also be boosted by the same big-picture tailwind that Jeff Reeves says is helping Priceline: a recovery in both U.S. consumer and business travel.
Of course, there’s still some reason for concern down the road. The Travelocity deal is hardly a quick fix for the competitive environment Expedia now faces. And while development for the partnership will begin immediately, a launch isn’t expected to come until 2014.
Still, the only thing a struggling stock like Expedia can do is try to make some changes to get things back on trap. The Travelocity deal at least shows the company is looking forward and moving forward — a promising sign for investors.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
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