On July 11, Expedia (NASDAQ:EXPE) launched a joint-marketing campaign with daily-deal powerhouse, Groupon. The result? Well, it’s actually been an immediate hit as there have been about 15,000 travel deals sold. Hey, might as well leverage Groupon’s hyper-aggressive marketing, right?
Such innovative approaches have certainly helped Expedia. Yet with the recent market volatility, the stock is down more than 13% for the past couple weeks.
So can Expedia take flight again? To see, let’s take a look at the pros and cons:
Great assets. Expedia has a strong portfolio of web sites, including Expedia.com, Hotels.com and Howire.com. This has been mostly the result of effective acquisitions. And yes, the company is continuing with its deal-making. As would be expected, the big push is in emerging markets. Consider that Expedia is a majority owner of eLong (NASDAQ:LONG), which is an online hotel and air-travel service in China.
Mobile. This is the next big trend in online travel. The good news is that Expedia has been aggressive. For example, the company’s mobile apps are downloaded roughly 36 times every minute. The mobile apps are available for its main brands as well as the key mobile platforms, including Apple’s (NASDAQ:AAPL) iPhone and Google’s (NASDAQ:GOOG) Android.
Unlocking value. By the end of the year, Expedia plans to spin off TripAdvisor. It’s a smart move because Expedia and TripAdvisor have different business models — that is, the TripAdvisor website provides travel reviews and relies on advertising revenue. In fact, TripAdvisor is likely to fetch a robust valuation, much like companies such as LinkedIn (NYSE:LNKD) and Facebook. All in all, the spinoff should help to streamline Expedia and allow management to focus on international opportunities.
Competition. With the surge in venture capital, Expedia is seeing many next-generation online travel sites emerge. Some examples include Hipmonk and Triporati. These sites have been effective in leveraging things like social networking and mobile interfaces. Expedia is also facing threats from Internet giants, especially Microsoft (NASDAQ:MSFT) and Google.
Economy. The travel industry is highly cyclical. Thus, if there is a double-dip recession, it is likely to be a big problem for Expedia. High oil prices will also be a drag.
Travel ecosystem. Expedia uses so-called global distribution systems to make travel reservations. While that has been an effective approach, it still has risks. Basically, airlines are trying to find ways to lower the service’s fee levels, and Expedia already has had a three-month battle with American Airlines parent AMR (NYSE:AMR) over the issue.
Expedia is certainly showing lots of traction. The international business is paying off and the company continues to focus on innovation.
However, the macroeconomic environment is definitely shaky. If there is a falloff in activity, it could ding the share price. In light of these factors, the cons outweigh the pros on the stock.
Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.