Priceline Group is a huge internet company that continues to grow, is immensely profitable and usually over-delivers on its forecasts. Yet cutthroat competition in the online travel industry has left its stock looking dull lately.
The $64 billion behemoth and its fiercest rival, $16 billion Expedia, have been going head to head for the best assets, as newer vacation-rental entrants like HomeAway and Airbnb — valued at almost $26 billion in its latest funding round — take some market share. Most of the big takeover candidates have already been bought up: Kayak and Booking.com are owned by Priceline, which has also been investing in businesses abroad such as China’s Ctrip.com, while Travelocity, Orbitz and HomeAway have all sold to Expedia. In fact, the September completion of the Orbitz deal allowed Expedia to reclaim the No. 1 position in online bookings.
Priceline sought to broaden its reach in 2014 by acquiring OpenTable, a restaurant-booking service rather than a travel site. But as you can see in the chart below, that pricey $2.4 billion acquisition has had little impact on Priceline shares. They’ve risen about 7 percent since the deal closed, compared with a 36 percent surge in Expedia’s stock over the span.
It hasn’t helped that France, a major travel destination, was the target of terrorist attacks in November, and that China’s smog is turning off tourists. But to boot, Priceline’s CEO resigned in April after the company learned that he had an inappropriate relationship with an employee. And last week, the head of the Priceline.com unit also quit for a job outside of the travel industry. Jeffrey Boyd, Priceline’s chairman who was previously CEO from 2002 to 2013, is running the company while the board searches for a permanent CEO replacement.
On the one hand, 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 there’s a deal opportunity he might not want to miss — or let Expedia get a hold of. That would be TripAdvisor.
Valued at $10 billion, TripAdvisor (ticker symbol TRIP) is the industry’s last major publicly traded target in the U.S. The business was actually spun off from Expedia in 2011 because it had been growing far faster than Expedia’s main operations. But now, the trend is moving back toward consolidation and scale — and no doubt both Priceline and Expedia have had their eye on TripAdvisor. Investors in this space need something to get excited about, and recent weakness in TripAdvisor’s shares (mostly due to the aforementioned industry headwinds) means it may be a good time to pounce.
Expedia and TripAdvisor are still somewhat connected. Billionaires John Malone and Barry Diller control Expedia, while Malone’s business partner Greg Maffei effectively controls TripAdvisor through the Liberty TripAdvisor tracking stock, which was created in 2014 — a move that some thought signaled Malone and Maffei were opening the door to some sort of deal. That said, the ownership structure does make an acquisition of TripAdvisor a bit more complex than a typical M&A transaction.
Furthermore, even though TripAdvisor’s shares (and the tracking stock) have dropped 20 percent this year, a takeover still wouldn’t be cheap. The company is valued at 34 times its trailing 12-month Ebitda, a slightly higher multiple than Kayak fetched in its sale to Priceline. And with a takeover premium, a TripAdvisor acquisition would be nearing the steep 45 times Ebitda that Priceline paid for OpenTable. But in return, a buyer — be it Priceline or Expedia — could gain precious market share and expand its global footprint:
Whether Malone, Maffei and Boyd would work out a deal is just speculation at this point. But Priceline could use some excitement, perhaps in the form of a TRIP.
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