Expedia Splits the Skies

Expedia (Nasdaq: EXPE  ) will no longer come in a single flavor.

The popular travel portal's board has given preliminary approval to a plan that would split the company into two distinct entities.

Expedia will spin off TripAdvisor -- consisting of the namesake travel reviews website and 18 other ad-based websites -- to its shareholders. The Expedia that remains will consist of Expedia.com, Hotwire, Hotels.com, its stake in China's eLong (Nasdaq: LONG  ) , and Expedia's other travel booking websites.

It's a smart move.

The market has never given Expedia enough credit for its popular non-booking websites. This is an area with a lot of promise to anyone that has seen travel deals publishers Travelzoo's (Nasdaq: TZOO  ) stock pop more than sixfold since last summer's low. TripAdvisor will be given more room to color outside of the lines, and the market should tag it with a higher earnings multiple than the flagship sites it will leave behind.

Expedia's booking sites will also benefit. Expedia has always traded at a discount to market darling priceline.com (Nasdaq: PCLN  ) . Expedia closed yesterday at a mere 12 times this year's projected profitability, a multiple that is less than half of priceline at 27 times this year's targeted earnings.

There's a reason for the disparity. Expedia and Orbitz Worldwide (NYSE: OWW  ) aren't growing as quickly as priceline.

We still don't have the terms of the split or the prorated financials, but the sum of Expedia's two parts should be greater than the whole right now. Expedia's multiples are unlikely to drop too much lower than where they are now. Tack on a healthy market premium to TripAdvisor and its 40 million unique monthly visitors, and it's easy to see why the stock is ascending nicely today.

Would you rather own Expedia or TripAdvisor after the split? Share your thoughts in the comment box below.

Priceline.com is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz has been leaning on travel websites since the 1990s. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 1472474, ~/Articles/ArticleHandler.aspx, 7/23/2014 8:45:12 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement