Online Travel Agencies Are a Safe Investment

Online travel agencies are a great investment option for more reasons than immediately meet the eye.

Jan 21, 2014 at 6:07PM

It used to be that if you believed a rental-car company would do well, you would invest in one. If you thought a hotel was going to be profitable in the future, you would invest in it. That remains a logical strategy, but today there is another option: online travel agencies, or OTAs.

Years ago there was no such thing. Today OTAs are the fastest-growing entity in the travel sector and make for sensible investments. 

OTAs are growing
In 2012, the online travel business in the US crossed the $100 billion threshold. Since that monumental year, hotel bookings via OTAs have risen 12%. Comparatively, the increase of bookings made directly on hotel websites was only up 5%. With hotel websites attracting just 33% of all bookings, OTAs are becoming increasingly popular.   

Electronic-revenue maximization company eRevMax believes OTAs are popular because of the metasearch features offered. It found that 60% of travelers comparison shop, which makes OTAs a popular place to do business.   

Others in the industry are taking notice of this growth. In order to boost revenue, traditional travel agencies are copying the OTA strategy and investing in technology and building an online presence. 

While some airlines and hotels shy away from OTAs to avoid paying commission fees, independent hotels are moving in the opposite direction. OTAs have a much larger advertising budget, access to more consumer data, and more success at drawing in online traffic. Independent hotels therefore find OTAs to be useful marketing platforms to help reach markets previously unavailable.

OTAs as a diversification strategy
Risk goes along with all investments, but diversification can protect investors against some types of risk. Unsystematic risk events are negative events that affect one company or sweep across one sector. By investing in many sectors, you can limit the impact of unsystematic risk on your portfolio.

It is wise to diversify outside of the technology and travel sectors, as there are many unsystematic risk events that can hurt both sectors, sometimes simultaneously. Having completely unrelated investments may protect against this. Within travel and tech, however, the stock of OTAs make a great diversification option and a good entry point for beginners.

OTAs offer a buffer zone. OTAs sell airfare, rental cars, hotels, cruises, vacation packages, and sometimes even tours and activities. By doing business across industries, an OTA is more sheltered from isolated risk events than the individual companies whose tickets it sells. 

Mark Mahaney of RBC Capital Markets noted an example of this in his online consumer activity report. While Expedia (NASDAQ:EXPE) experienced a decrease in US paid hotel rates, it experienced a countering increase in domestic organic hotel bookings.  If invested solely in US hotels at this time, the effects of the decrease in bookings would have been noticeable. If invested in Expedia, however, the increase in bookings from other products Expedia sells would have offset the negative effect.

A second common suggestion for diversification is to invest partially in foreign securities. This is to not be adversely affected by an overreaching domestic economic event like a downturn in the US economy. An OTA stock can help diversify in this manner since OTAs typically own and operate websites that service the globe. 

Mahaney noted in his report that while (NASDAQ:PCLN) experienced a drop in US paid-hotel purchases, this was "offset by increases in the same category by its subsidiary, which is known for servicing Europe." By operating websites across the world, Priceline was able to offer investors a buffer against the drop in US bookings. 

OTAs worth consideration
Priceline is one OTA that can help investors diversify in both ways. It sells products from multiple industries and through its subsidiaries operates in more than 180 countries. With a website portfolio with such a global reach, the company is less likely to be hurt by unsystematic risk events in a given economy. 

Priceline's focus going forward will be to expand in emerging markets. The company may look to another acquisition as it works to obtain a larger international market share.

Priceline stock rose 80% last year.  Based on third-quarter results, operating income has increased the last two years at a 31% rate. Owing to an 83% increase from 2010-2011, operating income has risen 219% since 2010. 

Diversification does not just benefit investors. If companies can manage to diversify by offering a wide variety of products, its a great revenue strategy. Expedia is considering doing just that; and as it does investors will reap the benefits.

Like Priceline, Expedia wants to expand its offering of tours and activities. An Expedia managing director was quoted as saying that the company is working to become an "end-to-end travel service." It is yet to be seen whether it will accomplish this by contracting directly with suppliers or acquiring start-ups that already have those supplier relationships developed.

HomeAway (NASDAQ:AWAY) is a portal for renting vacation homes worldwide. It is unlike Priceline and Expedia as it only sells lodging, but it still offers investors a risk buffer by operating websites across 171 countries.

HomeAway acquired more than 20 companies since 2005 and is expected to make another acquisition in the future if it goes through with a second public offering. With each acquisition the parent company becomes stronger and better insulates investors from risk.

Consider Action
Investors should take comfort in the fact that OTAs are conglomerates. By having a strong multinational presence and bringing many industries under one parent company, OTAs offer a smooth entrance to travel stocks. With travel booking moving more online, the exponential growth of the past few years should continue to make OTA stocks a strong buy. 

At more than $1,000 a share, Priceline requires a high buy-in. It is far from the only option however. To find more companies that offer risk buffers, look to where the acquisitions are occurring.

Investing in OTAs will quickly get you a hand in every industry in the travel sector. As those industries rise and fall, you will experience steady growth thanks to the diversification strategy inherent in the OTA business model.

Fool contributor Benjamin Szweda has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of 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. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers