Good News for the Travel Industry

Expedia's latest earnings report shows that the online travel industry is still in good shape, easily beating analyst estimates with impressive growth figures. As such, the company looks like a compelling choice going forward.

Feb 12, 2014 at 11:59AM

The travel-booking industry is generally viewed as a good barometer for consumer spending, as travel is often a discretionary spending category on which consumers cut back during times of economic downturn. As such, growth in the industry shows increased consumer spending and sends a positive signal about the overall economy.

Travel giant Expedia (NASDAQ:EXPE) recently reported strong results, beating on earnings and revenue. Competitors priceline.com (NASDAQ:PCLN) and Orbitz Worldwide (NYSE:OWW) were sent higher in sympathy. What's behind these solid numbers?

Booking profit
Expedia's fourth-quarter results smashed expectations. Adjusted earnings per share of $0.92 were up from $0.63 last year, easily beating the $0.85 consensus. Revenue also came in above expectations, rising 18% to $1.15 billion versus a $1.14 billion consensus. These figures were driven by a solid 21% increase in gross bookings for the quarter, with number of hotel nights up 25%. For the full-year, the company earned $1.67 per share on revenue of approximately $4.8 billion.

Expedia acquired a controlling interest in several companies recently, although they did not all contribute meaningfully to the company's Q4 results. Travelocity, for instance, didn't really chip in. Trivago, on the other hand, is still doing very well, the German company contributing 4% to revenue growth for the quarter as well as the full year. Also, it contributed around 6% to sales and marketing growth for the quarter. Growth at the website has been extremely impressive, revenue up 85% for the full year.

Looking at brands, the revenue increase for the quarter and full year was primarily driven by room-night growth at the Expedia, eLong, and Hotels.com brands. Notably, the company is seeing increased traffic from mobile, a channel which is expected to keep growing over the next few years. Still, management warned of stiff competition from rivals. Going forward, Expedia is projecting earnings before interest, taxes, depreciation, and amortization growth of between 13% and 16% for fiscal 2014, with most of sales as usual being generated in the back half of the year.

Elsewhere in the industry: Priceline and Orbitz
The results clearly boosted investor sentiment for the industry, Priceline and Orbitz up around 5% and 2.4%, respectively, following the report. Priceline, which operates websites such as Booking.com, has also been delivering very solid growth in recent years, driven mostly by its strength in emerging markets. International sales make up the bulk of the company's revenue, and this share is expected to increase. Also, the segment is growing much faster than the US business, with international revenue up 43% compared to a 12% increase for the US in the first nine months of 2013.

Competitor Orbitz has not been faring as well as some of the other companies in the industry. In its most recent report, third-quarter EPS dropped $0.03 to $0.11, missing the $0.13 consensus. Revenue also missed, coming up around $9.4 million short. Increased marketing costs drove up expenses some 12%. The company's new focus on hotel bookings, which are generally more lucrative, led to a 4% decrease in air-ticket revenue. On the other hand, overall gross bookings were up by 5%, led by an increase in hotel and vacation-package sales.

The bottom line
Overall, the online travel-booking industry seems to be in very good shape. Two of the main players, Expedia and Priceline, have been reporting excellent results recently, generally posting sizable earnings and revenue growth. Additionally, these companies have a strong history of beating analyst expectations. With growth in the industry expected to continue through 2014, Expedia and Priceline look like solid bets going forward. Investors might be best off staying away from Orbitz until the company returns to some quarterly net income and revenue growth.

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Daniel James has no position in any stocks mentioned. The Motley Fool recommends Priceline.com. The Motley Fool owns shares of Priceline.com. 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.

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