This High-Growth Industry Has Gotten the Attention of Google Inc

The online travel agency industry has been a great growth story over the past half decade. This comes as worldwide Internet usage is on the rise, and as consumers are finding much better deals online than conventional travel agencies can offer. And as tech giant Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) looks to gain a presence in the hotel booking space, it adds more validation to the online travel industry's growth story.

What's the best play on this growth industry?
The recent news in the industry is that Google is licensing hotel booking software from Room 77. As part of this, Google is adding photos to its hotel listings, as well as reviews. These moves should promote consumers to book more of their trips directly with Google. Worth noting is that the likes of Priceline.com (NASDAQ: PCLN  ) and Expedia (NASDAQ: EXPE  ) are a couple of Google's most valuable advertisers. So, in a way, it's a Catch 22. 

Wall Street analysts are expecting Priceline to grow earnings at a rate that's head-and-shoulders above its peers, and the travel industry as a whole. Priceline is expected to grow earnings at an annualized 20% over the next half decade. That compares positively to what Wall Street expects for Orbitz and Expedia, which is only 6% and 14%, respectively. Priceline's expected earnings growth is above Google's and in line with what Apple is expected to generate. 

Opportunities for growth
The two big opportunities for Priceline include expanding its market share in the U.S. and growing its presence in Europe. Pricelines' Booking.com is the leading online travel site in Europe, having a market share of over 30%. However, in the U.S. its market share is only 16%, while Expedia owns 40% of the market.

Part of its strategy to gain share includes embarking on a new marketing strategy. Its booking.yeah campaign launched last year marks the company's first offline ad campaign. The campaign is for its booking.com site and has already gotten a lot of attention. 

Meanwhile, competition is less fierce overseas. And the hotel industry is quite fragmented in the European Union. Worth noting is that Europe is showing signs of stabilizing. Expedia actually saw hotel rooms booked in Europe increase at a faster pace than in other quarters. That's a big positive as Priceline is the market leader over there.  

So a key focus will likely be overseas
During the fourth quarter, gross bookings grew nearly 40% year over year. That was driven by international bookings, which rose 41%. Domestic bookings were up only 26.5%. Thus, a continued focus on international markets should be a big positive.

Internet usage isn't quite as prevalent in overseas countries, thus, Priceline could easily be a first mover in certain areas. Two notable areas of opportunity are Asia and South America. And Priceline is already making a splash in Asia. Its Agoda brand is the number one online travel agency in five Asian countries. 

With its head start in international markets, Priceline shouldn't have a problem staying ahead of Expedia. Priceline's market cap is over six times that of Expedia, coming in at $64 billion, whereas Expedia's is less than $10 billion and Priceline only has $2 billion in debt. Google is very early in its attempt to gain market share. And with Priceline's stellar balance sheet, it should be able to make any necessary acquisitions to get a leg up in local markets. 

Back in 2012, Priceline snatched up Kayak for under $40 a share to help expand its market. Kayak is a meta-search engine, and owns over 50% of the travel search market share in the U.S. 

Bottom line
While Priceline's valuation does appear a bit rich, its P/E is 34, that's relatively in line with Google and still below top competitor Expedia's 43 P/E. Priceline is already the leader in a number of overseas countries. These countries should be key for driving the online travel industry, and ultimately Priceline, higher. For investors who are looking to play the upcoming rebound in the travel market, and the increasing usage of Internet in overseas markets, Priceline is worth a look.

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