Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Expedia Inc (NASDAQ:EXPE) were up nearly 18% as of 2:00 p.m. Thursday after the company announced a deal to acquire competitor Orbitz Worldwide (UNKNOWN:OWW.DL) for $12 per share in cash.
So what: The boards of both companies have approved the transaction, which still needs the approval of their respective shareholders. The deal places an enterprise value on Orbitz of roughly $1.6 billion, which isn't entirely unreasonable considering the company also announced reasonably solid fourth-quarter results today. Orbitz's quarterly revenue grew 12% year over year to $221 million, which translated to a 20% increase in earnings per diluted share to $0.06. Analysts, on average, were expecting earnings of $0.07 per share on sales of $220.1 million.
For perspective, shares of Expedia plunged after the company announced its own fourth-quarter results last week, saying revenue grew 19% year over year to $1.36 billion, which resulted in adjusted earnings of $0.86 per share. Analysts were expecting slightly higher revenue to result in earnings of $1.01 per share.
Now what: "We are attracted to the Orbitz Worldwide business because of its strong brands and impressive team," said Expedia CEO Dara Khosrowshahi. "This acquisition will allow us to deliver best-in-class experiences to an even wider set of travelers all over the world."
It appears Expedia is paying a slight premium for Orbitz given its modest growth and shares trading around 30 times this year's expected earnings after the pop. But Expedia is no stranger to growth by acquisition, having only just completed both its $703 million purchase of Wotif Group this past November and, shortly after year end, its $280 million buy of the Travelocity brand. Over the long term, this consolidation should -- at least in theory -- help Expedia more effectively compete with fast-growing peers like TripAdvisor, shares of which also rose today following its own impressive fourth-quarter results and upbeat plans for 2015.
In the end, I'd personally consider buying shares of TripAdvisor first, but investors would be wise to also keep an eye on the growing threat Expedia could pose.