Travel is back, but this stock still has a bumpy road ahead

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Airports are saturated because travelers are finally getting out after a two-year hiatus. During the long layover of the global travel market, a new competitor — Alphabetit is (GOOG 1.19%) (GOOGL 1.28%) Google Travel — was born. Google Travel’s Booming Service Has Advantages Over Expedia (EXPE 3.26%) and other online travel platforms. As travelers return to their usual activities, Expedia may not. Here’s why.

New sheriff in town

Online travel platforms, like Expedia and its affiliates – Hotels.com, Vrbo, Travelocity, Hotwire, Orbitz and trivago – have rapidly grown their main lines for more than a decade. For example, Expedia generated just over $3 billion in revenue in 2010. Through acquisitions and the organic growth of travelers adopting online platforms, Expedia grew revenue at an impressive annual rate of 16.7%. to reach $12 billion in 2019 before the coronavirus completely curtailed travel. .

Most online travel platforms are commodity-like in that hotels, airlines, and car rental companies list their services on the platforms for a fee. In return, Expedia and other platforms drive traffic to their websites and sell services that otherwise would not have been sold.

Image source: Getty Images.

The system was symbiotic until Google intervened. Last year Alphabet, Google’s parent company, allowed hotels and flights to be listed on Google Travel for free, effectively bypassing online travel platforms. The move came at a fairly innocuous time as the travel industry was still licking its wounds from the coronavirus. However, hoteliers and airlines have tried to cut costs during the downturn. The free Google Travel platform may have been just what the doctor ordered.

Expedia may also list its services on Google Travel. Although in 2022 the percentage of times Expedia showed up on Google Travel with the cheapest hotel dropped to a fraction of its 2020 percentage. have definitely gained popularity on Google Travel. In response to Google Travel’s proliferation as a competitor, Expedia CEO Peter Kern said: “[W]We kind of accept their game as it’s presented to us and we have to play it.”

Now what?

A potential changing of the guard couldn’t have come at a worse time. The stock has fallen more than 50% this year as airlines grapple with staff shortages that are dampening pent-up travel demand. Travel spending is expected to hit $1.1 trillion in 2022, just 10% lower than in 2019. Expedia investors hoping for a breath of fresh air if shortages are met shouldn’t hold back. breath.

Google Travel probably won’t bring Expedia to its knees, but it might sting. Google dominates internet searches. Expedia may therefore need to increase its advertising budget and get creative if it wants to drive travelers directly to its websites rather than Google.

Additional costs to compete with Google Travel could squeeze Expedia’s already thin margin. Excluding 2020 and 2021, the company’s net margin has averaged 5.6% since 2012. If new competition or customers bypassing Expedia and its other platforms push it to lower net margins, the stock may not come back. to its past heights. Worse still, if Expedia posts negative earnings, it will be difficult for investors to find value in the stock.

Fears of global inflation and recession appear to have gripped equities this year, creating many attractive opportunities for discerning long-term investors. Expedia may not be one of them.

Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. BJ Cook has no position in the stocks mentioned. The Motley Fool has positions in and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.

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