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Online travel stocks are great businesses. Which one should you own for the long term?
Last time, I wrote about the very solid long term performance of The Priceline Group (NASDAQ:PCLN). Despite overpaying for some acquisitions, the company has an amazing balance sheet and is a cash flow monster. Can anyone stack up to it?
Expedia (NASDAQ:EXPE) is the most likely candidate. It’s had quite a history with impressive pedigree. It was founded as a Microsoft (NASDAQ:MSFT) division in 1996, spun off three years later, then purchased by TicketMaster in 2001. That may sound bizarre, but when you realize the deal was engineered by e-commerce mogul Barry Diller, it makes a lot of sense. Diller aggregated it, along with many other businesses, under the IAC/InterActiveCorp (NASDAQ:IACI) banner, then spun it off as a public vehicle.
Expedia as a company is more than just the online travel website. It includes extended brands like Classic Vacation, eLong, Hotwire, and Hotels.com, and then Expedia itself spun off TripAdvisor.com (NASDAQ:TRIP).
Like Priceline, Expedia has made a few strategic acquisitions of its own, including meta-search travel engine Trivago, and Wotif.com, which covers travel in Asia. These handle lots of things, especially hotels.
Expedia has one-sixth the market cap of Priceline and is growing strongly, although a bit more slowly on the EPS front. FY14’s EPS is supposed to grow 23% over last year, with FY15 expected to add 17%. Long-term growth is pegged at 17%.
The company is also a cash cow. It has $1.45 billion of net cash, or about $11.50 per share. That gives Expedia an effective stock price of $74.50, which is 18.7x this year’s earnings, and 16x next year’s earnings. So while it trades at roughly the same PEG ratio as Priceline, there is a difference on the cash flow front.
Priceline had $88MM in capex in FY13. Expedia has $309MM, up from $235MM the year before. FCF is $455MM in FY, down from about a billion in FY12, and $618MM in FY11.
To me, that’s the deciding factor. Priceline wins.
But let’s quickly check TripAdvisor, Sabre Corporation (NASDAQ:SABR), and Orbitz Worldwide (NASDAQ:OWW).
TripAdvisor isn’t really a booking service so much as the big kahuna for travel and hotel reviews. That’s fine, but I don’t want to buy into an advertising and affiliate-driven business. Plus, while it does have terrific and efficient cash flow, and growth is in the high-twenties percentage-wise, it trades at over 40x earnings.
Sabre is loaded with debt and very little cash. It has good cash flow, but its business is too narrow to be of interest since it really only acts as a servicer for Travelocity.
Orbitz never developed into the broad-ranging brand its competitors have. IT has $264MM in cash but $421MM in debt, which is unthinkable to me considering what a great cash flow business this industry is. Cash flow is good at Orbitz, with limited capex, but the operating cash flow is inconsistent and less than 10% of Priceline’s. I’ll pass.
The online travel booking industry’s top dog appear to be Priceline, at the moment.
Lawrence Meyers does not own shares in any company mentioned.
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