2 Debates Heading Into Online Travel Earnings

• Airbnb’s explosive growth has many online travel investors worried.
• Cowen & Co projects that Airbnb could become a legitimate threat to the hotel industry by 2018.
• Cowen sees the Priceline Group Inc PCLN/ Tripadvisor Inc TRIP Instant Book partnership as a positive for both companies.

In a new report, Cowen & Co analyst Kevin Kopelman discusses two topics of contention among online travel investors headed into Q3 earnings season. He also highlights Cowen’s top stock picks in the space ahead of earnings.

The Airbnb impact
The popularity of Airbnb has taken off in recent years, and the level of disruption that the company will have on other online travel companies remains a contentious topic. Cowen estimates that Airbnb will generate $7.5 billion in bookings and nearly $1 billion in revenue in fiscal 2015. While the $7.5 billion in bookings is twice what Cowen estimates the company logged in 2014, it is still well short of the $51 billion in bookings estimated for Priceline Group and the $23 billion in bookings estimated for Expedia Inc EXPE.

“While concentrated impact is being felt in a number of large urban markets like Paris and NYC, we note to date Airbnb has only taken an est. 2% of the market from the hotel industry,” Kopelman explains. He adds that, if Airbnb reaches its growth targets, it could become a threat to the hotel industry by 2018.

Priceline joins TripAdvisor Instant Book
While some see Priceline’s decision to adopt TripAdvisor’s Instant Book as a puzzling move on Priceline’s part, Kopelman sees it as a win-win for both companies. Priceline contributes about 24 percent of TripAdvisor’s total revenue, and Priceline now has an opportunity to gain an information edge over Expedia and test out TripAdvisor’s platform with little risk involved.

Stock picks
Kopelman names Expedia and HomeAway, Inc. AWAY as its top two online travel picks headed into earnings season. Cowen also has an Outperform rating on Priceline and a Market Perform rating on TripAdvisor.

Disclosure: the author holds no position in the stocks mentioned.