Barclays Initiates On Expedia, Priceline And TripAdvisor; Sees Big Opportunity In Asia

In a report issued Wednesday, analysts at Barclays initiated coverage on three online travel companies: Expedia Inc EXPE (OverWeight rating), Priceline Group Inc PCLN (EqualWeight rating), and Tripadvisor Inc TRIP (UnderWeight rating).

According to the analysts, the travel sector is reaching an “interesting inflection point along its natural maturation curve.” Almost 20 years have passed since the launch of the first online travel company. Consequently, investors should be seeing a deceleration in growth, margins expansion, and moderating competition.

Ironically, the experts highlight, growth has remained above the expected levels, while margins face increasing pressure and competition continues to intensify – despite the strong consolidation seen in the space.

Related Link: Expedia Dumps Majority Stake In eLong

Expedia

As said by Barclays, Expedia has stood as the travel stock to own over the past year, and that is likely to continue. Despite the substantial gains registered by the stock in the past 12 months, the firm sees an additional 15 to 20 percent upside potential left in the name.

“While many of the industry trends around margin compression and competition will likely impact EXPE, we think room night growth will remain strong and financials will improve as acquisitions fully fold into the model,” the experts explain.

Priceline

The analysts are not as bullish on Priceline. They see limited upside potential in the shares, despite its strong market position. “We see decelerating room night growth and increasing pressure on margins as likely holding back upside to results and stock appreciation,” they conclude.

TripAdvisor

Although Barclays likes many things about the company, like its industry-leading traffic levels and growing ancillary businesses, the analysts believe “nearer-term monetization headwinds from Instant Booking and margin pressure will weigh on the stock.”

The Asia-Pacific Oppotunity

According to the note, the Asia-Pacific region is marginally smaller than Europe, and larger than the US. However, penetration of online travel is much smaller, only reaching 27 percent.

This is why the analysts see a big growth opportunity in the Asia-Pacific region, as they expect “overall travel to grow in-line to slightly better than the global market with continued growth in online penetration.”

They continue to explain, “Growth in online booking was up 14% in 2014, slightly faster than overall online growth of 11%. We expect online penetration in APAC to continue to increase over the next few years, reaching just under 40% by 2018.”