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Flying High, But Still a Buy: Expedia Inc (EXPE), MakeMyTrip Limited (MMYT)

January was a big month, as most airlines around the world reported record load factors. Load factor is a mathematical metric that calculates the utilization rate of an airline or a vehicle. Naturally, if an airliner has a high utilization rate, it would look to increase its fare. But the US airliners chose not to hike their air fares due to weak macroeconomic conditions. Since airliners are not capitalizing on their high load factors, consumers won’t have to pay extra and air travelers won’t suffer.

So who stands to benefit here?  Online Ticketing Agencies (OTAs) like Expedia Inc (NASDAQ:EXPE) and Makemytrip Limited (NASDAQ:MMYT)!

Expedia Inc (NASDAQ:EXPE)Blockbuster Earnings

Expedia Inc (NASDAQ:EXPE) is one the largest Online Ticketing Agencies in the world, and enjoys the greatest market share. In a recent earnings release, Expedia Inc (NASDAQ:EXPE)  proudly announced that its quarterly revenues spiked by 24%, the fastest in the last 5 years. This growth was mainly driven by strong room bookings. Its domestic room bookings were up by 19%, while its international room booking surged by 49%. Overall its room bookings grew by a record 33%, and as a result its revenues from hotel bookings rose by as much as 25%. Yet its management feels that it has not yet fully realized its potential in European exotic destinations, and said that it would be working towards improving its inventory in the region. In a market with cutthroat competition, this kind of growth is really commendable, and management expects the music to keep playing. Analysts estimate its EPS to grow by nearly 20% over the next year.

A Strategic Acquisition

Its biggest competitor, Priceline  Inc (NASDAQ:PCLN), acquired Kayak last year for $1.8 billion. Kayak is a meta search engine that compares airline fares offered by various online ticketing portals. The management of Priceline explained that with the acquisition, it would not only earn higher revenues by advertising but would also get higher targeted traffic, which would eventually boost the sales of Priceline.

Following the expansive drive, Expedia Inc (NASDAQ:EXPE)  also announced that it would be acquiring a 61.6% stake in Trivago for around $628 million. Trivago is a simple hotel meta search engine based in Europe, covering over 600,000 hotels and spanning over 140 booking sites and 30 countries. The hotel search engine has been attracting over 20 million hits every month, and once the acquisition is through, Expedia Inc (NASDAQ:EXPE) will able to direct paid traffic to its booking portal. Moreover, this would boost its web traffic, and Expedia Inc (NASDAQ:EXPE) will not only earn more moolah from Cost per Click advertising, but will also have the option to hike its advertising fares. I think Trivago will be able to dominate and demand higher advertising rates on the back of heavier targeted traffic, post-acquisition.

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