Inc (PCLN), HomeAway, Inc. (AWAY) – Tourist Dollars: Is There Any Value in Online Travel Companies?

As the economy recuperates worldwide, online bookings increase and emerging economies offer growing Internet populations, travel-related websites seem poised to grow. Below you will find three particularly popular travel booking sites that hold strong market shares and offer compelling growth prospects for the years to come. The sites are Inc (NASDAQ:PCLN), HomeAway, Inc. (NASDAQ:AWAY) and Expedia Inc (NASDAQ:EXPE). Let’s take a look at them and see what they offer. Inc (NASDAQ:PCLN)

The travel behemoth Inc (NASDAQ:PCLN) is an online travel company that offers a wide array of travel-related products like hotels, airline tickets and car rentals. With a market capitalization of over $40 billion and industry-leading margins, returns and growth rates, its management must have done something right. By focusing on the European and Asian travel markets and continuously expanding its international penetration through acquisitions, the firm has managed to outperform its competitors, including Expedia Inc (NASDAQ:EXPE).

One of the keys to Inc (NASDAQ:PCLN)’s success stems on its opaque bidding system, which allows value-conscious travelers to access to good hotels at discount rates and allows recognized travel brands to clear inventory (even at last minute) with significant markdowns without harming their brand image. The other factor that was central to the firm’s above-average growth was its acquisition strategy. The purchases of in 2004 and Agoda in 2007 widely increased Inc (NASDAQ:PCLN)’s exposure to the bookings market. In addition, the recent procurement of Kayak Software Corp (NASDAQ:KYAK) should provide “access to high-quality travel shopping traffic, thus increasing the conversion rate for transactions and boosting marketing efficiency” (Morningstar).

Going forward, international markets (particularly emerging economies) and an increasing use of the Internet as a booking platform provide plenty of growth opportunities for the firm. Holding strong operating leverage and a sound cash position while offering an expected average annual EPS growth rate in the 15%-18% range and trading at 28 times its earnings, slightly below the industry average, I would recommend buying this stock for the long-term.

The little sibling

Expedia Inc (NASDAQ:EXPE) is second in my list. With a market cap of $8 billion, the firm could be conceived as Inc (NASDAQ:PCLN)’s little sibling. Trading at almost 47 times its earnings, a substantial premium to the industry average valuation, the company offers below-average returns, margins and growth estimates. So is there any value left in this company? I’d say that there is, but would still recommend holding on to this stock.

The company could largely benefit from various factors including the ongoing shift of travel customers towards online booking and an aggressive expansion into the European and Asia-Pacific markets. In addition, its corporate travel business, Egencia, and its opaque-pricing travel site,, provide further opportunities for growth. Finally, its partnerships with Groupon Inc (NASDAQ:GRPN) and AIRASIA BHD (OTCMKTS:AIABF) will help it better penetrate the price-sensitive leisure travel segment.

Several other elements aside from its valuation discourage me from buying the company’s stock, however. Amongst the main reasons to stay away from this stock, I would highlight:

Google Inc (NASDAQ:GOOG)’s entry into the already competitive online travel market;

– the seasonality inherent Expedia Inc (NASDAQ:EXPE)’s business;

– its high dependence on the somewhat saturated U.S. market;

– the substantial amount of litigation that the company faces; and

– the “gradually deteriorating average daily rates (ADRs) due to the addition of lower-range hotels in Asia and economic pressures in Europe” (Zacks).

If you don’t like hotels…

HomeAway, Inc. (NASDAQ:AWAY) is a worldwide leader in the vacation rentals business. Compared to other internet-based marketplaces, HomeAway, Inc. (NASDAQ:AWAY) is valued cheap. However, trading at 53 times consensus earnings, the stock still seems overvalued. Expected to deliver an average annual EPS growth rate in the 28%-33% range over the next five years, are these shares a buy? I’d say they are.