Expedia and Booking Holdings are the top companies in their field with similar well-known challenges. In fact, they are so similar that the company description tables on Seeking Alpha are almost identical. Can you tell which one is which?
If it weren't for the fact that Expedia was founded in 1996 and Booking in 1997, no one could tell. The core OTA (Online Travel Agency) product is also quite similar. An important difference is that Booking is much more international than Expedia, which has a stronger presence in the US. There are also some differences in the product mix, such as Expedia leaning more towards package deals, and Booking on just accommodation.
To properly get a grasp of how the companies compare, I start with a review of revenue and continue from there to margins and valuation. Closely looking at bookings and users is a good start.
At Booking, gross bookings in 2018 were about 10 times what they were 10 years ago. At Expedia, bookings are about 4 times what they were in 2009.
Gross bookings are important, but give an incomplete view of underlying developments. In addition, there are users, the number of accommodations, and the revenue margin to take into account.
Revenue margin is an especially important metric, as capturing a higher revenue from gross bookings shows competitive strength. Lowering revenue margin is essentially lowering prices to attract suppliers (accommodations) which, in turn, drives revenue growth. I have gathered revenue margin data for Booking and Expedia below.
As the chart shows, Expedia has seen revenue margin decline over the past 10 years, while Booking has seen it increase. The picture could be partially affected by mix effects but this doesn't seem the case, certainly in the case of Expedia. Expedia's HomeAway division, for example, reported a revenue margin decreased from 11.5% in 2015 to 10.2% in 2018 and the share of hotel bookings (usually higher margin) within Expedia's gross bookings has remained quite stable over the years. It looks like this decreasing margin over time is a conscious strategy to attract business (suppliers) at the expense of margins, as it communicated in 2015 when it lowered revenue margin to attract more business.
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