Is Online Travel Amazon's Next Stop?
TripAdvisor would be most affected; Booking and Expedia less so.
We see wide-moat Amazon’s (AMZN) announcement that it is offering domestic flights within India as a potential precursor to the company developing a metasearch platform (not an online travel agency, or OTA, model approach), which could have negative long-term financial implications for narrow-moat TripAdvisor (TRIP), with a more negligible financial impact on narrow-moat OTAs Booking Holdings (BKNG) and Expedia (EXPE). Expedia shares appear attractive, trading at a meaningful discount to our $183 fair value estimate.
Amazon has had several travel-related pilots in the past. The previous test was in 2014, when the company offered a limited number of hotels before canceling the venture in 2015. While Amazon has not disclosed the reasons for not moving forward with that travel initiative, we believe it is in part due to the significant time and cost needed to aggregate and service supplier relationships, which is what OTAs Booking and Expedia have developed over the past 20 years. Our long-held view has been that if Amazon decided to add travel to its platform, it would adopt the metasearch model, like that of Google (GOOG)/(GOOGL) and TripAdvisor, which depends on OTAs to place and power those aggregated supplier relationships on its platform. The India air announcement is in line with this view, as OTA Cleartrip is powering the relationship.
Dan Wasiolek has a position in the following securities mentioned above: GOOG, GOOGL, AMZN. Find out about Morningstar’s editorial policies.