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Expedia Diversifies Portfolio with SilverRail Acquisition

Zacks

Expedia, Inc. EXPE recently announced that it has acquired the majority stake in SilverRail, a rail ticket retailing and distribution platform developer. Notably, SilverRail was already Expedia’s industry partner.

The deal subject to regulatory approval and is expected to close by the middle of this year. Expedia did not reveal the transaction amount.

Established in 2009, London-based SilverRail handles over a billion online rail searches and more than 25 million bookings per year for more than 35 operators and 1 500 corporate customers.

Expedia is Taking Rail More Seriously


Expedia and SilverRail have been in a rail distribution partnership since 2015. Under the agreement, the latter has been powering Expedia’s search and ticketing of rail services. Thus, the acquisition will further strengthen Expedia and add rail to its extensive portfolio of hotel, air and car-related services.

The buyout, which is likely to be supported by Expedia’s successful partnership with SilverRail, will boost the core OTA revenues of the acquirer, going forward. This segment has done well in the last reported quarter with revenues growing 10.4% year over year.

Expedia, Inc. Revenue (TTM)

We note that Expedia’s shares that have rallied 19.8% compared with the Zacks Internet – Commerce industry’s increase of 16.8% in the last three months. We expect contributions from acquisitions to boost this momentum going forward.

Expedia’s String of Acquisitions

Expedia has been on a buyout spree to increase its penetration in existing markets, expand in others and also eliminate competition. Over the last year or so, it closed the acquisitions of Wotif, Travelocity, Orbitz and HomeAway.

Wotif has significantly grown its presence in Australia and New Zealand and is yielding cost synergies. It was only a matter of time before Expedia purchased Travelocity as the former already been powering Travelocity sites in the U.S. and Canada.

The company also added some important flights technology to its portfolio through the Orbitz acquisition. The deal helped the company solidify its leading position in the domestic market. Integration activity is currently expected to run into 2017.

Additionally, Expedia bought HomeAway, which offers vacation rental apartments. This deal opened up a completely new area with significant growth prospects for the company. Given that Expedia faces intense competition from companies like Airbnb and Priceline, the deal should prove to be of value.

HomeAway revenues will likely improve through the year as management rolls out its subscription model for home owners and gets individual property owners to use its tools to reach a broader customer base. The integration, however, will take some time and the business currently expected to record EBITDA of $350 million in 2018.

Conclusion

We expect a solid travel booking platform, a stronger travel market, contribution from a series of acquisitions and management execution to drive Expedia’s growth, going forward. However, foreign exchange risks, increased investments, increasing competition across geographies and slow ADR growth in emerging markets make margin expansion difficult.

Zacks Rank

Expedia currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Some better-ranked stocks from the broader technology sector include Stamps.com Inc. STMP, Marchex, Inc. MCHX and Monolithic Power Systems, Inc. MPWR, each carrying a Zacks Rank #2 (Buy). Long-term expected earnings per share growth rates for Stamps.com, Marchex and Monolithic Power are 20%, 15% and 17%, respectively.

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