Amazon for expedia - executive pitch

Amazon for Expedia
Good for Prime Members, Consumers, Operators,
and Shareholders
All rights reserv ed, Inflection Capital Management, LLC 1

❑ Domestic Prime member growth is maturing, it’s time to for Amazon to drive household consumption
of services
❑ Amazon has yet to exploit travel; it’s a massive gross profit pool; it offers many synergies w/ Amazon’s
business
❑ Travel has never been holistically mashed-up with retail; that’s been a huge miss for consumers
❑ The current Online Travel Agency (OTA)offerings are sub-optimal
❑ Search advertising has become the basis for competition for travel bookings and is a huge toll-taker
❑ The OTA industrystructure is ripe for significant disruption
❑ Expedia has the right geographic footprint, asset mix, and synergy potential
❑ The timing is right
❑ Amazon should offer a 30% premium ($145/sh*) for EXPE, representing a $24B EV to be paid for with
25% equity/75% cash. That offer is likely be accepted by Expedia’s BOD.
❑ The acquisition at $24B would boost Amazon’s organic revenue growth from 17% to 18%, produce
+mid-single-digit EPS accretion in 2023 (excluding goodwill), and yield an IRR of 13%.
❑ No regulatory abjections from the US are envisioned
Summary
* Prices of 1.2.19

Allrightsreserved,InflectionCapitalManagement,LLC
4
Lower Friction
Low Prices
One-Click
Low(er) Shipping Costs
Prime
Expand Selection
New Categories
New Vendors & House Brands
New Services
3rd Party Sellers
DTC Relationship Allows for
AlgorithmicallyOptimizing
Each Level of Sales Funnel
Funds More
Prime Benefits
Content
Speed of Delivery
Whole Foods Discount
More Traffic
More Volume
Faster then the Norm Delivery
Alexa Ordering
Channel Shift
& Growth
More Prime
Members
More
Margin
Dollars
Increased Route Density
=
Cost Advantage
Amazon’s Existing Flywheel

2016 2017 2018e 2019e 2020e 2021e
NA GMV ($B) $137 $177 $227 $276 $331 $397
YoY $ Ch $34 $41 $50 $50 $55 $66
YoY % Ch 33% 30% 28% 22% 20% 20%
NA Prime Members EOP 70 83 95 106 115 121
YoY Ch 18 13 12 11 9 6
GMV per Member $2,246 $2,321 $2,560 $2,764 $3,010 $3,381
YoY % Ch 3% 10% 8% 9% 12%
All rights reserv ed, Inflection Capital Management, LLC
5
When Prime matures, growth needs to come increasingly from spend per member.
That is to come from Alexa, new categories (FMCG), & Services
❑ Amazon’s revenue growth is contingent upon: 1) finding new ways to make Prime members’ lives easier, 2)
increasing the brand affinity and love for Prime, 3) sourcing more areas of gross profit dollars to enhance
Prime’s membership value, 4) expanding into new areas of consumption, 5) significantly building wallet
share, and 6) leveraging more network effects to increase the Amazon-flywheel’s momentum.
❑ Adding more selection from a consumption perspective is needed to meet investor expectations for GMV
growth as Prime member growth is slowing due to peaking penetration of households.
❑ To maintain its stock’s trajectory and Amazon’s talent acquisition momentum, Amazon needs to produce
nearly 20% US GMV growth (or more) and $17B in total gross profit $ growth annually.
Amazon Prime’s Contribution to the Flywheel’s Momentum Moderating
Growth from
New Wallets
Growth from
Wallet Share

6
Lower Friction
Low Prices
One-Click
Low(er) Shipping Costs
Prime
Expand Selection
New Categories
New Vendors & House Brands
New Services
3rd Party Sellers
DTC Relationship Allows for
AlgorithmicallyOptimizing
Each Level of Sales Funnel
Funds More
Prime Benefits
Content
Speed of Delivery
Whole Foods Discount
More Traffic
More Volume
Faster then the Norm Delivery
Alexa Ordering
Channel Shift
& Growth
More Prime
Members
More
Margin
Dollars
Increased Route Density
=
Cost Advantage
Where to get more velocity and more mass?

Flywheel Momentum Accelerators
Alexa
Whole Foods 365
• Brand &
• PL SourcingCapability
Whole Foods Stores
• 10% off for Prime Membership
• Explore Kindle, Alexa, &
Amazon’s brands
In Home Advisor
Home Services
Fire & TV Devices
Market 3 ?
Voice Search
Healthcare
• Prescriptions
• Insurance
Travel ?
Entertainment
• Twitch (e-gaming)
• Video subscriptions
• Bundles (channels)
• Mov ie theater attendance
7All rights reserv ed, Inflection Capital Management, LLC
Current & Near-future Drivers
Next Vintage of Drivers

Global Tourism Industry ($b) $2,570
(trav el, accomodations, tours, food & drink)
US Tourism $718 Food Service $178
European Union Tourism $973 Public Transport $111
Subtotal $1,691 Accommodations $152
Auto Transport $96
Entertainment $85
Shopping $95
Total $718
Leisure Tourism in the US and EU $1,691
Est. Blended OTA Take-Rate 9%
Est. OTA TAM $152
Expedia's OTA Gross Margin Rate 85%
Total Gross Profit TAM $129
w/in US & EU Markets
Significant Wallet Share Opportunity: Travel
❑ Business travel would add another 33%.
❑ The Travel Agent market is the most synergistic to
Amazon’s current assets and capabilities.
❑ There are significant synergies to be found between
tourist spending and Amazon’s current business in the
form of data, insights, recommendations, new product
opportunities, and more.
Sources: U NW TO, 2017
U .S. Travel Association, 2017
I CM estimates.

Flywheel Momentum Accelerators
Travel Market
+ More Velocity
+ More Mass
9All rights reserv ed, Inflection Capital Management, LLC
❑ Scale & network-effect business model
❑ Synergies with the retail business
❑ Synergies with the content business
❑ Broader view of member consumption patterns
❑ Significant gross profit dollars
❑ Funding mechanism for enhancing Prime benefits
❑ Tourism market is notably separate from Amazon’s current TAMs.
❑ Impactful strategy to build Prime member trust, loyalty, and consumer-
license to expand into other services
❑ Current OTA offerings sub-optimal for the consumer and sub-optimal
business models
❑ Opportunity for significant disruption to the OTA and travel markets

Expedia Booking Trip
2017 figures $ millions
Hotel Partners 440K 396K 396K
Available VRBO Listings 1500K 1190K 750K
of which are instintly bookable 500K 1200k
Est. Booked Accomodations (millions) 312 673 15
hotel & VRBO
Est. Hotel Bookings $65,430 $66,095 $2,215
VRBO Bookings $8,746 $16,524 $0
Est. Other Bookings $14,235 $9,180
Total Bookings $88,411 $91,799
Estimated Hotel Booking Revenue $5,193 $9,914 $332
Estimated Domestic Revenue $5,534 ND $877
Metasearch Revenue $521 $1,000 $716
Total Revenue $10,060 $12,681 $1,556
Gross Profits $8,303 $12,681 $1,484
EBITDA (GAAP) $1,515 $4,887 $235
EBITDA Margin 15% 39% 15%
Free Cash Flow $1,090 $4,361 $173
Advertising Expense $4,360 $4,533 $639
Cap-Ex $710 $288 $65
Advertising/Gross Profits 53% 36% 43%
Cap-Ex/Sales 7% 2% 4%
Stock Price $111 $1,722 $54
Enterprise Value $17,495 $83,238 $6,798
EV/Sales-2017 1.7 X 6.6 X 4.4 X
EV/EBITDA-2017 11.5 X 17.0 X 28.9 X
EV/Accomodation Booking 0.24 X 1.01 X 3.07 X
Price/FCF-2017 16.1 X 19.1 X 39.3 X
Pricing & EV as of 1.2.2019; ND-not disclosed
Note: 46% of TRIP rev enue is from BNKG & EXPEAll rights reserv ed, Inflection Capital Management, LLC 10
The Three OTA Players
❑ For Amazon, Expedia is far superior
to Booking given a smaller
transaction value and materially
lower valuation metrics. ①
❑ Expedia has a lot of company waste
and inefficiency, yielding an inferior
level of profitability at 15%; in
contrast, the sustainability of
Booking’s margin level at 39% is
questionable. ②
❑ The advertising and cap-ex levels at
TripAdvisor as frighteningly low for
such a competitive industry.③
Moreover, 46% of its revenue comes
fromExpedia and Booking. Should
Amazon buy Expedia, we expect
Wall Street to fear that TripAdvisor
could fail.
1
2
3

Friction Points & Ripe Areas for Disruption
❑ Operator exasperation at the OTA commission rate and their own rising level of customer
acquisition costs for search where they compete against their own distribution partners.
❑ Travel discounts for Prime members.
❑ Brand power, affinity, loyalty appear to be far inferior to what Amazon and the hotel/travel
operators enjoy. In addition, the OTA industrysuffers from brand clutter.
The OTA loyalty benefits are undifferentiated and the OTA holding companies have intense competition between
their own brands. Bookings.com competes with its brothers Priceline.com and Kayak.com. Expedia.com with
Orbitz.com with Travelocity.com with HotWire.com, etc. What if these services reduced search spending by a third
and invested it into loyalty benefits? In the case of Booking Holdings, such a shift would improve loyalty benefits by 7
ppts and please the operators as PPC on Google would significantly decline.
❑ OTA metasearch (TripAdvisor, Kayak, Trivago)is a great product for consumers, but the business
model is broken for a stand-alone like Trivago as 97% of sales goes to Google in search spend.
Trivago’s existence and competition only raises the cost for Expedia, Booking, and the operators. That in turn goes
onto the traveler through higher prices. A better outcome would be enriched loyalty benefits and lower commission
rates which would keep market shares relatively consistent while removing $2B or more of cost (the Google-toll) from
the industry.
$ billions
Booking Holding Inc. global travel bookings $81
Assume that 25% of bookings are now done
by loyalty members --> loyalty bookings $20
33% of global performance advertising $1.4
Loyalty Benefit
(33% search spend cut/loyalty bookings) 7%
Source: BKNG 2017 Annual Results

Amazon + Expedia Mock-up: Amazon.com
Vacation Travel

13
Mock-up
of redirect to
Expedia’s site
Vacation Travel
An Amazon company
Welcome, Thomas remember that Prime Members get an extra 10% on all hotels and packages (excluding airfare)

14
Mock-up of a visit back to Amazon.com
Vacation Travel
Yea, you’re headed to Vegas
next week. Good Luck!
Expect Hot days at the pool
and Hot nights at the casino
Next week’s Vegas forecast is
100° days and 70°nights. No
rain. Hot sun all day long.
Download t hese movies from
Prime Video before you go.
o Casino
o Rain Man
o Viva Las-Vegas
o Burt Wonderstone
o Diamonds are Forever
Music: Recently played
Elvish Costello: My Aim is True.
Did you know that Elvis Costello is playing at
the Encore Theater in the Wynn Hotel in Vegas
next week!
Tickets available forthe 8:00 show on Tuesday
for $80/ea minus Prime discount of $20, net $60
Get Vegas Style
Try Amazon Wardrobe
You Don’t Need to Pack for Vegas
Let Prime do it for you. We’ll curate selections
based upon your tastes and fit for the pool,
casino, dinner, and club into a tote that will
be waiting for you in your room at the
Bellagio. You pick the number and type of
occasions and Prime will assort. Keep the
outfits you want and leave those that didn’t
in the tote.
Amazon will charge for the kept outfits and $5/item for dry
cleaning those that didn’t.

Prototype
10% Discount on Amazon Booked Trav el

Sources:
1) TAM is Phocuswrite's hotel bookings in the US & Europe
2) EXPE Hotel OTA Bookings estimate fromits 10K disclosure of revenue and assuming a 15%take.
16
Disruption-1: Lower Agency Commissionand Merchant Mark-up
The Objective is to gain share of travelbookings, and to offer more and better hotel
and vacation packages(i.e. more value) to Prime members.
❑ The hotel take-rate is roughly 15%, with the agency rate ~14% and the merchant rate ~19%.
❑ There is (an always has been) been significant tension between operatorsand the OTAs over the OTA’s
take-rate. Should Expedia lower its take by 10% (to 13.5%), then operator supply should more than respond.
That increase in supply (and share of supply) should in turn lead to more demand and bookings via the
OTA-virtuous cycle/feedback loop.
❑ A 10% fee reduction (1.5 pts of margin) is ~$555m to Expedia Inc ①.
Lowering commission rates to gain supply to enhance offering
➢ This analysis only looks at the hotel market. A similar
analysis and benefit can also come from the alt. market
like VRBO, and other tourist serv ices such as tours,
transport, entertainment, etc. all of whichwillsignificantly
increase Amazon’s TAM and revenue synergiesfrom what
is shown in this analysis.
➢ Our booking estimates are driv en by taking our
undisturbed market penetrationprojection andaddingan
additional 200 bps gain (WAG) per year in market share.
➢ We assume 50% incremental margins based upon the OTA
business model analysis shown in the full presentation.
$ billions 2020 2021 2022 2023
Addressable TAM (US & EU Hotels) $295 $304 $313 $322
EXPE Hotel OTA Bookings $37 $41 $44 $48
Undisturbed Penetration 13% 13% 14% 15%
Pen. Improvement from Reduction 2% 2% 2% 0%
Cumulative Improvement 2% 4% 6% 6%
Total Penetration of TAM 15% 17% 20% 21%
Incremental Bookings $6 $12 $19 $19
Margin/Take-Rate 13.5% 13.5% 13.5% 13.5%
Incremental Revenue (millions) $796 $1,640 $2,534 $2,610
Incremental Margin (50%) $398 $820 $1,267 $1,305
Reduced Rate on Base Business (millions) ($555) ($615) ($660) ($720)
Total Impact on Business' EBIT (millions) ($157) $205 $607 $585
1

$ billions 2020 2021 2022 2023
Penetrate Prime for OTA Bookings
Prime Membership (m) 163 173 183 193
Penetration 3% 8% 12% 16%
Members Engaged 4.5 13.0 22.0 30.9
Bookings/Member $2,000 $2,200 $2,530 $3,036
Bookings $9 $29 $56 $94
Incremental Bookings (50%) $4 $14 $28 $47
Take-Rate 13.5% 13.5% 13.5% 13.5%
Incremental Revenue (millions) $1,210 $3,854 $7,500 $12,656
Incremental Margin (9%) $108 $343 $668 $1,126
Cannibalize other Channels (50%)
Bookings $4 $14 $28 $47
Savings from search @5.3% of bookings $238 $756 $1,472 $2,484
Prime Discount on Booking (millions) ($448) ($1,427) ($2,778) ($4,688)
Total Incremental Profits (millions) ($103) ($328) ($638) ($1,077)All rights reserv ed, Inflection Capital Management, LLC
Incremental cost from the 10% discount for Prime members
1
2
Disruption-2: 10% Discount for Prime Members on Lodging & Vacation Packages
❑ ShouldAmazon offer a 10% discount for Prime members on travel bookings (ex-air)that would:increase Prime’s membership value
with~$150/member in annual travel savings ①,build brand affinity& love,buildwallet share,allow for broader insights about a
member’s consumption allowing for more relevant offers,andmoderate membership churn and attract more new members.
❑ The 10% discount wouldonly be applicable to reservations sourceddirectlyfromExpedia’s properties or Amazon.com.
Reservations sourcedvia search,affiliate,etc.wouldnot be eligible for the discount.
2) We base the model on an estimatedpenetrationof worldwide Prime membership w/ a 15% penetrationby year-2023 (WAG).
3) We assume $2K in annual travel bookings (~50%of avg.) at year-2020,the year that Expedia would start the discount.
4) We assume that 50% (WAG)of the Prime bookings are made to come organicallyand not from paid-search and other demand
channels. This yields a savings fromless search marketing.
5) The total cost for this benefit wouldclimb to ~$7.4B.
by 2023 and increase from there.
Booking $100.00
Revenue $13.50
Underlying Inc. Margin (50%) $6.75
Savings from search $4.46
Prime Discount on Booking (10%) -$10.00
Operating Profit $1.21
Total Incremental Margin 8.9%
3
4
Margins for a Prime member booking
5

$ millions 2012 2017 Ch
Expedia Inc.
Est. non-Air Travel Bookings $24,287 $51,223
Est. non-Air Travel Revenue $3,643 $7,683
Est. Direct Marketing Expense $1,166 $3,304
Ratio to non-Air Bookings 4.8% 6.5% 165 bps
Performance Marketing (est.) $933 $2,643
Ratio to non-Air Rev . 25.6% 34.4% 880 bps
Booking Holdings Inc.
Est. non-Air Travel Bookings $25,610 $77,165
Est. non-Air Net Travel Revenue $3,880 $12,128
Direct Marketing Expense $1,309 $4,533
Performance Marketing $1,274 $4,146
Ratio to non-Air Rev . 32.8% 34.2% 135 bps
Disruption-3: Change The Basis of Competition for Reservations
❑ The primary basis of competing for reservations is paid- and meta-search with over 5% of the bookings value ①going
to performance marketing channels, i.e. Google. Those costs have risen each year as a % of revenue, ~100 bps
annually. Operators face this same escalation in search costs and declining ROI. This “toll” provides no benefit to
consumers or the operators.
❑ We estimate that the Expedia and Booking parent companies represent nearly 80% ②of Google’s travel related
search revenue. Should Expedia + Amazon shift its spending from search to loyalty benefits, we suspect that Booking
may follow. That would lead to a material reset of PPC prices to the benefit of the operators who could choose to
redirect the savings from lower marketing costs into loyalty or room pricing, either way a benefit to consumers.
❑ We expect this would also precipitate a change in the basis for competition in favor of more proprietary offerings like
breadth and depth of room inventory, ancillary packages and services for loyalty, etc. all benefiting consumers and to
the detriment of the largest industry toll-taker, or arms merchant, Google. That is also a strategic win for Amazon.
Google is vulnerable to an OTA change in strategy
18
Google’s take is 5% of bookings and 34% of revenue
1
2
1
Est. Search Ad Market on Travel (US & EU) 2017 $8,000
Est. Expedia Spend on Performance (US & EU) $3,230
Est. Bookings Spend on Performance (US & EU) $3,360
Est. TripAdvisor Spend on Perfromance (US & EU) $480
Est. EXPE & BKNG Spend on Trip -$715
Total Net Search Spend by Cohort $6,355
% of Total 79%
Sources: eM arketer 2017

$ Millions unless noted 2018 2019 2020 2021 2022 2023 CAGR
OTA Revenue (Un-Distrubed) $8,770 $9,684 $10,508 $12,157 $13,365 $14,573 10.7%
OTA Marketing Spend (Un-Distrubed) $4,648 $5,133 $5,569 $6,443 $7,083 $7,724 10.7%
% of Revenue 53.0% 53.0% 53.0% 53.0% 53.0% 53.0%
Marketing Reduction for Base-Business $0 $0 ($300) ($600) ($1,090) ($1,400)
Disturbed Marketing Spending $4,648 $5,133 $5,269 $5,843 $5,993 $6,324 6.4%
% of Revenue 53.0% 50.1% 48.1% 44.8% 43.4%
Disruption-3 cont.: Cutting Performance Marketing Spend
❑ ShouldExpedia reduce its performance marketing spend by 25% on a
relative basis,the savings wouldbe significant andthis could fund
additional loyaltybenefits,resulting inadded market share and
incremental profits.
❑ The reductioninmarketing would have a near-termimpact on traffic to
Expedia Inc. Consequently, in our estimates we model the reductionin
marketing as a multi-year process ①. Importantly,on an absolute level,
marketing will stillgrow at a 6% annual rate. ②
❑ Supporting traffic to ExpediaInc. would come from increasede-mail
marketing to Amazon.com customers and links on Amazon.com ③ .
❑ The real estate onAmazon.com is scarce and valuable.Listing Expedia
offers on it will cannibalize product sales.However,as the travel offering
grows in popularityand improves Amazon.com’s overall consumer
experience,it is likelyto produce incremental traffic to Amazon.com and
incremental product sales.We do not have the knowledge and data to
quantify these two opposing influences,but our intuitiontells us that their
summation is likelya negative. We leave this as downside risk to our
forecasts and analysis.
19
Glidepath for reduced performance marketing; down as a %, but up 6%/year in $’s
2
1
3
3

Synergy-1: Relevancy Improvement in Amazon Recommendations
The Objective is to increase the wallet share for Amazon’s traditional product and content offers
through better consumer insights into what’s going on in their lives and what they may need.
❑ No retailer has successfully mashed-up pre-travel spending to its offering. Retail spending by tourists is only consumer
pull and serendipity; there is no retailer push because retailers lack the insight and have not made the connections.
Amazon + Expedia can make the mash-up and those connections.
❑ Retail is a major beneficiary of tourism spending; for example, direct tourist spending represents 10% Macy’s sales.
Pre-travel spending is an additionally amount. These are segments of consumer spending to which Amazon currently
has little exposure. Anticipating those spending needs and meeting them as shown in the mock-up below ① is a
large opportunity and a excellent opportunity to make Prime members’ lives easier. Additionally, that knowledge
also provides a means to provide more relevant content recommendations ②.
❑ Having those insights and operator relationships allows Amazon a new way to produce new offerings and enhance
current offerings, like Amazon Wardrobe ③ for “packing-less travel.” The packing-less product is just one idea, there
are dozens more opportunities for other travel + retail mash-ups.
1
2
3
20

$ Millions unless noted 2018 2019 2020 2021 2022 2023
Total Bookings (B) $34 $52 $82 $137 $215
Spending Penetration 1.0% 2.0% 4.0% 8.0% 12.0%
GMV (B) $0.3 $1.0 $3.3 $10.9 $25.8
Revenue (50% 1P / 50% 3P) $213 $650 $2,042 $6,827 $16,116
Incremental Margin (16%) $34 $104 $327 $1,092 $2,579
North America ($ million) 1H'18
Subscription Fees $0
Advertising $2,155
Whole Foods $0
1P Sales $34,621
3P Fees $13,021
Total Revenue $49,796
Merchandise Cost $26,119
% of 1P Rev 75%
Shipping Costs $6,509
% of 1P % 3P Rev 14%
Prime Video Costs $0
Sum $32,628
Fullfillment $9,084
% of 1P % 3P Rev 19%
Contribution Profit
ex WFM $8,084
% of Rev 16.2%
21
❑ We size this benefit by assuming a % of spend based upon the booking value ① . Tourism shopping is typically
60% of what tourists spend on accommodations. Based upon prior work, we estimate that these sales will yield a
16% incremental margin ②. We do not quantify the benefit to pre-travel shopping ③ from more relevant adds.
We would expect that benefit to be part of the 12% of booked value. Commissions for entertainment and
restaurant reservations would also be part of this 12%.
❑ We do not quantify the synergy benefit of improved relevancy and new service/product offerings to Prime’s
value and consumer affinity, and the resulting higher Prime membership numbers. We also expect those benefits
to be material; that’s upside to our analysis.
❑ We do not attempt to model the synergy benefit from advertising relevant Amazon.com adds on the Expedia
properties; this also creates upside to our analysis.
Synergy-1: Relevancy Improvement in Amazon Recommendations
1
Improved Amazon relevancy for tourist yields significant incremental profits
2
North America Retail
Source: Amazon’s 2018 10-Qs & ICM LLC
3

Expedia Inc. 2017
Expedia's ttl bookings ex. Egencia $72,701
Alt+OTA Revenue $8,787
Adjusted EBITDA w/ Corp $1,614
% of Rev 18.4%
% of Bookings 2.2% Net Savings
to Amazon
ex. 75% of Corporate $493 -$164
ex. Credit Card Fees Difference $220 $220
ex. Customer Services Difference $198 $198
ex. 25% of Marketing $1,090 $1,090
Total $2,000 $1,343
Adjusted Profits $3,614
% of Rev 41.1%
% of Bookings 5.0%
22
❑ Greatly simplify the management of the Expedia by spinning off Trivago, selling
Egencia, collapsing the OTA brands, and eliminating the disparate brand offices in
Texas, California, Chicago, etc.
❑ Eliminate 75% of the central corporate expense.
❑ Rationalize credit card costs (to net 2.5% to revenue) and customer service (to 5.0%).
Bookings is at 6.6%
25% of HQ
costs retained
Projected cost
synergies at
year-3
Source: Expedia 2017 Annual & ICM LLC
Synergy-2: Simplify, Cull, and Cut
HotWire.com
Travelocity.com
eBookers.com

Why Now
❑ As shown earlier, Amazon is in a transitional period fromhyper Prime member growth to needing
accelerating household spending growth and wallet-sharecapture. The described synergies from
a Expedia + Amazon combination provides a strategy for accomplishing that.
❑ The Echo and Alexa are significant parts of Amazon’s long-termstrategy and investment. Owning
Expedia (booking infrastructure, inventory, loyalty programs, consumer footprint, operator
relationships) would allow Amazon to quickly build and affect how travel applications on these
platforms work, to define the consumer expectation. Given the importance of the category to
consumers and its size, affecting the voice-travel category quicklyis an important strategic
consideration and imperative.
❑ Given the travel industry’shigh occupancy levels, the later days of an extended economic cycle,
OTA management turnover, and inconsistent financial results, the OTA stocks are currently out of
favor on Wall Street and valuation levels areneutral.
❑ Last August, Expedia’s then-CEO Dara Khosrowshahi waspoached by Uber. The then CFO, Mark
Okerstrom, was elevated to replaceDara. The Treasurer and Head of Investor Relations, Alan
Pickerill, replaced Mark. The other management is not given access to the Street. Investors
generally are indifferent to both Mark and Alan. The Expedia board of directors is run by Expedia’s
controlling shareholder Barry Diller. Barry is now 76 years of age. Should Amazon offer a 30%
premium payable in Amazon shares, Barry would probably embracethe offer as it would put an
elegant cap on his career. He would relinquish control with confidence that he did well for the
Expedia business, employees, and shareholders (in the long run) and it would be a “hot poker in
the eye” of his nemeses Booking and Google.

In $ Millions
EXPE Enterprise Value Deal Funding (25/75)
Current Price $111 Stock Value $6,068
Premium 30% Debt Value $16,758
Deal Price $144 Dispositions $1,447
Total Value Considered $24,274
Diluted Shares (Q2 18) 153
Non-vested 16 AMZN Price $1,520
Total Shares 168 Shares Issued 4.0
Equity Value $24,274
Debt $4,231 Debt Raised $16,758
Cash $4,899 Rate 4.25%
Other Assets $0 Annual Interest Cost $712
Total EV $23,606
Existing AMZN Shares 488.0
Shares Issued 4.0
Final AMZN Shares 492.0
Consensus Factset
2019 EBITDA $2,159
2019 FCF $1,181
2019 EPS $6.60 Asset Dispositions
Trivago 59.6% x 50% haircut
EV/EBITDA 10.9 X 50% haircut $447
Price/FCF 20.6 X Egencia (10X) $1,000
P/E 21.9 X total $1,447
(pre-cost synergies)
Net-Cost Synergies $1,343
Post Cost Synergies
2019 EBITDA $3,502
2019 FCF $2,242
2019 EPS $13.55
EV/EBITDA 6.7 X
Price/FCF 10.8 X
P/E 10.6 X 24
Deal Structure: 30% premium & 25/75 equity/cash
❑ The pre-cost synergy valuation multiples
are reasonable ①. Additionally, given
Expedia’s high cost and simplification
opportunity, the post-cost synergy
multiples are quite attractive ②.
❑ Expedia acquired Orbitz for $1.6B/11X
NTM EBITDA.
❑ 25/75 ③ to accommodate taxable and
non-taxable shareholders, minimize EPS
dilution, and simplify option transference.
Diller & friends take AMZN stock.
❑ Amazon may have interest in the
Egencia business. ④ We removed it from
the analysis because it is not core to our
thesis and adds unnecessary complexity
for the purposes of this analysis.
❑ We would expect Amazon to sell the
Trivago piece ④ as a fire sale after the
closing of the transaction.
3
2
1
4
Prices of 1.2.19

All $ Millions Except EPS
AMZN-Consensus 2018 2019 2020 2021 2022 2023
Revenue $232,433 $280,134 $332,931 $388,505 $445,092 $501,679
Y/Y Change %
EBITDA $33,013 $41,175 $54,003 $66,681 $84,128 $94,824
EPS $19.84 $26.99 $39.89 $55.73 $75.53 $85.49
Consensus for Expedia
Core OTA Revenue $8,721 $9,523 $10,360 $11,502 $12,904 $14,306
Core OTA EBITDA $2,280 $2,465 $2,678 $3,055 $3,427 $3,800
Revenue Synergies $213 $2,671 $7,531 $19,321 $38,646
EBITDA Synergies ($396) $332 $1,128 $2,370 $3,396
AMZN+EXPE 2019 2020 2021 2022 2023
Revenue $241,154 $289,870 $345,962 $407,538 $477,317 $554,631
EBITDA $35,293 $43,244 $57,013 $70,864 $89,925 $102,019
EPS (exluding ammortization expense) $27.12 $41.30 $58.80 $80.95 $92.98
Amazon-Standalone EPS $26.99 $39.89 $55.73 $75.53 $85.49
Delta $0.14 $1.41 $3.06 $5.41 $7.50
% difference 1% 4% 5% 7% 9%
1) For this analysis we use FactSet consensus estimates for Amazon and Expedia.
2) We layer in each of the discussed disruption & synergy strategies.
3) The combined entity has a 150 pts of faster revenue growth and similar EBITDA growth.
4) EPS estimate accretion is significant (excluding amortization and integration costs).
5) We calculate an IRR of 13%.
25
Pro-Forma
financials
1
2
4
1

Conclusions:
❑ Acquiring and integrating Expedia into Amazon Inc. would: 1) make Prime members’ lives easier, 2) increase
the brand affinity and love for Prime, 3) source new areasof gross profit dollarsto enhance Prime’s
membership value, 4) extend Amazon into new areas of consumption, 5) significantly building Amazon’s wallet
share, and 6) build the Amazon-flywheel’s momentum.
❑ Expedia has the right geographic footprint, asset mix, loyalty-programhistory, organization opportunity, and
digestible enterprisevalue.
❑ Acquiring and integrating Expedia would significantly disrupt the status-quo to the benefit of Amazon users,
Prime members, tourists, and operators. This outcome would be to the detriment to Google and travel meta-
search businesses.
❑ The timing is right for acquiring Expedia given Prime’s high household penetration rate in the US, the
emergence of voice search, the cycleof travel is nearing peak which has been a disadvantageto the OTAs,
and Expedia is still relatively early in a leadership transition post Dara Khosrowshahi’sdeparture.
❑ A deal at a 30% premium ($145/sh) paid with 25% equity/75% cash would accelerateAmazon’s organic
revenue growth by 150 bps, be accretive to EPS by high-single-digits, and yield an IRR of 13%.
Longer-term, relative to Amazon’s other significant opportunities and the status-quo, this deal is a superior
investment byAmazon for the benefit of Prime members, Amazon’s customers, Expedia employees and
shareholders, hotel and travel operators, and Amazon shareholders.

❑ Giventhe relativelyhighlevel of Prime household penetrationand slowing member growth, Amazon’s revenue growth is contingent
upon: 1) finding new ways to make Prime members’ lives easier,2)increasing the brand affinityand love for Prime, 3) sourci ng more
areas of gross profit dollars to enhance Prime’s membership value,4) expanding into new areas of consumption, 5) significant ly
building wallet share, and 6) leveraging more network effects to increase the Amazon-flywheel’s momentum.
❑ One of the largest profit pools that Amazonhas yet to exploitis travel. Tourism is a verylarge and fragmentedmarket and it offers
many synergies withAmazon’s current businesses. Tourismis veryimportant to consumers,yet travel has never been holisticallymashed-
up withretail.Retailers benefit fromtourism,but that is serendipitous;retailers have no insights about the tourist that is visiting their store,
or the future traveler that is buying items before they depart. Having these insights wouldallow Amazon.com to significantly improve
the relevance of its recommendations for goods and content ahead of vacations,and when on vacation.
❑ The current Online Travel Agency (OTA) offerings are sub-optimal for the consumer and sub-optimal business models. Search
advertising has become one of the most significant basis for competitionfor traveland is a huge toll-taker. That in turn has eroded the
economics of hotel and other operators and increasedthe travel cost to tourists. The industry structure is ripe for significant disruption
that would bring benefits to operators andtourists.A better wayfor operators and tourists is to increase OTA loyaltybenefits,cut
industrysearch advertising,and significantlycull the competing OTA brands and metasearch(TripAdvisor,Kayak, Trivago)operators.
❑ Expedia has the right geographic footprint, asset mix, loyalty-programhistory,wasteful spending,organizational dis-synergy/complexity,
and digestible enterprise value for Amazon to acquire so that it can integrate travelservices andopportunities onto the Amazon.com
website.Prime members could receive a10% discount for hotel and vacationpackages which would greatlyenhance Prime’s value.
❑ Other areas for disruption include lowering commissionrates to win more accommodationlistings (fundedby a reductionin meta- and
paid-search marketing spend.) This move would improve Expedia’s offering which in turn propels the OTA-virtuous cycle.Other areas
for synergy include the consumption data to improve the relevance of Amazon’s recommendations for commerce and content.
❑ The timing is right for acquiring Expedia givenPrime’s high penetration,the emergence of voice search,the cycle of travel is nearing
peak which has been a disadvantage to the OTAs, and Expedia is still relativelyearlyin a leadership transitionpost DaraKhosrowshahi’s
departure.Expedia is controlledby Barry Diller,who at age-76 may like to see Expedia placed into safe hands where its competitive
positionwouldbe significantlybolsteredandwhere Google and Bookings would get a “hot poker in the eye.”
❑ We advise offering a 30% premium ($144/sh)to the current price ($111*)whichwould represent a $24B EV to be paid for with25%
equity/75%cash. Long-terminvestors,Expedia employees withoptions/grants,and Barry Diller (& party) would take the equity.
❑ Based upon our analysis of the deal and FactSet consensus estimates for Amazon and Expedia, the acquisition would boost Amazon’s
organic revenue growth from 16.6% to 18.1%, produce HSD EPS accretion in 2023,and yield an IRR of 13%.
❑ We envisionno regulatory abjections to this acquisitioninthe US. We expect the hotel operators to celebrate the strategy,same with
investors andWall Street.Expedia employees will be concerned about expectedexpense reductions and brand culling.Booking
Holdings will likelytake “a wait and see approach.” Google will be antagonistic.
Complete Pitch Summary
* Prices of 1.2.19

Amazon for expedia - executive pitch

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