This document provides an analysis of the online travel industry including Expedia. It begins with an overview of the industry supply chain and structure. A PESTEL and Porter's Five Forces analysis are presented. Expedia's business strategy, financial performance, and competitive position are then analyzed. The document concludes with recommendations to strengthen Expedia's position, including acquiring Choice Hotels to gain bargaining power over suppliers and acquiring Sabre to achieve full vertical integration across the industry supply chain.

1. By Andrii Protsiuk | Chemsi Boulajouahel | Oyihoma Saleh | Sabrina Gheissari
1

2. Agenda
1.Industry Analysis
• Supply Chain
• PESTEL Analysis
• Porter’s 5 Forces
• Industry News & Events
2.Expedia Analysis
• Company Overview
• CompeCCve Strategy & Landscape
• Financial Performance
3.RecommendaEons
• Choice Hotel & Synergy
• Sabre + Synergy
• CompeCCve PosiConing
2

3. Industry Supply Chain
Hotels
Airlines
Car Rentals
Cruise Lines
Travel
Agencies
Leisure
Travelers
Business
Travelers
GDS
GDS
GDS
GDS
*Global DistribuCon System (GDS)
3

4. • MonopolisEc market structure
• Decline in brick and mortar travel agencies and an increase in online travel agents
(OTAs) due to internet penetraCon
• ShiQ in business model of travel agents from vendor commissions to service fees
• 60% of industry revenue is derived from sales of internaConal travel packages to
US residents
$35.3bn
Industry Revenue
2.3%
Annual Growth
17.4%
ConcentraEon RaEo (4)
Industry Overview
4

5. PESTEL Analysis
PoliEcal & Legal Factors
• Travel PromoCon Act of 2009 (TPA): promotes leisure, business, and scholarly travel to and
within the United States
• Airline industry is widely regulated in relaCon to passenger safety, internaConal trade, tax
policies and compeCCon
• Issues like war, terrorism and diseases also impact the industry
Economic Factors
• US consumer spending throughout past 5 years experiencing growth
• Significant decline in oil prices reflect on airline industry
• Increasing GDP creaCng more disposable income
Sociocultural Factors
• Increasing preference of consumers and businesses to make their travel purchases online
• Online reviews play a stronger role in influencing consumer-purchasing decisions
• Growing embracement of the sharing economy (Airbnb, Uber, etc.)
5

6. PESTEL Analysis
Technological Factors
• Internet has revoluConized the industry
• Decline in number of brick and mortar travel agencies
• Mobile devices are driving online booking
Environmental Factors
• Pressure for airlines to improve fuel efficiency and reduce noise
polluCon of their aircraQs
• Water and Sewage regulaCons on Hotels (West coast)
6

7. Porter’s Five Forces
Rivalry Among CompeEtors - HIGH
• Low degree of seller concentraCon (CR4 = 17.4%)
• Low industry growth (CAGR=2.3%)
• Low switching cost and product differenCaCon
• Low capital requirement
• Intense price war
Porter’s Five Forces
Threat of Entry - HIGH
• Low brand loyalty
• Easy access to distribuCon channel, favorable locaCons and
raw materials (Website and Internet)
• Minimal experience needed to enter industry
• Low capital requirement
7

8. Threat of SubsEtute - HIGH
• Hotels, airlines etc. are driving consumers to make bookings
directly on their website
• IntroducCon of home-rental market (Airbnb)
• AlternaCves are offering compeCCve or lower prices in a
market with high price elasCcity
Bargaining Power of Supplier - HIGH
• Higher concentrated industries (excluding hotels)
• Few subsCtutes for supplier inputs
• Forward integraCon already taking place
• Some price discriminaCon is possible
Porter’s Five Forces
8

9. Bargaining Power of Buyers - LOW
• Less concentrated industry
• Low volume and relaCvely low frequency of purchases
• Lack of financial capacity to backward integrate
• They can easily find subsCtutes (e.g direct booking, Airbnb)
• Usually price sensiCve consumers
Porter’s Five Forces
9

10. Recent News & Events
Marrioe InternaConal reached agreement
to acquire Starwood Hotels & Resorts.
Airbnb raised $1.5 billion in latest funding
round bringing its valuaCon to $25 billion.
Suppliers SubsEtutes
10

11. Hotels Airlines Car Rentals Cruise Lines AdverEsing
Travel & Hospitality Services
#1
Travel Agency in USA
9.5%
Market Share
$6.6bn
Global Earnings 2015
14K
Employees
$16bn
Market Cap
53%
Revenue from US market
11

12. Revenue Distribution
70%
13%
9%
8%
Revenue Mix
Hotel Car Rental & Cruise Adver3sing Airlines
70%
13%
9%
8%
Revenue Mix
Hotel Car Rental & Cruise Adver3sing Airlines
12

13. Mission & Growth Strategy
13
“RevoluEonize Travel Through the Power of Technology.”
New Channel PenetraEonGlobal ExpansionProduct InnovaEon
Growth Strategy
Passionate InnovaEve Enterprising
Core Values

14. Analysis of Competitive Strategy
Generic Business Strategy - DifferenCaCon Strategy
Product Bundling DealsExpedia + CiE Rewards Card Expedia Mobile Apps
Bases of DifferenEaEon:
• Complements (Rewards card & Mobile app)
• Product Features (Bundling deals)
14

15. Analysis of Competitive Strategy
Corporate Strategy
• Horizontal IntegraEon (AcquisiEons) + Product-Market DiversificaEon
• Reduce excess capacity
• Reduce compeCCve intensity and increased profitability
• Increased differenCaCon strategy by widening product offering
• Operates in 60+ countries offering mulCple travel and hospitality services
15

16. Analysis of Competitive Strategy
Cost Leadership
DifferenEaEon
2016
2016
ProducCvity
FronCer
ProducCvity
FronCer 16

17. Analysis of Competitive Strategy
COGS/
Sales
SGA/
Sales
Net Profit
Margin
Market
Share
ROA ROE ROIC
19.63% 57.70% 11.46 9.50% 6.23 23.00% 14.66%
6.85% 52.53% 27.66 5.40% 15.77% 29.39% 19.24%
private private private 1.60% private private private
Industry
Avg.
- - 15 - 6.84% 12.88% 8.43%
CompeEEve Profile
Expedia vs. Priceline
• Priceline COGS benefited from reversal of Hawaii travel transacCon taxes worth $16.4 million
• Decrease in Priceline’s Name Your Own Price® reservaCon services.
17

18. Analysis of Competitive Strategy
V R I O
Brand ✓ ✓ ✓ ✓ Sustainable
IT System ✓ ✘ ✘ ✓
Supplier
RelaEonships ✓ ✘ ✘ ✓
Ecosystem of
websites ✓ ✓ ✓ ✓ Sustainable
Economies of
scope ✓ ✘ ✘ ✓
HomeAway ✓ ✓ ✓ ✓ Sustainable
Expedia VRIO Analysis
18

19. SWOT Analysis
Strengths
• Brand Awareness/ReputaCon
• AcquisiCons - strong brand porpolio
• offers a broad range of travel and
hospitality services
Weaknesses
• Dependence on search engines
• Dependence on suppliers
• Pressure to grow shareholder value
OpportuniEes
• Growing internet penetraCon
• Demand from emerging markets
• Mobile technology
• Increasing availability of complements
Threats
• Sharing economy (Airbnb)
• Hotels and airlines increasing efforts of
direct booking
19

20. Financial Performance
2013 2014 2015 2016 2017 2018 2019 2020
Sales $4,771,259 $5,763,485 $6,672,317 $7,869,998 $9,282,663 $10,948,900 $12,914,228 $15,232,332
COGS $1,038,034 $1,179,081 $1,309,559 $1,470,897 $1,652,111 $1,855,651 $2,084,267 $2,341,049
SGA $3,151,043 $3,919,856 $4,785,243 $5,897,230 $7,267,620 $8,956,458 $11,037,746 $13,602,681
DepreciaCon + Other
OperaCng Expenses
$216,122 $146,784 $163,949 $147,235 $132,226 $118,746 $106,641 $95,769
OperaCng Income $366,060 $517,764 $413,566 $457,648 $506,428 $560,407 $620,140 $686,240
Taxes + Interest and
Other Income
$133,210 $119,667 ($350,899) $356,858 ($362,917) $369,080 ($375,347) $381,721
OperaEng Income amer
taxes $232,850 $398,097 $764,465 $100,790 $869,345 $191,327 $995,488 $304,519
Expedia 5-Year Financial ProjecEon (‘000s)
$102.92
Stock Price (Apr. 8)
137,780,456
Shares Outstanding
$6bn
AcquisiEons
11.48%
WACC
20

21. RecommendaEons
21

22. Future of Expedia
Threat of SubsEtute
(HIGH)
Own SubsEtutes
22

23. Future of Expedia
Bargaining Power of Supplier
(HIGH)
ACQUIRE
23

24. 12
Hotel & Motel Brands
6,300+
LocaEons
35+
Countries
$860M
Global Earnings 2015
500K+
Rooms
$3bn
Market Cap
Brand Porrolio
24

25. Porter’s Five Forces
Porter’s 3 Tests
1. AsracEveness - LOW
• Despite low switching costs, industry is saturated and some
firms are consolidaCng to increase profitability and reduce
compeCCon
2. Cost of Entry - HIGH
• Capital intensive industry with a high proporCon of fixed costs
to total cost and Incumbents with experCse are at advantage
as well as access to favorable locaCons low
3. Beser-Off Test - HIGH
• Industry players hold strong bargaining power and have forward
integrated in an effort to increase direct booking and eliminate
need for OTA. Expedia must react to threats
1
2
3
25

26. Financial Performance
2013 2014 2015 2016 2017 2018
Sales $724,650,000 $757,970,000 $859,878,000 $980,260,920 $1,117,497,449 $1,273,947,092
COGS $407,646,000 $412,637,000 $488,717,000 $557,137,380 $635,136,613 $724,055,739
SGA $111,700,000 $121,400,000 $134,300,000 $153,102,000 $174,536,280 $198,971,359
DepreciaCon + Other
OperaCng Expenses
$9,056,000 $9,365,000 $11,542,000 $13,080,447 $14,823,954 $16,799,856
OperaCng Income $196,248,000 $214,568,000 $225,319,000 $256,941,093 $293,000,601 $334,120,137
Taxes + Interest and Other
Income
$83,532,000 $92,437,000 $96,389,000 $103,587,297 $111,323,159 $119,636,734
OperaEng Income amer taxes $112,716,000 $122,131,000 $128,930,000 $153,353,797 $181,677,442 $214,483,403
Choice Hotels Financial Strength
Stock Price (Apr. 8) $52.24
CAGR 14%
Industry CAGR -1.06%
WACC 9.96%
COGS/Sales 56.83%
SGA/Sales 15.61%
ROA 18.64%
26

27. Porter’s Five Forces
Expedia + Choice Hotels Synergies
Sales Growth
Synergies that increase sales growth:
• MonopolisCc compeCCon over Choice Hotels (and
HomeAway)
• Control to differenCate product
• Lower prices and travel packages
• Cross-industry adverCsement
Cost of Goods Sold
Synergies that decrease COGS:
• Economies of Scale + Economies of Scope
• Decrease in licensing fees and booking fees
Synergies that increase COGS:
• CoordinaCon costs - Operate solo
27

28. NPV Analysis
2013 2014 2015 2016 2017 2018
Sales $5,495,909,000 $6,521,455,000 $7,532,195,000 $9,292,771,763 $10,920,167,972 $12,833,989,917
COGS $1,445,680,000 $1,591,718,000 $1,798,276,000 $2,080,744,598 $2,432,451,396 $2,844,239,405
SGA $3,262,743,000 $4,041,256,000 $4,919,543,000 $5,797,296,119 $6,831,863,243 $8,051,288,512
DepreciaCon + Other
OperaCng Expenses
$225,178,000 $156,149,000 $175,491,000 $160,315,870 $147,049,645 $135,545,964
OperaCng Income $562,308,000 $732,332,000 $638,885,000 $1,254,415,176 $1,508,803,688 $1,802,916,036
Taxes + Interest and Other
Income
$216,742,000 $212,104,000 ($254,510,000) $460,444,912 ($251,594,254) $488,716,846
OperaEng Income amer taxes $345,566,000 $520,228,000 $893,395,000 $793,970,265 $1,760,397,942 $1,314,199,190
IniEal Investment $1,953,044,145
Net Cash Flow $29,228,092,594
Discount Rate 12.68%
Present Value $11,518,275,180
Stock Price (Apr. 8) $52.24
Shares Outstanding 56,389,126
Premium 30%
Equity Purchase 51%
Expedia + Choice Hotels
28

29. • Sabre CorporaCon is a travel technology company based in South-lake, Texas
• Founded by American Airlines in 1960 (Spun Off)
• Largest Global DistribuCon Systems provider for air bookings in North America.
Hotels
100K
Airlines
70
Data TransacEons
85K/s
OperaEons
About
29

30. Porter’s Five Forces
Expedia + Sabre Synergies
Sales Growth
Synergies that increase sales growth:
• Complete backwards integraCon
• Strong bargaining power
• Complete control over supplier network
• Stronger control to create monopolisCc compeCCon
• Only OTA to completely verCcally integrate
Cost of Goods Sold
Synergies that decrease COGS:
• Greater decrease in licensing fees and booking fees
Synergies that increase COGS:
• CoordinaCon costs
• CoordinaCon costs - Cannot operate solo, will have to
integrate plaporm
30

31. 2021 2022 2023 2024 2025
Sales $21,442,259,829 $25,210,628,614 $29,644,147,237 $34,860,631,963 $40,998,826,138
COGS $20,846,641,500 $24,510,333,375 $28,820,698,702 $33,892,281,075 $39,859,969,857
SGA $4,552,977,852 $5,328,288,644 $6,236,894,900 $7,301,900,962 $8,550,443,291
DepreciaCon + Other OperaCng
Expenses
$13,179,999,778 $15,534,165,738 $18,309,274,327 $21,580,656,525 $25,437,133,273
OperaCng Income $110,459,129 $104,950,683 $100,770,501 $97,885,373 $96,279,094
Taxes + Interest and Other Income $3,003,204,741 $25,210,628,614 $29,644,147,237 $34,860,631,963 $40,998,826,138
OperaEng Income amer taxes $3,242,916,475 $2,988,552,188 $4,403,760,074 $4,319,215,347 $5,993,295,480
Sales post Choice AcquisiEon 0.05
Sales post Sabre AcquisiEon 0.08
COGS -0.01
Synergies
Expedia + Choice Hotels + Sabre
NPV Analysis
Expedia + Choice Synergies $11,518,275,180
NPV
Without Synergies $6,510,890,597
Total Synergies $13,105,589,748
31

32. Analysis of Competitive Strategy
V R I O
Brand ✓ ✓ ✓ ✓ Sustainable
IT System ✓ ✓ ✓ ✓ Sustainable
Supplier
RelaEonships ✓ ✓ ✓ ✓ Sustainable
Ecosystem of
websites ✓ ✓ ✓ ✓ Sustainable
Economies of
scope ✓ ✓ ✓ ✓ Sustainable
HomeAway ✓ ✓ ✓ ✓ Sustainable
Expedia VRIO Analysis
32

33. New Expedia Supply Chain
Leisure
Travelers
Business
Travelers
Full Backward Vertical
IntegrationHorizontal
Integration
33

34. QuesEons?
34