Network effect will boost Expedia's market share

Recent acquisitions stand to add to the company's network advantage.

Dan Wasiolek 5 April, 2016 | 5:00PM

 Expedia (EXPE) has built a leading network of online travel services, which has driven a strong user base and is increasingly difficult for competitors to replicate. We expect this network effect to remain over the next decade, as the company's scale allows it to increase its marketing and technology expertise and spending well above the rate of competitors.

Expedia sees 450 million monthly visitors to its brands, compared with 350 million for TripAdvisor. This traffic allows its 5,000 engineers to more effectively test ways to improve user experience versus smaller competitors, which ultimately leads to improved conversion.

Similarly, this high level of traffic allows the company to constantly test and improve its marketing efficiency on distribution channels. Expedia spent US$2.3 billion on direct marketing in 2014 (39% of total revenue) while number-three online travel agency Orbitz spent US$334 million (36% of total revenue). Expedia and  Priceline (PCLN) have grown to a level where it is increasingly challenging for the next-largest online travel agency to compete.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Alphabet Inc Class C1,393.18 USD0.34 Inc1,979.59 USD0.35
Booking Holdings Inc1,678.20 USD-2.80
Expedia Group Inc101.19 USD-7.09
Facebook Inc A197.20 USD0.22
TripAdvisor Inc23.61 USD-7.85

About Author

Dan Wasiolek

Dan Wasiolek  Dan Wasiolek is a senior equity analyst for Morningstar.