Why Priceline’s peers are struggling to maintain operating margins » Market Realist

By Smita Nair • Apr 29, 2014 9:00 am EDT 

Operating margins

Priceline and its peers such as Expedia (EXPE) and Orbitz Worldwide (OWW) have been investing in marketing and promotion, technology, and personnel in an attempt to improve long-term operating results, but these expenses have pressured operating margins. Priceline’s management said on the earnings call that “operating margins were impacted by 146 bps of deleverage and offline advertising mainly related to our Booking.com TV campaigns in the U.S. and Australia and the inclusion of KAYAK offline advertising.” Although Priceline has managed to efficiently improve its margins, its peers have struggled.

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In 2013, Priceline’s total online advertising expense was approximately $1.8 billion, up 41.2% year-over-year. A substantial portion of this was spent internationally through Internet search engines, meta-search and travel research services, and affiliate marketing. The company has worked on building brand awareness for Booking.com, Priceline.com, Agoda.com, KAYAK, and Rentalcars.com via aggressive marketing and promotion campaigns. It said it uses online search engines (primarily Google), meta-search and travel research services, and affiliate marketing as primary means of generating traffic to its websites. It also invested approximately $127.5 million in offline advertising via television, print and radio.

Priceline said its online advertising ROIs were down year-over-year for 2013. Its online advertising as a percentage of gross profit has increased due to lower returns on investment (ROIs) from online advertising, brand mix within the group, and channel mix within certain of its brands. Plus, its international brands are generally growing faster than U.S. brands, and usually spend a higher percentage of gross profit on online advertising.

Priceline CEO Darren Huston said in a Bloomberg interview that the company spends more on search ads on Google, and that results from Facebook (FB) and Twitter (TWTR) haven’t worked out for the company. Huston said in the article that the ad spending would be modified to include TripAdvisor Inc. (TRIP), the KAYAK travel search engine, and Expedia’s (EXPE) search site Trivago. When asked about the emergence of Google as a potential competitor, Hudson said he was not worried, adding “Google of course respects us as an advertiser.”

Expedia mentioned in its annual filing that its marketing channels include social media sites such as Facebook (FB) and Twitter (TWTR). The marketing initiatives also include promotional offers and traveler loyalty programs such as Welcome Rewards and Expedia Rewards that are recorded under its expenses. Orbitz (OWW) said in its annual filing that its marketing expense increased 16% or $39.5 million to $292 million, due largely to the growth of its private label distribution channel, which increased affiliate commissions by $23.5 million, and search engine and other online marketing of $32.7 million.

via Why Priceline’s peers are struggling to maintain operating margins » Market Realist.

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Why TripAdvisor and Priceline Wish Facebook Ads Performed Better – Skift

Both Priceline and TripAdvisor have expressed their disappointment in recent months in the value of Facebook advertising. Pictured, TripAdvisor CEO Stephen Kaufer at the PhoCusWright Conference in November 2010. PhoCusWright / Flickr.com / Flickr.com

Both Priceline and TripAdvisor have expressed their disappointment in recent months in the value of Facebook advertising. Pictured, TripAdvisor CEO Stephen Kaufer at the PhoCusWright Conference in November 2010. PhoCusWright / Flickr.com / Flickr.com

Priceline Group CEO Darren Huston’s lament that Facebook and Twitter can’t do what Google advertising can when it comes to driving travel transactions is not news to TripAdvisor, which complained of the same shortcomings five months ago.

At the time, TripAdvisor CEO Steve Kaufer said using Facebook to promote its Cities I’ve Visited Ap leads to better monetization, but Facebook falls short in driving transactions in the way that Google Adwords does.

“We weren’t able to get the same traveler in shopping mode to come over to TripAdvisor in any scale that matched Google,” Kaufer said, referring to advertising on Facebook, when speaking at an investor conference in November 2013.

Unlike Huston, Kaufer didn’t address the effectiveness — or lack thereof — of advertising on Twitter at the time.

The independent statements of Kaufer and Huston are a blow to Facebook advertising as a travel-transaction-booster. Both TripAdvisor and the Priceline Group were previously rooting hard for Facebook advertising to succeed as both companies look for other ways to advertise in addition to Google’s platform.

TripAdvisor, in particular, has engaged in lots of disputes with Google when it felt Google was pilfering TripAdvisor reviews and artificially limiting traffic to TripAdvisor in favor of Google promoting its own travel products.

In addition, TripAdvisor was once considered Facebook’s best friend in travel because of TripAdvisor’s Cities I’ve Visited Facebook app, with Facebook even citing TripAdvisor’s promotions on Facebook in its IPO registration papers.

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Travel companies do have an alternative to Google, though, in one growing channel — travel metasearch through companies such as Kayak, Trivago, Skyscanner, and TripAdvisor, among others.

You only have to look at the Priceline Group’s acquisition of Kayak for $1.8 billion, and Expedia’s acquisition of Germany’s Trivago for $564 million in cash and 875,200 shares to see how Priceline and Expedia were looking for an advertising hedge against Google’s dominance.

Many travel industry companies hoped that alternative would be Facebook, but so far Facebook hasn’t delivered in the view of some major players, at least.

Facebook declined to comment on the issue.

via Why TripAdvisor and Priceline Wish Facebook Ads Performed Better – Skift.

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Kayak Drops TripAdvisor Hotel Reviews, Adds Its Own User Ratings – Skift

Now that TripAdvisor has launched Kayak-like hotel metasearch, the two companies are competing head to head for the first time.

That’s the context for a new feature that Kayak is introducing today: User rating scores to rival TripAdvisor’s Popularity Index for hotels.

And, as part of Kayak’s changes, which also includes a redesigned homepage, it is not-so-coincidentally dropping its use of TripAdvisor user reviews.

via Kayak Drops TripAdvisor Hotel Reviews, Adds Its Own User Ratings – Skift.