Online travel companies
We compared Orbitz Worldwide Inc. (OWW) with its peers Expedia (EXPE), The Priceline Group (PCLN), the China-based Ctrip.com International (CTRP), and TripAdvisor (TRIP) in the OTA (online travel agency) space. In terms of multiples, Orbitz is in line with most of its peers, with a 26.5x PE (price-to-earnings ratio). TripAdvisor, which is more of a travel advisory site that earns revenue from advertising, has the highest PE among the peer group. Orbitz, which has the smallest market cap in the peer group, has the highest free cash flow yield and ROE (return on equity) compared to its peers. Management said on the recent earnings call that Orbitz generated $95 million in free cash flow for 1Q 2014. The company’s gross margins are in line with its peers, but its operating and profit margins are the lowest among its peers.
Last month, Orbitz completed the refinancing of its $440 million outstanding senior secured term loans with a new $450 million term loan maturing April 2021. The proceeds of the refinancing were used to repay the $93 million Tranche B term loan maturing September 2017 and the $348 million Tranche C term loan maturing March 2019. Management said the refinancing strengthened the company’s financial position by reducing borrowing costs, extending maturities, and achieving more flexible debt covenants.
In terms of guidance, Orbitz expects second quarter 2014 revenue in the range of $239 million to $245 million, above Street estimates. It expects net revenue growth in the high single digits for 2014 and said the increase in projected full-year revenue guidance reflects the impact of the TPN asset acquisition. Orbitz’s loyalty program is also expected to have a positive impact on revenue and room night growth rates. The company said it expects second quarter 2014 stayed room nights to accelerate to the high teens, with the TPN acquisition contributing one-third of that growth. Orbitz expects air revenue per transaction in the second quarter of 2014 to be down year-over-year due to the impact of the loyalty program, changes in supplier agreements, and airline payments made earlier than usual. The company foresees revenue growth accelerating in the second half of 2014 due to benefits to its loyalty program from the air initiatives and TPN.
Orbitz is poised to benefit from investments in its technology and its strategy to expand internationally, increase its hotel bookings via the mobile channel, new global distribution services (GDS) agreements, private-label partnerships, and customer loyalty programs. However, competition has intensified in the space with the entry of travel research sites and online search giants such as Google and Yahoo. Moreover, airlines and hotels have increasingly focused on distributing their products through their own websites, and Orbitz faces pressure from competitors such as Priceline and Expedia, which are acquiring and investing in meta-search companies to increase market share and gain advertising revenue.
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