Google Earnings Show Booking Sites Face Ongoing Headwinds

Google’s substantial revenue growth  — 24 percent — in the fourth quarter suggests that its largest travel advertisers, including the Priceline Group and Expedia Inc., continue to face pressure in their digital marketing spend and margins as their spend with Google is likely outpacing their revenue growth.

Google’s revenue growth trajectory at well over 20 percent in the fourth quarter, as disclosed Thursday, suggests that we should expect to see digital advertising remain an area of modest operating deleverage for the online travel agencies. This means that advertising spending grows faster than revenue and leads to margins decreasing.

The caveat would be if the online travel agencies have been able to improve return on investment from each ad dollar spent, then we could see revenue outpace advertising spend once again.

Our base assumption is that advertising spending continues to modestly outpace revenue growth for Priceline and Expedia, but other operational cost line-items would counteract the advertising margin impact where operating expenses increase slower than revenue growth given scale efficiencies.

For TripAdvisor, its fourth quarter results would likely be more heavily impacted by its Instant Booking transition than digital advertising trends.

Expedia is slated to report its fourth quarter and full year results February 8, Priceline and Tripadvisor on February 15, and Ctrip on March 15.

It has become incredibly difficult for smaller online travel companies to attempt to compete against the largest companies in a mobile world, where conversion is more difficult, and the large online travel players spend billions of dollars annually with Google to drive traffic.

In Skift Research’s 2017 Outlook on Metasearch in Travel report, we discussed how online travel companies need scale to succeed where the massive online travel agencies have the budgets to spend on branding and marketing, technology, building inventory, and enhancing the user experience.

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