Expedia shares gain on TripAdvisor spin-off plan

Fri Apr 8, 2011 2:45pm EDT

* TripAdvisor seen poised for growth

* Challenges seen for standalone Expedia

* Shares up 12 pct
(Rewrites with analyst comment)

ATLANTA, April 8 (Reuters) – Should Expedia Inc (EXPE.O) go
through with its plan to spin off TripAdvisor this year, the
newly created company is likely to be the more favored firm on
Wall Street.

Shares of Expedia rose 12 percent on Friday as analysts
called the online travel agency’s plan to split a way to unlock
potential value.

TripAdvisor, which sells ad revenue on its sites that
feature travel reviews, has been a growth engine at Expedia in
recent quarters.

Morgan Keegan Internet and e-commerce analyst Justin
Patterson said TripAdvisor revenue has risen about 34 percent
year over year, while the core Expedia side of the business
grew about 8 percent in 2010.

“Between the two assets, the spin-out has largely been
designed to realize value in TripAdvisor,” Patterson said. He
said TripAdvisor could possibly attract buyer interest but
added he couldn’t think of any logical acquirers.

The spin-off, disclosed after markets closed on Thursday,
would split Expedia into two publicly traded companies

The new TripAdvisor would have operations of the current
travel business that include 18 popular travel brands, while
Expedia Inc would continue to comprise transaction brands such
as Expedia.com, Hotels.com, Hotwire and carrentals.com.

“Media-driven business models seem to be gaining traction
in the online travel industry,” Morningstar analyst Warren
Miller said.

Bank of America Merrill Lynch analyst Justin Post said in a
client note the move likely reflected management’s impatience
with Expedia stock, which was down 10 percent on the year
before the Thursday announcement, and confidence in growth
opportunities for TripAdvisor despite competition from services
such as Google Places (GOOG.O).

But experts also said the spin-off could expose Expedia’s
slow growth and leave it more vulnerable to competition.
Analysts have said planned investments to improve technology
and move into certain global markets could pressure Expedia
results this year.

“I agree that there is some concern about the growth
trajectory there,” said Patterson, who added that rival
Priceline.com is expected to continue outperforming Expedia
this year based on international strength.

Patterson said it’s still unclear whether Expedia’s
investments will pay off.

Debt-rating agencies also cautioned that splitting
TripAdvisor from Expedia could hurt margins and cash flow

“This divestiture has the potential to hurt Expedia’s
credit quality depending on how assets and liabilities are
divided in the transaction, given the loss of TripAdvisor’s
profits,” Morningstar’s Miller wrote.

Expedia shares were up $2.73, or 12.2 percent, at $25.13 in
Nasdaq trading on Friday.
(Reporting by Karen Jacobs; Editing by Steve Orlofsky, Dave

Apr 8th, 2011 | Posted in Travel
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