Uber's potential Expedia acquisition

There is no doubt that Uber, under the leadership of Dara Khosrowshahi, has successfully turned its story around. Since he took the helm in August 2017, Uber's stock has surged from $33 per share to approximately $77 per share today. While there are many insights and lessons to draw from this transformation, today's discussion focuses on a different topic.

Recently, news has emerged that Uber may be considering a bid to acquire Expedia. This article will explore the potential implications of such an acquisition and whether it could be a beneficial move for Uber.

Why This Could Be a Good Move for Uber

Expedia currently has a market capitalization of around $21 billion, which increased by 7% following the acquisition news. If Uber were to proceed with a bid, it would likely need to offer a premium of 30% to 40%, bringing the total deal value to approximately $27 billion. In contrast, Uber boasts a market cap of about $170 billion, and while the transaction would represent a significant investment, it could underscore Uber's commitment to its long-term strategy.

Here are several reasons why acquiring Expedia might be a strategic bet for Uber:

1. Potential Discount on Expedia's Stock: Expedia’s stock has been relatively stagnant since 2017. Since Khosrowshahi left Expedia in 2017 until now, its stock price has remained largely unchanged. This stagnation may present an opportunity for Uber to acquire Expedia at a favorable price.

2. Dara Khosrowshahi's Familiarity with Expedia: Dara Khosrowshahi served as CEO of Expedia from 2005 to 2017, giving him deep insights into the company's operations and inefficiencies. His understanding could enable him to streamline operations and enhance profitability for the combined entity.

3. Financial Synergies: The acquisition could facilitate cross-selling opportunities and reduce marketing expenditures. Currently, Expedia has around 60 million monthly active users (MAUs) but spends approximately $7 billion annually on sales and marketing, resulting in an EBITDA of about $2.7 billion. If Uber could reduce Expedia’s sales and marketing budget by around 30%, leveraging its own user base of approximately 150 million MAUs, this could significantly boost Expedia's EBITDA.

4. Enhanced Loyalty Programs: Uber’s loyalty program, Uber One, has been growing steadily with about 15 million users. By merging this program with Expedia’s user base and services, the combined loyalty program could offer enhanced benefits, thereby increasing user retention especially among frequent travelers.

5. Advertising Revenue Potential: Uber’s advertising business is projected to exceed $1 billion this year. Integrating Expedia’s travel offerings could create valuable advertising space for travel-related promotions—from flights and hotels to car rentals—which could drive engagement and sales on both platforms.

6. Uber already Is in the Travel Planning Business: Albeit at a lower scale, Uber already is in the Travel Planning business in the form of Scheduled Rides, selling buses, trains tickets etc. Uber has also explored partnerships with hotels in the past such as Hotels.com, Marriott etc.

While these points present a compelling case for acquisition, it's essential to consider potential drawbacks.

Why This Acquisition Might Not Work for Uber

1. Integration Challenges: While the acquisition might seem advantageous, integrating two large platforms can pose significant technical challenges and require substantial unforeseen investments in technology and operations.

2. Diverse User Needs: Current Uber users primarily seek immediate on-demand services like rides or food/groceries delivery, while Expedia users typically take time to research and book accommodations. These differing user needs could complicate efforts to merge services effectively.

3. Limited Cross-Selling Opportunities: Many users may already utilize both platforms; thus, the potential for cross-selling may be limited. If most Uber users are already Expedia customers (and vice versa), reducing marketing expenditures may not yield the desired results.

4. User Preferences: Many Uber users may not appreciate being cross-sold additional services; they often prefer straightforward solutions that meet their immediate needs without additional upselling.

5. Market Uncertainty Due to AI Advances: The rise of artificial intelligence may necessitate significant changes in the business models of companies like Expedia and Booking.com. Uncertainties surrounding how AI will impact vacation rentals or hotel bookings add another layer of risk to this potential acquisition.

Conclusion

While an acquisition of Expedia by Uber presents intriguing possibilities for growth and diversification, it also carries significant risks that cannot be overlooked. As discussions continue regarding this potential deal, it would be interesting to see how these factors are weighed before moving forward and what would the final outcome be.