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Morningstar | Expedia's Near-Term Rental Slowdown Doesn't Impede Upon Its Intact Network Advantage

We expect Expedia's global share of the total travel booking market to reach 7.1% in 2023 from 5.9% in 2018, driven by investments in 2019, which will support the company's network advantage. We expect the company's online travel booking share to remain relatively flat in the mid-13s over the next five years, given the company's high exposure to the maturing U.S. market (62% of 2018 bookings).Expedia has built a leading network of online travel services, which has driven a strong user base. We expect this network effect to remain over the next decade but see maturation and supplier consolidation causing some headwinds to this advantage in U.S. markets. In addition, replicating Booking's leading network in Europe, while not an insurmountable hurdle, is costly, as boutique hotels (a substantial portion of the region's market) may face some labor and expense constraints to joining multiple distribution channels. However, Expedia's 2018-19 investments to further expand its international presence should support its network advantage overtime. Also, in emerging markets, the company has improved its position by selling its majority-owned subsidiary eLong and replacing it with an unknown CTrip collaboration. This is crucial, as we think China will contribute nearly 20% of industry online booking growth over the next five years. Finally, the acquisition of HomeAway (now called Vrbo), and the company's investments in the brand, gives Expedia a leading share in the fast-growing online vacation rental market.We expect Expedia to continue to invest marketing dollars in building its platform the next few years, before sustainably leveraging this expense line item starting in 2022, as it benefits from a powerful network advantage.Companies with the customer traffic and budgets to replicate Expedia's network pose the main risk. Focused entry from Google, Facebook, Amazon, Alibaba, and others could double the current handful of players with dominant scale, leading to a meaningful impact on profitability. However, replicating Expedia's network requires significant time and expense.