It’s often said that some businesses are immune to economic downturns.
Take so-called “sin” sectors like gambling, for instance. Been to a casino lately? There’s a reason why the gaming firms, as they prefer to be called, run senior citizens by the busload out to slot-machine palaces on Native American reservations and directly from McCarran airport in Las Vegas straight onto the Strip.
When you gamble, you’re usually playing against the house, but you’re hoping for some return on your investment. Just about anybody would take root at a $100-a-hand blackjack table if they knew they could make 40%, 64% or 80% on the money — not from getting lucky by doubling down on 11, but by buying up stocks in three of the major online-travel sites since the start of the year.
That’s right. Even in a market that was battered in May, and which seems to fluctuate daily with the latest drama from the euro zone or Facebook Inc. (FB +3.74%), little has been occurring to take down the surging shares of Priceline.com Inc. (PCLN -0.96%), up almost 40% in 2012, Expedia Inc. (EXPE +0.21%), up 64% or TripAdvisor Inc. (TRIP +1.43%), spun off from Expedia last December and up nearly 80% since Jan. 1.
Indeed, betting on these travel aggregators would have paid off handsomely. But how come?
It’s mostly due to hotel rooms. “Travel spending is up and going against the macro[economic] concerns,” said Tracy Young, who covers Expedia and Priceline for Evercore Partners. “It’s pretty amazing. All of the hotels are full speed ahead, and hotels are the key to profitability.”
Young has an overweight rating on Expedia and a hold rating on Priceline.
While names like Expedia and Priceline, with their history of booking air travel, might carry the most recognition with consumers, it’s their businesses that specialize in hotels that are driving earnings and interest in the online-travel market.
Ever wonder who owns Hotels.com? That’s Expedia. Hotwire? Another Expedia property. Priceline has Booking.com and also Agoda.com, which specializes in hotel reservations in Asia. If you needed any more evidence of where these companies believe the money is, just go to their sites. Every one of them either promotes hotel rooms first or touts a deal involving hotel and flight reservations.
Priceline has even moved its once-ubiquitous pitchman, William Shatner, near the bottom of its home page and stuck an iPad in his hand. So much for the Priceline Negotiator.
“What’s behind their gains?” said Herman Leung, an analyst with Susquehanna Financial Group. “At the end of April, hotels were at only around a 60% occupancy rate, so there’s about 40% of rooms that aren’t filled. They’ve served the customer well as a gateway using technology to drive more bookings.”