Wall Street analysts on the 'Google squeeze'

|
The Street Talk panel at the Phocuswright Conference. From left, Jake Fuller, Guggenheim Partners; Mark Mahaney, RBC Capital Markets; Eric Sheridan, UBS; Lloyd Walmsley, Deutsche Bank Securities; and moderator Seema Mody of CNBC.
The Street Talk panel at the Phocuswright Conference. From left, Jake Fuller, Guggenheim Partners; Mark Mahaney, RBC Capital Markets; Eric Sheridan, UBS; Lloyd Walmsley, Deutsche Bank Securities; and moderator Seema Mody of CNBC. Photo Credit: Rebecca Tobin

HOLLYWOOD, Fla. -- Four travel industry analysts walk onto a stage. What's their first point of debate? 

A nontravel company, of course.

But that company, Google, was in many discussions at the Phocuswright Conference here, since both Expedia and TripAdvisor pointed to Google's impact on their business in their recent earnings results. 

In its Q3 results, Expedia CEO Mark Okerstrom said that the company had seen "incremental weakness in SEO volumes and a related shift to high-cost marketing channels."

"There is a term called the Google squeeze," said Mark Mahaney of RBC Capital Markets. "It was referring to the decrease in percentage of traffic the online travel agencies could get from SEO, free-traffic channels. Anybody who's searched on Google in the last decade has known those free links keep getting crowded down. And if you were dependent on those free links for traffic, it's an issue for you. 

"There's no more Google free lunch. If you have a strategy of building a business based on organic search, you're in trouble." 

Seema Mody of CNBC, the panel moderator, reeled off lower stock prices. Just in the month of November, TripAdvisor's stock was down 14%, Booking Holdings down 9% and Expedia down nearly 30%. 

"We've seen this before, vis a vis TripAdvisor," said Lloyd Walmsley of Deutsche Bank Securities. "What's newer is having Expedia call it out as a headwind, and I think that really spooked investors."

Jake Fuller of Guggenheim Partners took an optimistic tone, saying, "There's nothing broken here."

"We're talking about a couple of points of SEO-related room night volume that went to paid [search]. Yeah, that's not great. But it's not a broken business. ... It's still a very viable business, still a healthy growth profile."

Booking Holdings, meanwhile, seemed to have weathered the Q3 storm better than Expedia and TripAdvisor. "I think the irony is that because Booking didn't have the brand buildup, it never developed the dependency on organic search that Expedia and TripAdvisor did," said Mahaney. "They have a muscle memory for paid search, and it's come through for them." 

Panelists discussed market outlook following the lackluster performances this year of Uber and Lyft and WeWork's failed IPO, and what that might bode for companies' entry into public markets next year. Airbnb, for example, is gearing up for an IPO in 2020.

Fuller said he thought that private capital would dry up, which would prompt companies to adopt a more disciplined approach that would "prep" them for the public market. 

"When Uber and Lyft came out, they were losing extraordinary amounts of money the public market had never seen," Walmsley said. "In the case of those two companies, they are ramping towards profitability considerably faster than most people expected. Despite that, the stocks have been really under pressure. The appetite is really for profitable companies. It will change the profile of who comes to market."

Meanwhile, the "final frontier" in online travel, according to Mahaney, is experiences -- activities, excursions and tours. "Supply is so unconsolidated. It's really difficult to wire up. I don't know if anybody is doing it well, but whoever does is going to create the most value," Mahaney said.

That conversation began with a reference to Airbnb'sExperiences, but it turned to encompass the activities-and-tours market as a whole. In-destination activities are a key part of a concept that OTA executives have called the "connected trip" -- the creation and management of complete travel itineraries. 

Fuller said he is "bearish" on the concept. 

"I don't think the consumer is necessarily ready for it," he said. "It was hard to get people to buy a plane ticket and a hotel room, now you have to buy a hotel room, plane ticket, car rental, experience. I'm just not sure the customer is ready."

Comments
JDS Travel News JDS Viewpoints JDS Africa/MI