Financial analysts downplay Room Key threat to Expedia and Priceline
Some financial analysts are downplaying Room Key’s potential threat to the all-important hotel businesses at online travel agencies Priceline and Expedia.
Their you’ve-got-a-lot-to-prove attitudes emerge as Room Key, a hotel metasearch site launched this week by founding US hotel chains Choice Hotels, Hilton Worldwide, Hyatt Hotels, InterContinental Hotels, Marriott and Wyndham, announced that Best Western has signed on as Room Key’s first commercial partner.
Best Western adds some 4,000 hotels to the party, which is a celebration of hotel website bookings and a flexing of their collective muscles in a bid to diminish the distribution power of the OTAs.
Jake Fuller, an analyst at Lazard Capital Markets, notes that similar efforts in the form of European site Andbook more than a decade ago and US site Travelweb a few years later both failed.
And, while Fuller believes Room Key is a larger threat to Expedia because of its relatively US-centric hotel business than to Priceline, his firm maintains a “buy rating” on both stocks.
Although Room Key is chain-driven, “the bulk of the rooms sold by Expedia and Priceline are independents and each offers a much better picture of the market,” Fuller says.
For example, Room Key was showing 23 hotels available in New York City while Expedia displayed 532 and Booking.com offered 390, Fuller says. Similarly, the London numbers were Room Key (24), Booking.com (1,199) and Expedia (970).
“Limited inventory could limit the appeal,” Fuller says of Room Key, adding:
While Roomkey.com does offer international hotels, it is focused on US travelers, with plans to roll out to other English-speaking markets in the future. Because chain inventory is thinner abroad, we do not see Roomkey.com as a real threat to Expedia or Priceline outside of the US.
Herman Leung, an analyst at Susquehanna International Group, concurs with Fuller that Room Key is more of a perceptual problem than a fundamental one for Priceline and Expedia.
“To be successful will require significant marketing dollars and significant commitment from all of these hoteliers, which I think will be a lot harder than they think it is,” Leung says.
Room Key is a “slight negative” to the OTAs, Leung argues, and he wonders if the chains will divert monies from their direct-marketing efforts into Room Key.
Alexa currently gives Room Key a global traffic rank of 20,841,200, and it would have to increase its ranking to be in the top 10 of travel websites with perhaps 30 million monthly unique visitors to put the heat on the OTAs, Leung says.
Expedia has long-term contracts in place with most, if not all, of the Room Key founders, and if one decides to limit the inventory it assigns to Expedia, then another will take advantage, Leung says.
“This is not an Orbitz,” which was founded by five major US airlines, Leung says, adding that the hotel industry is much more fragmented than the airline industry.
Conceding that Room Key “has far from a 100% certainty of success,” Brian Nowak, an analyst at Nomura Securities is more bullish on Room Key’s prospect than are Fuller and Leung.
“Given the initial US rollout, Expedia is the most directly threatened by this site as US hotels represent an estimated 35-40% of revenue,” Nowak says. “For Priceline, we estimate only about 15-20% of gross profit is from domestic hotels, although Room Key does pose a threat to Booking.com’s ability to gain significant US marketshare.”
Nowak believes that hotel chains participating in Room Key will present nonbookers with pop-up windows advertising Room Key as they leave the hotel websites.
“We estimate that this strategy has the potential to extend Room Key’s reach to over 13 million unique visitors, larger than all of the current OTAs’ traffic,” Nowak says.
Will that be the secret weapon?
It’s seemingly a dubious proposition.
Dennis Schaal was North American editor for Tnooz.