Maybe Uber Should Buy Expedia
To Investors,
A couple of days ago it was reported that Uber may be interested in buying Expedia - a travel booking platform. Off the top of my head I wanted to explore a few details for why this could be a good deal for Uber.
Uber posted its first ever profit last year after going through some tough growing pains. Uber CEO Dara Khosrowshahi is a big believer in growth-by-acquisition. Since he arrived at Uber in 2017 he’s helped the company grow its food delivery business by acquiring Postmates for $2.65 billion, Cornershop at an estimated $450 million, and Drizzly at $1.1billion.
To expand Uber’s reach in smaller cities in the UK he led an acquisition of Autocab - a company that provides technology to local taxi operators. And to expand into the logistics and freight business Dara led an acquisition of Transplace for a reported $2.25 billion.
If Uber buys Expedia they would be acquiring a B2C and B2B travel platform that has extensive travel data which has grown to include “over 3 million lodging properties… including over 2 million online bookable alternative accommodation listings through Vrbo, over 940,000 hotels and alternative accommodations through [Expedia’s] other brands, over 500 airlines, packages, rental cars, cruises, insurance, as well as activities and experiences.”
Brands under the Expedia umbrella are Brand Expedia, Hotels.com, Vrbo, Orbitz, Travelocity, ebookers, Wotif Group, and trivago; all of which Uber would be able to cross sell to customers under this new “super-app” approach.
Imagine that you open the new Uber app, swipe left twice, and enter a travel destination for your vacation.
Running the numbers briefly, Expedia in 2023 had $12.8 billion in revenue.
Selling and marketing expenses for Expedia totalled $6.8 billion in 2023, which is ~53% of the company’s revenue.
If the acquisition is taken seriously, under the Uber brand Expedia may be able to save on a significant portion of those selling and marketing expenses.
Expedia’s 2023 EBITDA was $1.033 billion - at its current market cap of $20.78 billion, Expedia is valued at 20x EBITDA.
Adding back the selling and marketing expenses Expedia would then cost 2.7x EBITDA.
Uber could make the case that Expedia is then much cheaper because the company can capture more of Expedia’s revenue and pay back the investment faster.
Here’s the kicker…
If you look at the growth of apps since the iPhone was first introduced, there are now billions of apps, and too many travel platforms that I must go through if I want to book a vacation. I book flights on Google flights, I book accommodation on Airbnb, I book a restaurant via a phone call after browsing various sites and social media, and I book a taxi through Uber. Uber is one of the best positioned companies to consolidate that travel process through a super-app. I go onto Uber and I book all of my mobility/transportation and vacation preferences.
While Uber gets that machine going, they’d hopefully also be considering how the development and acceleration of AI capabilities will affect the way that their services are delivered to customers.
There’s a reason why OpenAI introduced an iOS integration where you can access ChatGPT via a conversational interface.
If they can, I think every company should lean into AI, and wrote a note about this last year where I was thinking about what the best AI investment strategy would be, even though this industry is still in its early stages. I mentioned in that note that you can approach that analysis of who the AI winners will be by using a barbell strategy where on one end you consider the data necessary to train AI models; and on the other end of the barbell you have the infrastructure necessary to build compute power, which are LPUs, GPUs, and cloud services which allow developers to gain access to that computing infrastructure.
So far we’ve seen how infrastructure provider NVIDIA has taken off, holding a 90% market share for GPU’s in the AI space.
On the data side it's harder to win, looking at Google and Microsoft as the largest data companies in the world - but you still have to play.
If Uber buys Expedia they will have access to troves of valuable data to enable Uber to eventually produce an AI travel assistant where I can just say: “I want to take a vacation to the Amalfi coast, plan that vacation for me.” The new Uber app would then plan me an itinerary which could include booking me a flight, booking me accommodation, and planning an itinerary for me based on popular places people like to visit or restaurants they like to eat at while in that location.
Two questions would arise in that scenario:
Do I still go into the Uber app to access that interface, or is ChatGPT too far ahead?
Does it make sense for Uber to pay $20 billion for that bright future that allows Uber to meaningfully take part in the AI race?
An important note is that Dara ran Expedia from 2005 to 2017 before he left for Uber, so he knows Expedia very well. If Uber is seriously considering acquiring Expedia, they must know what they’re buying and why - especially since not much has happened at Expedia if you consider that their stock price has gone sideways since Dara left.
Either way these are still apparently just preliminary talks, but if more information comes out it will be fascinating to watch and learn from as the deal unfolds.
I hope you enjoyed reading this letter.
On the journey to becoming a master capital allocator, one lesson down, a billion more to go.
Hope you all have a great day.
-Mansa