Notes from PhoCusWright Conference From CitiGroup

Someone tell me when Expedia will buy Priceline? Consolidation needs to occur in this sub-industry.

From Analyst Mark Mahaney:

• We attended the PhoCusWright Online Travel Conference In Hollywood - Despite the current economy, the conference was surprisingly well attended and featured Online Travel companies like Expedia, Priceline, and Travelocity; suppliers like Marriott, United Airlines, and Wyndham; search engines Google and Kayak.com.

• We highlight the following key takeaways- 1) Clear and palpable near-term macro concern; 2) Clear belief in the secular growth opportunity in Online Travel, 3) Pockets of innovation in travel search and user generated content, 4) Mixed views on traffic monetization opportunities for OTAs, and 5) Balance sheet strength, scale, and brand strength will be key to survival.

• Reiterate Buy on PCLN - While all major OTAs are macro challenged, data points (including discussions with key industry participants at conference) confirm PCLN is taking U.S. share, continues to maintain an extremely strong competitive position in Europe, and enjoys something of a countercyclical hedge in the U.S. with its opaque/ultra-price-sensitive offering. Further, we believe there is substantial valuation support for the shares here at 9X '09 EPS and 11X '09 FCF.

• Lowering EXPE PT to $7 and OWW PT to $2.50, Maintain Holds - With EXPE, we view Media Model diversification as a big plus, but Macro and Market Share uncertainty are challenges. Our PT for EXPE drops to $7 based on 3x our '09 EBITDA. With OWW, Macro, Market Share uncertainty, and Inconsistent Execution (e.g. glacial pace of non-air & international diversification) are challenges. Our PT for OWW drops to $2.50 based on 4x our '09 EBITDA. For both, we lowered PT multiples to reflect contractions in overall market multiples.