10 january 2017 2017 online travel primer … · americas/united states equity research consumer...

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

10 January 2017Americas/United States

Equity ResearchConsumer Internet

2017 Online Travel Primer INDUSTRY PRIMERResearch Analysts

Paul Bieber212 325 5774

[email protected]

Stephen Ju212 325 8662

[email protected]

Vikram Kesavabhotla212 538 8118

[email protected]

Christopher Ford212 538 8446

[email protected]

Scale Matters—Too Early to Call OTA Downfall■ Paul Bieber assumes coverage of Priceline, Expedia, and TripAdvisor.

■ In this report, we provide a comprehensive overview of the online travel sector with take-aways from our proprietary consumer survey, travel and hotel market size, market share analysis, 2017 performance drivers, competitive analysis, hist. valuations, key risks, and key data for the sector.

■ Constructive on OTAs Despite Intense Competitive Landscape: Despite intense competition, diminishing ADR tailwinds, and a new entrant unlocking potentially cannibalistic supply, we have a constructive view on the online travel market in 2017. Our positive view is based on: (1) a more favorable global macro backdrop vs. 2016; 2) attractive room night unit growth (mid-teens for EXPE and low-mid-20's for PCLN); (2) consolidation and scale creating a duopoly between PCLN and EXPE, with Airbnb gaining some share; (3) reasonable valuations, especially on 2018 estimates; and (4) continued secular tailwinds with OTA inventory advantages vs. supplier sites driving share gains (i.e., OTAs have a deeper inventory/selection).

■ Market Remains Large and Fragmented: The $1.3 trillion global travel market is very large and fragmented. According to Phocuswright and our estimates, we expect the online travel sector to reach $540bn in 2017, up 8% y/y and with $38bn in 2017 incremental growth. We expect the hotel and total accommodation markets (hotel, vacation rental, and sharing economy) to reach $473bn and $612bn, respectively, in 2017.

■ PCLN and EXPE Market Shares Remain Relatively Low: We estimate PCLN and EXPE have 10.3% and 4.9% market share of room nights, which implies a very fragmented market with significant opportunity to drive additional share gains over the coming years.

■ PCLN (OP and $1,900 TP): Positive on: (1) low market share with runway for growth, (2) marketing efficiency leadership and beneficiary of new Google ad formats, (3) unparalleled scale in online travel, (4) well positioned for Asia/China growth, (5) underappreciated alternative inventory and review ecosystem, and (6) strong track record of execution and EPS upside.

■ EXPE (OP and $145 TP): Positive on: (1) sum-of-parts valuation, (2) HomeAway 2018 EBITDA opportunity, (3) attractive room night growth with potential for acceleration, (4) inventory supply catch-up opportunity, and (5) Trivago IPO providing public market valuation for attractive asset.

■ TRIP (Neutral and $51 TP): Instant book revenue headwinds, depressed hotel shopper growth, uncertainty regarding cadence of marketing spend, and review competition from Booking.com are concerns.

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2017 Online Travel Primer 2

Online Travel Primer—Executive SummaryDespite intense competition, diminishing ADR tailwinds, and a new entrant unlocking potentially cannibalistic supply, we have a constructive view on the online travel market and Online Travel Agencies (OTAs) in 2017. Our positive view is based on: (1) a more favorable global macro backdrop vs. 2016 (see 2017 Global Outlook: A New Narrative (Not a New Normal); 2) attractive room night unit growth (mid-teens for EXPE and low-mid-20's for PCLN); (2) consolidation and scale creating a duopoly between PCLN and EXPE, with Airbnb gaining some share; (3) reasonable valuations, especially on 2018 estimates; and (4) continued secular tailwinds with OTA inventory advantages vs. supplier sites driving share gains (i.e., OTAs have a deeper inventory/selection).

While we believe the online travel market is more mature than the Street perceives, we expect online secular tailwinds to continue in 2017, with healthy room night growth, OTA scale in demand generation, and the unlocking of alternative inventory opportunity (vacation rental and sharing economy) contributing to attractive growth for Priceline and Expedia. We estimate that approximately $38bn in total travel bookings and $13bn in hotel bookings will shift to the online channel in 2017. In addition, we expect alternative inventory to fuel incremental growth for the OTAs.

We anticipate the online travel market will continue to evolve with the big (Priceline and Expedia) getting bigger and an emerging new entrant (Airbnb) unlocking supply and gaining some share in the alternative accommodation category, cannibalizing some hotel bookings but also opening up a new category for OTAs. We expect competitive dynamics, company-specific execution, cash deployment (acquisitions and/or share repurchases), the macro-backdrop, and Asia demand to be the primary drivers of stock performance in 2017.

Finally, we believe that competition, potential ADR pressure, macro-volatility, and unforeseen events such as terrorism will likely create stock volatility and periods of multiple compression, creating opportunity for prudent stock selection.

Our Key Sector Take-aways Include:

Large and Fragmented Global Market: The global travel market is very large ($1.3 trillion) and fragmented, and we expect $38bn in travel bookings to shift online in 2017, with alternative inventory representing additional growth. We also expect the total hotel and accommodation markets (hotel, vacation rental and sharing economy) to reach $473bn and $612bn, respectively, in 2017.

Priceline and Expedia Market Shares Remain Relatively Low: We estimate Priceline and Expedia have 10.3% and 4.9% market share of room nights, which implies a very fragmented market with significant opportunity to drive additional share gains despite an increasingly mature market.

Asia Driving Most Online Dollar Growth: The Asia travel market is the largest travel market and will reach $392bn in 2017, with online travel reaching $146bn. Importantly, the Asia online travel market has much lower total penetration rates than the U.S. and Europe, so we expect the online share shift to support higher growth rates in Asia for the foreseeable future. We expect Asia online bookings to double by 2020 from $105bn in 2015, and we expect Asia online bookings to be the largest driver of incremental sector growth over the coming years.

ADRs No Longer a Tailwind; Could Become a Headwind: ADRs are no longer a sector tailwind and could become a headwind, especially if hotel supply growth accelerates in 2017-18.

U.S. Online Travel More Mature than the Street Perceives: The sector is more mature than investors perceive, with U.S. leisure market penetration approaching 70% in 2017 vs. investor perception of sub-50%.

https://plus.credit-suisse.com/r/V6roct1AF-WElY95


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Will China Outbound Travel Recover in 2017?: The China outbound market deteriorated significantly in 2016 owing to yuan depreciation, the impact of European terrorism, and anti-corruption measures by the Chinese government. The key question is whether the China outbound market rebounds in 2017-18.

Airbnb Is Top of Mind with Investors: Airbnb is a new entrant unlocking new supply, some of which is cannibalistic to OTA and hotel bookings. The emergence of Airbnb over the past several years has coincided with a generally favorable macro-backdrop and within the context of a healthy hotel cycle, so the impact on OTAs has been relatively limited thus far. Looking forward, several factors could magnify the impact of Airbnb on OTAs, including (1) more mainstream consumer adoption of Airbnb; (2) a weak macro environment that results in a flood of inventory on Airbnb, causing Airbnb ADR pressure and potential hotel ADR pressure; (3) removing some of the friction from the Airbnb experience (i.e., customer service, more online booking, etc.); (4) adding more hotel-like inventory to Airbnb; and (5) Airbnb investing more in demand generation and brand marketing to raise awareness, especially in the United States.

Key Sector Risks Include:

FX: The Street has not adjusted sector estimates for 4Q FX volatility, so there is some risk to 1Q and 2017 estimates.

Competition: The online travel sector is extremely competitive, with many companies competing to gain share of the $1.3 trillion market. In addition, the market is extremely dynamic, with business models constantly evolving and converging. We expect the emergence of Airbnb, hotels efforts to drive direct bookings on their sites, competition between Expedia and Priceline, Google's efforts to evolve its travel search results and travel offerings and TripAdvisor's efforts to drive adoption of Instant Book to affect investor sentiment in 2017.

Take Rate Pressure: We expect chains to extract some value from OTAs in the U.S. when/if contracts are renewed in 2017 assuming a stable macro-backdrop, which we view as a larger risk for Expedia than for Priceline given Expedia's large chain exposure. (Priceline's hotel supply is more fragmented, and Priceline previously indicated that it has less than 15% chain exposure.)

Online Marketing Pressure: OTAs have experienced marketing deleverage over the past several years owing to increased online marketing customer acquisition costs, investments in new international markets, and investments in TV advertising for Priceline.

Lodging Cycle and Hotel Supply: ADR growth has been a significant tailwind for OTAs over the past several years, and it's likely that ADRs will become a modest headwind over the coming years, especially if (1) hotel supply growth accelerates in 2017 and 2018, (2) macro conditions deteriorate, and (3) Airbnb increasingly cannibalizes hotel bookings and/or Airbnb starts offering hotel inventory on its marketplace.

Terrorism and Natural Disaster: Historically, terrorist events and natural disasters have negatively affected travel demand.

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Figure 1: Expedia, Priceline, and TripAdvisor 2016 Return vs. 2017 EPS Revisions

-8%

18%

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-46%-50%

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EXPE PCLN TRIP

YTD Return 2017 EPS Change YTD

Source: Company data, Thompson Reuters, Credit Suisse.

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Figure 2: Online Travel Cheat Sheet and Investment Highlights and Risks

Priceline Expedia TripAdvisorRating OUTPERFORM OUTPERFORM NEUTRALPrice Target $1,900 $145 $51

Market Cap (mn) $74,200 $17,207 $7,1683 Month Stock Performance 0% -4% -25%Last 12month Stock Performance 29% 1% -37%2016 Gross Profit Growth Est. 19% 33% -2%2017 Gross Profit Growth Est. 16% 14% 6%2016 EBITDA Growth Est. 18% 47% -20%2017 EBITDA Growth Est. 18% 15% 5%Organic Unit Growth (last quarter) 29% 11%; Expect acceleration 3%17 Incremental EBITDA Margin Est. 43% 29% 23%Last Quarter Estimate Trend Increase Modestly lower DecreaseValuation vs. 5 yr. avg. Above Above In-lineMargin Trajectory Modest expansion Modest expansion Flat to downGrowth Trajectory Decelerating Decelerating Modest accelerationLTM Execution Positive Mixed to Positive Mixed

▪ Low market share at ~10%; long runway for growth in fragmented market

▪ Low market share at ~5%; long runway for growth in fragmented market

▪ Top of marketing funnel leader

▪ Leader in marketing efficiency; big beneficiary of new Google ad formats.

▪ Attractive room night growth with potential for acceleration in 2Q/3Q ▪ Under-monetized platform vs. scale

▪ Unparalleled scale in online travel ▪ AWAY on track to deliver $350mn in EBITDA in '18

▪ Hotel shopper deceleration a big concern

▪ Well Positioned for China/Asia growth

▪ Supply catch-up could better position EXPE vs. Booking.com and Airbnb

▪ Expect instant book headwinds to persist

▪ Long track record of execution and EPS upside ▪ Attractive sum of the parts valuation ▪ Not the only review game in town

▪ Under-appreciated alternative inventory and review ecosystem

▪ Trivago IPO provides public market valuation on attractive asset ▪ Strategic asset value

▪ Competition especially from Expedia and Airbnb

▪ Competition especially from Priceline and Airbnb ▪ Competition

▪ Google and marketing deleverage ▪ Google and marketing deleverage ▪ Google traffic dependency▪ FX volatility given Int'l bookings mix ▪ Take rate pressure and ADR ▪ Revenue concentration with OTAs▪ Potential for higher taxes in the Netherlands ▪ Diminished China exposure ▪ Reliance on partners for instant

book▪ Partnership with TRIP may seed a competitor ▪ AWAY business model transition ▪ Mobile monetization headwinds

▪ Take rate pressure and ADR ▪ Complicated given acquisitions ▪ Hotel shopper deceleration▪ Terrorism and Brexit ▪ Terrorism and Brexit ▪ Terrorism and Brexit

Investment Highlights

Risks

Source: Company data, Credit Suisse estimates, Thompson Reuters.

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Company TimelinesFigure 3: Priceline Company Timeline

Source: Company data, Credit Suisse.

Figure 4: Expedia Company Timeline

Source: Company data, Credit Suisse.

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Key Take-aways from Our Consumer SurveyIn December, we surveyed approximately 1,000 U.S. consumers from a cross-section of socio-economic backgrounds about the online travel market. While online surveys have inherent methodology biases, we view the survey results as informative about consumer behavior regarding online travel and usage of various online travel properties.

Below we highlight our key take-aways from our survey:

Consumers Perceive OTAs as Cheaper than Hotel Sites: Of respondents, 52% indicated that they believe OTAs have better prices than supplier sites (hotel sites). Given these survey results, we think hotels will need to spend significant marketing dollars to change consumer perception of a misperceived OTA pricing advantage.

Expedia Properties Have Highest Awareness in the U.S.: Expedia properties dominate awareness among U.S. consumers, while Booking.com and Airbnb have relatively low consumer awareness in the U.S. We think relatively low awareness of Booking.com and Airbnb underscores the opportunity to raise consumer awareness of Booking.com and Airbnb in the U.S. over the coming years.

Expedia Properties and Hotel Sites Are Used Most Frequently to Book in the U.S.: Hotel sites were the most frequently used site for booking among our survey respondents followed by Expedia properties. The survey results make sense to us within the context of a concentrated hotel supply base in the U.S. vs. internationally.

Mixed Results on Intent to Use TripAdvisor to Book Accommodation: Of our respondents, 31% indicated they were very likely to book their next vacation on TripAdvisor, while 31% indicated they were unlikely to book their next vacation on TripAdvisor and 39% had a neutral view. We think the results support our view that TripAdvisor will need to invest significantly in consumer awareness/education of its booking capability (Instant Book).

Airbnb Customers Attracted by Relative Cost vs. Hotels and Local Neighborhood: While our sample size of Airbnb customers was small, 73% highlighted the cheaper cost of Airbnb vs. hotels while 50% highlighted the local neighborhood as reasons they liked their Airbnb experience.

Mixed Results on Intent to Use Airbnb to Book Accommodation: Of our respondents, 29% indicated they were very likely to book their next vacation on Airbnb, while 44% indicated they were unlikely to book their next vacation on Airbnb and 27% had a neutral view. Of respondents, 52% indicated they were unlikely to book their next business accommodation on Airbnb.

Airbnb Customers Have High Customer Satisfaction: While our sample size of Airbnb customers was small, 73% of Airbnb customers think they will use Airbnb again.

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Figure 5: Of which of the following travel/booking sites are you aware? (Purple = Expedia properties, Green = Priceline properties, Grey = Airbnb, and Blue = Other)

74%71%

65%63% 63%

60% 59%

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44% 42%

36%

2%

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Source: Credit Suisse, luc.id (N=1,020).

Figure 6: Which sites do you use or plan to use most often to book for leisure travel/accommodation? (Purple = Expedia properties, Green = Priceline properties, Grey = Airbnb, and Blue = Other)

19%18%

14%

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6% 6% 6%5%

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Source: Credit Suisse, luc.id.

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Figure 7: Do you think sites like Expedia, Orbitz, and Booking.com have better prices than Marriot.com, Hilton.com, etc.?

Figure 8: On a scale of 1-5, please rank how likely you are to book your next vacation accommodation on TripAdvisor (1=unlikely, 5=very likely).

52%

20%

28%

Yes

No

I Don't Know

31%

39%

31%

1 or 2

3

4 or 5

Source: Credit Suisse, luc.id (N=555). Source: Credit Suisse, luc.id (N=340).

Figure 9: How much do you trust the reviews on TripAdvisor? (1=I don't trust them at all, 5= I trust them a lot)

Figure 10: Which of the following travel/booking sites are you aware of? (Airbnb)

7%

18%

56%

1 or 2

3

4 or 5

36%

64%Aware of Airbnb

NOT Aware of Airbnb


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Figure 11: What did you like about your Airbnb experience?

Figure 12: On a scale of 1-5, please rank how likely you are to book your next vacation accommodation on Airbnb (1=unlikely, 5=very likely).

73%

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Cheaper than ahotel

Local neighborhood I liked the host Allows me to meetlocals

Other

44%

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Figure 13: Do you think you will use Airbnb again?

Yes73%

Maybe25%

No2%

Source: Credit Suisse, luc.id (N=64).

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OTA BasicsTravel Market SizeThe global travel market is very large and fragmented and is in the middle to late stages of the online share shift. With increasing competition and macro-volatility, the online share shift remains a large driver of bookings and room night growth for OTAs. According to Phocuswright and our estimates, the global travel market will reach $1.3 trillion in 2017, with online bookings for unmanaged/leisure travel expected to reach $540bn. By geography, the U.S. will generate $171bn in online bookings in 2017 (46% online penetration of the total travel market), Europe will generate $153bn in online bookings with no dollar growth owing to European FX depreciation (52% online penetration of the total travel market), and Asia will generate $146bn in online bookings (37% online penetration of the total travel market). Importantly, Asia continues to increase in importance for the sector, and we expect Asia online bookings to double by 2020 to $211bn from $105bn in 2015.

We have adjusted the Phocuswright estimates owing to European FX depreciation, which negatively affects dollar bookings and growth in 2015-17. Our forward estimates for Europe utilize our FX team's 2017 year-end estimates for the Euro and British Pound ($1.00 and $1.20, respectively).

Figure 14: Total Travel Bookings, Online Bookings, and Online PenetrationTotal Bookings ($B) 2014E 2015E 2016E 2017E 2018E 2019E 2020EUS 324 338 357 376 396 408 418EU 353 321 314 296 305 313 321APAC 351 346 367 392 420 452 488LATAM 86 92 98 105 111 117 122ME 72 80 89 98 106 114 122Total 1187 1177 1225 1267 1339 1404 1471

Online Bookings (Leisure/Unmanaged) ($B) 2014E 2015E 2016E 2017E 2018E 2019E 2020EUS 143 152 162 171 180 188 196EU 156 152 156 153 162 170 178APAC 95 105 125 146 168 189 211LATAM 23 27 31 35 40 43 46ME 18 22 28 35 41 48 53Total 434 458 502 540 591 638 685

Online Penetration 2014E 2015E 2016E 2017E 2018E 2019E 2020EUS 44% 45% 45% 46% 46% 46% 47%EU 44% 47% 50% 52% 53% 54% 55%APAC 27% 30% 34% 37% 40% 42% 43%LATAM 27% 29% 32% 34% 36% 37% 38%ME 25% 27% 31% 35% 39% 42% 44%Total 37% 39% 41% 43% 44% 45% 47%

Source: Phocuswright, Credit Suisse estimates.

Looking forward, we expect 2017 and 2018 online bookings growth of 8% y/y and 9% y/y.

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Figure 15: Total Travel and Online Travel Bookings GrowthY/Y Growth Total Bookings 2014E 2015E 2016E 2017E 2018E 2019E 2020EUS 4% 6% 5% 5% 3% 2%EU -9% -2% -6% 3% 3% 2%APAC -1% 6% 7% 7% 7% 8%LATAM 7% 7% 6% 6% 5% 5%ME 12% 11% 10% 9% 7% 6%Total -1% 4% 3% 6% 5% 5%

Y/Y Growth Online Bookings 2014E 2015E 2016E 2017E 2018E 2019E 2020EUS 6% 7% 6% 5% 4% 4%EU -3% 3% -2% 6% 5% 4%APAC 11% 19% 17% 15% 12% 12%LATAM 17% 17% 13% 12% 8% 7%ME 23% 27% 25% 19% 15% 12%Total 5% 10% 8% 9% 8% 7%


The U.S. and Asia will each contribute $9bn and $21bn in 2017 dollar growth, while European bookings will be down y/y owing to European FX depreciation. We expect Europe to again contribute to growth in 2018-2020. Asia is now the largest overall travel market, and Asia online bookings are the largest driver of dollar growth for the sector.

Figure 16: Incremental Online Dollars and % of TotalIncremental Online Dollars ($B) 2014E 2015E 2016E 2017E 2018E 2019E 2020EUS 9 9 10 9 9 8 8EU 13 -4 5 -3 9 8 8APAC 13 11 20 21 22 21 23LATAM 4 4 4 4 4 3 3ME 4 4 6 7 7 6 6Total 42 23 45 38 51 47 47

Incremental Online Dollars %US 20% 40% 23% 25% 18% 17% 16%EU 30% -19% 10% -8% 17% 18% 16%APAC 30% 45% 44% 55% 44% 45% 48%LATAM 9% 17% 10% 11% 8% 7% 7%ME 10% 18% 13% 18% 13% 13% 12%Total 100% 100% 100% 100% 100% 100% 100%


As for the U.S., the online travel industry is much more mature than investors perceive. Historically, investors view online penetration within the context of Phocuswright data and estimates that calculate online penetration as leisure/unmanaged bookings as a percentage of the total travel market. If we exclude corporate travel from the potential market opportunity (approx.one-third of the travel market in the U.S.), then the leisure online penetration rate is significantly higher than investor perception.

We estimate that the online penetration for U.S. leisure travel in 2017 will approach 70% vs. the conventional perception of sub-50% penetration. We concede that OTAs have some exposure to corporate travel, but corporate travel constitutes only about 15-20% and 10% of bookings for Priceline and Expedia, respectively. The bottom line is that U.S. leisure travel online penetration is higher than investors historically perceive, which implies

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the U.S. market is in the late stages of the online share shift and probably more mature than the Street perceives.

Figure 17: U.S. Online Total Travel Penetration and Leisure Online Penetration (Excluding Corporate)

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2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Online Penetration Leisure Online Penetration

Source: PhoCusWright, Credit Suisse estimates.

Hotel Market SizeFor purposes of our coverage universe, we focus on the hotel market, as hotel bookings are the primary driver of OTA profit dollars and stock performance, especially for Priceline. According to Phocuswright and our estimates, the global hotel market will reach $473bn in 2017, with online hotel bookings expected to reach $166bn (35% online penetration of the total hotel market). North America will generate $62bn in online hotel bookings in 2017, Europe will generate $38bn, and Asia will generate $44bn. North America and Asia will each contribute $5bn and $6bn in 2017 dollar growth, while Europe will be a growth headwind owing to European FX headwinds.

We note that Phocuswright European estimates appear low to us, as they include only countries in the European Union. We have also adjusted the Phocuswright estimates owing to European FX depreciation, which negatively affects dollar bookings and growth in 2015-17. Our forward estimates for Europe utilize our FX team's 2017 year-end estimates for the euro and pound ($1.00 and $1.20, respectively).

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Figure 18: Total Hotel Bookings, Online Bookings, and Online PenetrationTotal Hotel Bookings ($B) 2014E 2015E 2016E 2017E 2018E 2019E 2020EUS 133 144 157 168 176 181 185EU 121 109 107 100 102 104 106APAC 115 110 117 124 134 145 159LATAM 45 48 51 55 59 61 63ME 19 21 23 25 27 29 31Total 432 433 454 473 498 521 544

Online Hotel Bookings ($B)US 47 53 57 62 66 70 73EU 39 38 39 38 40 42 44APAC 30 33 38 44 50 55 62LATAM 9 11 13 15 17 18 19ME 4 5 7 8 10 11 13Total 130 139 153 166 182 197 212

Hotel Online PenetrationUS 36% 36% 36% 37% 37% 38% 40%EU 32% 35% 37% 38% 39% 40% 42%APAC 26% 30% 33% 35% 37% 38% 39%LATAM 20% 22% 25% 27% 29% 30% 31%ME 22% 25% 28% 32% 36% 39% 42%Total 30% 32% 34% 35% 37% 38% 39%


In North America, hotel supply is concentrated among large chains and approximately 49% of online hotel bookings occur on supplier sites (hotel sites) vs. 51% on OTAs.

In Europe, hotel supply is fragmented and the hotel market is dominated by independent hotels. As a result, only 30% of online booking bookings occur on supplier sites (hotel sites) vs. 70% on OTAs. OTAs are the dominant booking channel in Europe.

Figure 19: North America Online Channel Mix Figure 20: Europe Online Channel Mix

OTA51%

Supplier49%

OTA70%

Supplier30%

Source: Phocuswright, Credit Suisse estimates. Source: Phocuswright, Credit Suisse estimates.

Vacation Rental and Sharing Economy Market SizeGiven Priceline's organic investment in alternative accommodation inventory over the past several years, Expedia's acquisition of HomeAway, and the emergence of Airbnb as an alternative booking channel, we think it's important to add vacation rental and sharing economy bookings to our market size analysis. We expect vacation rental and sharing economy bookings to collectively reach $139bn in 2017.

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Total Accommodation Market Size We expect the total accommodation market opportunity to reach $612bn in 2017, comprising $473bn in hotel bookings, $111bn in vacation rental bookings, and $29bn in sharing economy bookings.

We note that our sharing economy bookings estimate does not represent a single company.

Figure 21: Total Accommodation Bookings, Growth, Incremental Dollars, and Incremental Dollar ShareTotal Accomodation Bookings ($B) 2014E 2015E 2016E 2017E 2018E 2019E 2020EHotel 432 433 454 473 498 521 544Vacation Rental 101 105 108 111 114 118 121Sharing Economy 4 9 17 29 44 62 81Total 538 547 579 612 656 700 746

Y/Y GrowthHotel 6% 0% 5% 4% 5% 5% 5%Vacation Rental 3% 3% 3% 3% 3% 3% 3%Sharing Economy NA 140% 80% 70% 55% 40% 30%Total 6% 2% 6% 6% 7% 7% 7%

Incremental Dollars ($B)Hotel 21 18 25 23 23Vacation Rental 3 3 3 3 3 4Sharing Economy 5 7 12 16 18 19Total 9 32 33 44 44 46

Incremental Dollars %Hotel 5% 67% 55% 57% 52% 51%Vacation Rental 34% 10% 10% 8% 8% 8%Sharing Economy 61% 23% 35% 35% 40% 41%Total 100% 100% 100% 100% 100% 100%


Note: We note that our sharing economy bookings estimate does not represent a single company.

Importantly, as we look forward to 2017-2020, the sharing economy will likely become a much larger drive of the sector's dollar growth.

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Figure 22: Sharing Economy Share of Incremental Growth for Accommodation Market

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OTA Market Share AnalysisPriceline and Expedia have emerged as the dominant global OTAs, as they have created large marketplaces that connect consumers with a vast hotel supply. (Priceline has 550K+ hotels on its site and 1mn+ total properties, while Expedia has 320K+ hotels on its site.) Priceline and Expedia also leverage their scale to drive demand globally through online marketing spend. (We estimate Priceline and Expedia will spend $4.4b and $3.5bn+ on marketing in 2017.) Finally, OTAs are very profitable with attractive free cash flow generation, which has enabled Expedia to consolidate the sector with the recent acquisitions of Wotif, Orbitz, Travelocity, and HomeAway, while Priceline made bolt-on acquisitions several years ago (OpenTable and Kayak).

On the 3Q16 earnings call, Priceline indicated that it has 24.4mn bookable rooms on the platform, comprising 16.9mn hotel rooms and 7.5mn alternative accommodation rooms (vacation rental). If we assume a 65% occupancy rate in 3Q, then Priceline's 150mn room nights sold in 3Q (disclosed) represents only 10.3% of the bookable rooms on the platform. Similarly, if we assume Priceline's bookable rooms represent the overall market, then Expedia's 72.0mn room nights booked in 3Q represents 4.9% market share excluding HomeAway bookings.

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Figure 23: Priceline and Expedia Room Night Market Share

Figure 24: Priceline and Expedia Room Night Market Share

2Q16 3Q16Priceline Room Nights Sold 140,700 149,600Priceline Bookable Rooms 23,700 24,400Priceline Quarterly Bookable Rooms 2,156,700 2,244,800Assumed Occupancy Rate 65.0% 65.0%Bookable Bookable Rooms 1,401,855 1,459,120Priceline Implied Market Share 10.0% 10.3%

Expedia Room Nights Booked 60,900 72,000Expedia Implied Market Share 4.3% 4.9% 10.3%

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Priceline Expedia

Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates.

Using a different methodology, we estimate 2017 Priceline and Expedia accommodation bookings of $72.4bn and $32.4bn, which implies that Priceline and Expedia command 11.7% and 5.3% market share of the total accommodation market.

Figure 25: Another Take at Priceline and Expedia Market ShareAccomodation Bookings ($B) 2014E 2015E 2016E 2017E 2018EPriceline 45.4 50.2 61.2 72.4 84.4Expedia excluding HomeAway 20.2 25.7 30.0 32.4 36.9Total Accomodation Market 537.6 546.6 578.7 612.1 656.4

Implied Market sharePriceline 8.4% 9.2% 10.6% 11.8% 12.9%Expedia excluding HomeAway 3.7% 4.7% 5.2% 5.3% 5.6%

Y/Y ChangePriceline 0.7% 1.4% 1.3% 1.0%Expedia excluding HomeAway 0.9% 0.5% 0.1% 0.3%

Source: PhoCusWright, Company data, Credit Suisse estimates.

Room Night Scale and GrowthWhile the online travel sector is very competitive and the emergence of Airbnb as a potential alternative booking channel is top mind with investors, Priceline remains the dominant OTA. We expect Priceline to sell 551 million and 669 million room nights in 2016 and 2017 vs. Expedia at 246 million and 276 million. Priceline sells more than two times the room nights than Expedia, which is very impressive given that Priceline's growth is organic. For some context, media reports (Reuters) indicate that Airbnb sold 40 million and 80 million room nights in 2014 and 2015, and we assume Airbnb room night growth remained robust throughout 2016.

10 January 2017


Figure 26: Priceline, Expedia, and Airbnb Room Nights (in mns)

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400

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2013 2014 2015 2016E 2017E

Expedia Priceline Airbnb

Source: Company data, Reuters, Credit Suisse estimates.

Despite significant bookings scale and an online travel sector in the late stages of the online share shift, Priceline and Expedia organic room night growth averaged 28% y/y and 16% y/y in 2016 through 3Q16. Priceline has a very long history of strong organic room night growth, while Expedia room night growth has improved over the past few years as it has realized the benefits of a large technology investment cycle that improved conversion rates on Expedia.com

Figure 27: Priceline and Expedia Room Night Growth Figure 28: Priceline Room Night Growth

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U.S. Hotel MarketAfter a strong 2015, U.S. hotel industry fundamentals softened in 2016, as occupancy rate and average daily rate (ADR) trends were volatile owing to the combined impact of increasing supply (both hotel rooms and alternative accommodation inventory), macro-volatility, and FX headwinds for European travelers visiting the U.S. As a result, 2016 RevPAR growth softened vs. 2015.

10 January 2017


Figure 29: North America RevPAR Growth

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1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Source: STR, Credit Suisse estimates.

According to Smith Travel Research, U.S. ADRs averaged approximately $122 in 2016, up approximately 15% from the prior 2008 peak. While ADRs remain strong in 2016, 2016 we expect ADR growth to decelerate in 2017.

Figure 30: North America ADR Growth

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1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Source: Company data, Credit Suisse estimates.

U.S. occupancy rates remain healthy at approximately 67% in 2016, which remains well above the 15-year average occupancy of approximately 62%, but occupancy rates appear to have peaked and we anticipate occupancy rates will soften in 2017.

10 January 2017


Figure 31: North America Occupancy Rate

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1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16


Importantly, as we look forward to 2017, ADR growth will likely soften owing to increased hotel room and alternative accommodation supply and potential alternative accommodation price deflation. Smith Travel Research expects 2017 ADR growth of 3.8% in 2017, and CBRE Hotels expects 3.3% ADR growth in 2017.

From an OTA perspective, softening hotel fundamentals in the U.S. has a mixed effect on OTAs, as diminishing ADR growth and potential ADR declines are a headwind to OTA bookings, which are somewhat offset by increased access to hotel inventory as occupancy rates weaken. Deteriorating hotel fundamentals also help the OTA opaque channel (i.e., Expedia's Hotwire brand and Priceline.com's Name Your Own Price product), which is a liquidation channel, but the opaque channel has become a less important driver of OTA financials and stock performance over the past several years.

10 January 2017


Mobile Continues to Be a Tailwind for OTAs Mobile continues to be a tailwind for OTAs as mobile shifts some historically last-minute bookings to the mobile/online channel. According to Phocuswright, U.S. total mobile bookings will exceed $43bn in 2017 and drive almost $10bn in incremental dollar growth. We also note that mobile bookings growth rates are very robust vs. high-single-digit growth rates for total online travel globally. In 2017, U.S. mobile bookings will account for 26% of the online travel market and 12% of the total travel market.

Figure 32: U.S. Mobile Gross Bookings and % of Online and Total TravelUS$ in millions, unless otherwise stated

2013 2014 2015 2016 2017Total Mobile Gross Bookings 12,109 17,068 25,472 34,044 43,853

growth y/y 95% 41% 49% 34% 29%Share of Online Travel 9% 12% 17% 21% 26%Share of Total Travel Market 4% 5% 7% 9% 12%

Source: Phocuswright, Credit Suisse.

According to Phocuswright, European total mobile bookings will exceed €35bn in 2017 and drive almost €7bn in incremental dollar growth. We also note that mobile bookings growth rates are very robust vs. high-single-digit growth for total online travel globally. In 2017, Europe mobile bookings will account for 24% of the online travel market.

Figure 33: Europe Mobile Gross Bookings and % of Online and Total Travel€in millions, unless otherwise stated

2013 2014 2015 2016 2017Mobile Gross Bookings 10 15 21 28 35

growth y/y 50% 40% 33% 25%Mobile Share of Online Gross Bookings 10% 13% 17% 21% 24%

growth y/y 3% 4% 4% 3%


According to Phocuswright, China, India, and Japan total mobile bookings will exceed $53bn in 2017 and drive almost $15bn in incremental dollar growth. In 2017, China, India, and Japan mobile bookings will account for 37% of the online travel market and 14% of the total travel market.

Figure 34: China, India, and Japan Mobile Gross Bookings and % of Online and Total TravelUS$ in millions, unless otherwise stated

2014 2015 2016 2017Total Mobile Gross Bookings 15,395.0 24,939.0 38,218.0 53,635.0

growth y/y NA 62% 53% 40%Share of Online Travel 16% 24% 31% 37%Share of Total Travel Market 4% 7% 10% 14%


Interestingly, U.S. and U.K mobile booking penetration lags mobile booking penetration in China, and we expect mobile bookings penetration to converge over the long term with China's sector mobile booking penetration.

10 January 2017


Figure 35: U.S., U.K., India, Japan, and China Mobile Booking Penetration

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

China

Japan

India

U.K.

U.S.

2020

2015


Importantly, mobile also offsets marketing deleverage by driving direct bookings to an OTA app vs. through other paid channels such as Google. While OTAs have experienced marketing deleverage over the past several years owing to increased online marketing customer acquisition costs (especially in the search channel), investments in new international markets, and investments in TV advertising for Priceline, over the long term, it's possible that higher mobile booking mix could result in online marketing shifting from an OTA industry headwind to a tailwind as a larger mix of bookings are made directly on mobile apps vs. paid channels. However, we do not expect online marketing leverage over the near to medium term. We expect OTAs to reinvest gains from higher mobile mix in driving additional share gains.

Figure 36: Expedia Sales and Marketing as % of Revenue and Priceline Marketing as % of Gross Profit

20%

25%

30%

35%

40%

45%

50%

55%

2013 2014 2015 2016E 2017E 2018E

Priceine Expedia


10 January 2017


Asia Travel Market Growing, but China Outbound Soft in 2016According to Phocuswright, the Asia travel market is the largest travel market and will reach $392bn in 2017 with online travel reaching $146bn, up from $125bn in 2016. Importantly, the Asia online travel market has much lower total penetration rates than the U.S. and Europe, so we expect the online share shift to support higher growth rates in Asia for the foreseeable future. We expect Asia online bookings to double by 2020 from $105bn in 2015, and we expect Asia online bookings to be the largest driver of incremental sector growth over the coming years.

Figure 37: Asia Total and Online Travel Market Size Figure 38: U.S., Europe, and Asia Online PenetrationUS$ in millions, unless otherwise stated

.0

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2013A 2014E 2015E 2016E 2017E 2018E

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In 2012, China overtook the U.S. and Germany to become the world's largest market in terms of international travel expenditure, and we expect China to be a big driver of the travel market going forward. According to Phocuswright, China is the largest travel market in Asia, with total travel bookings approaching $140bn in 2017.

10 January 2017


Figure 39: International Tourism Expenditure, 1995–2012

0

20

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60

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120

140

'95 '96 97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 15

$ billi

ons

Australia

China

Germany

US

UK

France

Source UNWTO, Credit Suisse.

China is also the global leader in leisure travelers with approximately 230mn leisure travelers, which compares with 127mn leisure travelers in the U.S.

Figure 40: Leisure Travelers by Country (in mns)

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127

55 4939 32 29

9

0

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100

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China U.S. Brazil Russia Germany U.K. France Australia


Over the near term, we anticipate some softness in outbound travel from China owing to yuan depreciation, the lingering impact of recent terrorist attacks in Europe, and China's anti-corruption campaign. According to the China National Tourism Administration (CNTA), the growth of Chinese outbound visitors was 4.3% in 1H16, the slowest growth rate in six years and the first time the growth rate has fallen into the single digits. CNTA expects outbound visitors to drop to 3.9% in 2H16. According to a recent Phocuswright survey, the

10 January 2017


top ten outbound destination countries were Japan, Thailand, South Korea, United States, Malaysia, Singapore, France, United Kingdom, Italy, and Canada.

Figure 41: China Outbound Travelers (in mns) Figure 42: China Outbound Travelers Growth

91

109120

59

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60

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140

2013 2014 2015 1H160%

5%

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2014 2015 1H16 2H16E

Source: CNTA, Credit Suisse. Source: CNTA, Credit Suisse.

Priceline has more exposure to the Asia travel market through its $2 billon investment in Ctrip (the leading OTA in China), its ownership of Agoda (an Asia-focused OTA), local Booking.com sites in multiple countries (i.e., the Philippines, Vietnam, Malaysia, Indonesia, South Korea, Japan, Taiwan, etc.), and efforts to build out organic Booking.com business in China. We think Priceline is strategically better positioned to capitalize on the growth of the Asia travel market vs. Expedia.

Expedia sold its ownership stake in eLong (the number-two OTA in China) in 2015 and has more limited exposure to the China market now. Expedia has exposure to Asia via its ownership of Wotif (Australia-based OTA focused on Asia), local Expedia sites in multiple countries (Taiwan, India, Japan, South Korea, New Zealand, Singapore, China, etc.), Hotels.com local sites in multiple countries (Vietnam, China, Japan, South Korea, Indonesia, India, Philippines, Singapore, Thailand, etc.), Trivago sites in multiple countries (India, Singapore, Philippines, Malaysia, Indonesia, Australia, etc.), and through the Expedia affiliate network.

10 January 2017


AirbnbAirbnb has emerged as a disruptive force in the travel sector by opening a new category of inventory to travelers. With 2.5mn+ listings on Airbnb, the selection of inventory on Airbnb is vast, and we think a sub-set of Airbnb inventory competes with OTA hotel and vacation rental inventory (i.e., home/apartment listings and some portion of room listings).

Figure 43: 2015 Airbnb Listing Mix

Home/Apartment63%

Room34%

Shared3%

Source: AirDNA.

While Airbnb has emerged as a competitive force for OTAs and hotels, friction still exists with certain aspects of the Airbnb marketplace (i.e., lack of 100% online booking, consumer booking fee, customer service, regulatory issues, etc.). Also, Airbnb differentiates itself by offering unique accommodation experiences, but the lack of uniformity (like hotels) sometimes works against Airnbnb. (Sometimes travelers just want a hotel with hotel amenities.) Despite some near-term limitations, we generally think some Airbnb demand is incremental to the industry, while some Airbnb demand cannibalizes bookings that historically flowed through OTAs and supplier sites (i.e., hotels).

In addition, OTAs have invested heavily in alternative inventory for their platforms. Priceline has invested in building out bookable alternative inventory on Booking.com, and Expedia acquired HomeAway to provide Expedia with vacation rental inventory. Booking.com now has more than 560K vacation rental listings vs. 1.2mn for HomeAway and 2.5mn listings for Airbnb. While Booking.com has less available inventory than HomeAway and Airbnb, Booking.com's vacation rental inventory is 100% online bookable, which is not currently true for Airbnb and HomeAway. As a result, there is less friction on Booking.com than on HomeAway and Airbnb given that inventory is 100% online bookable. In addition, Booking.com commissions are paid by the property owner, while Airbnb and HomeAway have some consumer booking fees, which detracts from the consumer booking experience and likely lowers overall conversion rates.

Figure 44: Booking.com, Airbnb, Expedia, and HomeAway Key DifferencesPriceline (Booking.com) Expedia Airbnb HomeAway

Listings 550k hotels; 560k alternative 320K hotels 2.5mn 1.3mn+Online Bookable 100% 100% 30% 1mn+2015 Room Nights (Organic) 432mn 190mn 80mn NA2015 Room Night Growth 25% 27% 100% NA2016 Room Nights Growth (Organic) 27% 16% NA NA2016 Room Night Growth 27% 21% NA NA2016 Marketing Spend $3.7bn $3.5bn NA NAProperty Owner Fee ~15% ~13-20% 3% 8%Consumer Booking Fee 0% 0% 6-12% 4-7%

Source: Company data, Credit Suisse estimates, Reuters.

10 January 2017


We believe OTA efforts to build out alternative inventory, when combined with OTA's scale in global demand generation (i.e., marketing spend), may soften the impact of Airbnb over the near term. The key question is whether Airbnb becomes a more mainstream option for travelers, removes some friction from the Airbnb experience, and/or begins to offer unique hotel inventory on Airbnb, which would make Airbnb much more cannibalistic for OTAs.

It's also important to note that the emergence of Airbnb over the past several years has coincided with a generally favorable macro-backdrop and within the context of a healthy hotel cycle, so the impact on OTAs has been relatively limited thus far. As either the macro-environment becomes less favorable or the hotel cycle experiences ADR deflation, we believe the impact of Airbnb on OTAs will increase, especially if Airbnb experiences a flood of supply during a weak economic environment and Airbnb ADRs weaken, resulting in accelerating hotel ADR declines.

There are a few signs that Airbnb could become a larger headwind for OTAs over the coming years:

Search Activity Continues to Grow: Search activity for "Airbnb" continues to grow rapidly globally, and we view search activity as a proxy for consumer interest and business momentum.

Figure 45: U.S. Search Activity for "Airbnb" (Indexed to 100)

0102030405060708090

100

Source: Google, Credit Suisse estimates.

10 January 2017


Figure 46: European Search Activity for "Airbnb" (Indexed to 100)

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100

France Germany Italy Spain UK


Figure 47: Asia Search Activity for "Airbnb" (Indexed to 100)

0102030405060708090

100

Japan Thailand Australia Indonesia


OTA Customers Are Cross-Shopping More on Airbnb: According to Phocuswright, the percentage of OTA shoppers who also visit Airbnb increased significantly from 4% in July 2014 to 15% in February 2015. While we don't have more recent data, we would expect the percentage of cross shopping to now exceed 25%, and cross-shopping likely lowers conversion rates for OTAs.

10 January 2017


Figure 48: Percentage of OTA Hotel Path Shoppers Who Also Visit Airbnb

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16%

Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15


Airbnb Emerging as a Cheaper Alternative to Hotels: Average daily rates on Airbnb in the U.S. are less expensive than hotels according to Slice Intelligence. Data from Slice Intelligence indicate that Airbnb was on average approximately 40% cheaper than hotels in select cities. Assuming Airbnb maintains its price differential, it's likely Airbnb will emerge as a low-cost alternative to hotels for some consumers. We note that Slice Intelligence's panel of 4mn consumers may not be fully representative of the U.S. population. Our consumer survey validated that Airbnb consumers are attracted to Airbnb by the relative lower cost vs. hotels.

Figure 49: Airbnb ADR vs. Hotels in Select CitiesFigure 50: Airbnb ADR Discount vs. Hotels in Select Cities

170

167

121

125

135

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90

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0 50 100 150 200 250 300 350

New York

San Francisco

Los Angeles

Washington, D.C.

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Philadelphia

San Antonio

Hotels Airbnb

-35% -36%

-42% -43% -44% -44%-47%-50%

-45%-40%-35%-30%-25%-20%-15%-10%

-5%0%

Source: Slice Intelligence - July 2015-July 2016, Credit Suisse. Source: Slice Intelligence - July 2015-July 2016, Credit Suisse.

Our proprietary consumer survey indicated:

Airbnb Has a Relatively Low Awareness in the U.S.: Expedia properties dominate awareness among U.S. consumers, while Booking.com and Airbnb have relatively low consumer awareness in the U.S. We think a relatively low awareness of Airbnb underscores the opportunity to raise consumer awareness of Airbnb in the U.S. over the coming years.

Airbnb Customers Attracted by Relative Cost vs. Hotels and Local Neighborhood: While our sample size of Airbnb customers was small, 73%

10 January 2017


highlighted the cheaper cost of Airbnb vs. hotels while 50% highlighted the local neighborhood as reasons they liked their Airbnb experience.

Mixed Results on Intent to Use Airbnb to Book Accommodation: Of our respondents, 29% indicated they were very likely to book their next vacation on Airbnb, while 44% indicated they were unlikely to book their next vacation on Airbnb and 27% had a neutral view. Of respondents, 52% indicated they were unlikely to book their next business accommodation on Airbnb.

Airbnb Customers Have High Customer Satisfaction: While our sample size of Airbnb customers was small, 73% of Airbnb customers think they will use Airbnb again.

10 January 2017


OTA Sector Key 2017 Performance DriversMacro We expect global GDP growth to run at 3.0% this year, its strongest pace since 2011. The global economy has already accelerated out of its languor of the last couple of years, and we expect it to sustain that pace through the course of this year. This is not yet a game-changer. Growth is moving from the bottom end of its range of recent years towards its top. We don't yet see conditions for growth to break out of that range. A new era of political economy will not gain traction on economic performance for some time. But this quickening of global growth, accompanied by a surge in headline inflation, could comfortably fit the new narratives of regime change.

U.S. - US growth slumped in 2016, but several key headwinds are fading. We expect the current rebound to continue into 2017, with strong consumption and stabilizing business investment driving growth back into the mid-2% range. However, political risks loom large, and forecasts will likely shift as policy details emerge.

Europe - Political shocks buffeted Europe in 2016, but economic activity remained serene throughout. Euro area growth sustained a steady pace of over 1.5% through the course of the year, with remarkably little volatility. We expect growth to remain resilient in the face of ongoing political stress in 2017.

China - Politics will likely be dominant in 2017. The Chinese leadership will need to deal with a highly uncertain internal and external political environment in 2017. The Chinese Communist Party will host the 19th Party Congress in late 2017. The event is pivotal for the future rule of President Xi Jingping. His retirement from rule in China is scheduled for 2022, but this meeting could create conditions for him to extend his rule beyond that time. So this meeting may decide China’s political landscape in next decade.

Further, the new Trump administration in the US could add uncertainty to Chinese external politics. So the authorities will likely place social and economic stability as a top priority throughout 2017.

Ahead of the political transition, we believe the government will adopt pro-growth measures to boost economic growth. We expect China's GDP growth to accelerate to 6.8% in 2017; our projection is higher than the current consensus forecast of 6.4%.

Asia - We expect the region's nominal GDP growth to improve to 7.3% from 6.3% this year, reflecting some pick-up in real GDP growth in all economies except Singapore. We also expect inflation to rise. The likely acceleration in real GDP growth stems from a combination of stronger commodity-related income, expected recovery in global growth lifting exports, and fiscal policy boosts. We think the macro backdrop is now more favorable for banks, while we continue to be constructive on a consumer spending recovery in the Philippines, Indonesia, and Thailand.

Latin America - We project a modest improvement in regional growth prospects for 2017 relative to 2016. Still, Latin America should continue to be the region with the weakest growth globally, at approximately 1.0% in 2017. We project slightly stronger growth in Chile, Colombia and Peru. We think that three of the four economies we cover that saw a contraction in real GDP in 2016 will post zero or positive growth this year (Argentina, Brazil and Ecuador), while the contraction in Venezuela in 2017 should be less pronounced than in 2016. The only Latin American country that we cover that will most likely see lower growth in 2017 than in 2016 is Mexico, partly as a result of the shock to business confidence from the

10 January 2017


results from the US elections and despite expectations of stronger growth in the US. Meanwhile, we project that inflation will remain largely in check in most countries under our coverage, with Venezuela remaining a notable exception.

See 2017 Global Outlook: A New Narrative (Not a New Normal) for more details on the Credit Suisse macro outlook.

Company-Specific Execution Given a more difficult ADR backdrop coupled with increased competition, we think execution will be a large driver of OTA performance in 2017. Historically, Priceline execution as defined by delivering consistent room night and EPS growth has far exceeded Street expectations. In addition, Priceline has managed to navigate the rapidly evolving online marketing landscape without significant disruptions more consistently than competitors. With increasing competition, a less favorable ADR environment, and the rapid growth of a new entrant unlocking new supply, we think execution will be a more important determinant of performance in 2017 vs. 2015-16.

Competition We expect the following to shape the competitive landscape in 2017, affecting investor sentiment:

The emergence of Airbnb and consumers embracing alternative accommodation inventory;

Expedia increasing hotel supply and improving conversion rates on Expedia.com;

Integration of HomeAway inventory on Expedia.com;

TripAdvisor's efforts to drive bookings via its Instant Book product;

Hotel companies efforts to drive direct bookings on their sites by offering lower prices; and

Google's efforts to evolve its travel offering by making changes to its search results and introducing new travel-focused ad units and travel products.

Use of CashOTAs have attractive free cash flow characteristics, and we expect Priceline and Expedia to generate $4.1bn and $1.3bn in 2017 free cash flow. Priceline has $13.6bn of cash, short-term investment and long-term investments on its balance sheet, and $6.4bn in debt. However, we highlight that $10.7bn of Priceline's cash was domiciled offshore as of 6/30/16 vs. $1.6bn onshore. Expedia has $755mn in net debt. We think both Priceline and Expedia have the financial flexibility to deploy cash on either acquisitions or share repurchases.

In 2014-15, Expedia embarked on an aggressive consolidation strategy and spent approximately $7bn acquiring Trivago, Wotif, Travelocity, Orbitz, and HomeAway. Expedia also invested $270mn in Decolar, a leading OTA in Latin America.


10 January 2017


Figure 51: Expedia Acquisition HistoryUS$ in millions, unless otherwise stated

Date Acquirer Target Value Description15-Jul-08 Expedia Venere €200 Corporate travel18-Oct-10 Expedia Mobiata Not disclosed Mobile app 12-Mar-12 Expedia Via Travel Not disclosed Nordic corporate travel12-Mar-14 Expedia Trivago (62% stake) $560 Hotel meta search26-Jun-14 Expedia Auto Escape Group Not disclosed Rental car booking sites6-Jul-14 Expedia Wotif $650 Australian online travel agency23-Jan-15 Expedia Travelocity $280 Online travel agency17-Sep-15 Expedia Orbitz $1,600 Online travel agency4-Nov-15 Expedia HomeAway $3,900 Leading vacation rental site


Priceline acquired Active hotels and Booking BV more than ten years ago and combined the two entities to form Booking.com. Booking.com drives the vast majority of Priceline's financial performance, and Booking.com growth is organic. Given Booking.com's growth and value creation for Priceline, the acquisitions of Active Hotels and Booking BV combined are among the most successful acquisitions across the entire technology landscape. Priceline acquired Kayak in 2012 and OpenTable in 2014, and Priceline's recent acquisition activity is more bolt-on and hotel-technology-oriented acquisitions. Priceline has also invested $1.9bn in Ctrip, the leading OTA in China, and $60mn in Hotel Urbano, a leading OTA in Brazil.

Figure 52: Priceline Acquisition HistoryUS$ in millions, unless otherwise stated

Date Acquirer Target Value Description21-Sep-04 Priceline Active Hotels Not disclosed European online travel agency14-Jul-05 Priceline Booking BV $133 European online travel agency10-Nov-07 Priceline Agoda Not disclosed Asia online travel agency18-May-10 Priceline Rentalcars.com Not disclosed Rental car booking site9-Nov-12 Priceline Kayak $1,800 Meta search10-Jun-14 Priceline Buteeq/Hotel Ninjas $100 Hotel software19-Jun-14 Priceline OpenTable $2,600 Restaurant booking site3-Sep-15 Priceline AS Digital Not disclosed Restaurant booking site8-May-15 Priceline Pricematch Not disclosed Data analytics for hotels


Uncertainty Surrounding China Outbound Travel GrowthChina outbound travel demand softened throughout 2016 owing to yuan depreciation and the negative impact of European terrorist events. The key question is whether China outbound travel growth will accelerate back to double-digit growth or remain in the low single digits.

CompetitionThe online travel sector is extremely competitive, with many companies competing to gain share of the $1.3 trillion market. In addition, the market is extremely dynamic, with business models constantly evolving and converging. We expect the following to shape the competitive landscape in 2017:

The emergence of Airbnb and consumers embracing alternative accommodation inventory;

10 January 2017


Expedia increasing hotel supply, especially in international markets, and improving conversion rates on Expedia.com;

Integration of HomeAway inventory on Expedia.com;

TripAdvisor's efforts to drive bookings via its Instant Book product;

Hotel companies efforts to drive direct bookings on their sites by offering lower prices; and

Google's efforts to evolve its travel offering by making changes to its search results and introducing new travel-focused ad units and travel products.

Figure 53: Online Travel Competitive Landscape

Source: Credit Suisse

Priceline Expedia Other OTAsTop of Funnel

DemandVacation

Rental/AlternativeHotel

CompaniesCorporate

TravelRide

SharingRestaurant

Reservations

Booking.com

Priceline.com

Agoda.com

Kayak.com

Rentalcars.com

OpenTable.com

Expedia.com

Hotwire.com

Orbitz.com

Travelocity.com

Wotif

Cheaptickets

eBookers

HotelClub

Carrentals.com

Venere

HomeAway

Trivago

Egencia

Ctrip (PCLN minority

shareholder)

Hotel Urbano(PCLN minority shareholder)

Despegar/Decolar(EXPE minority shareholder)

Laterooms (Tui)

HRS

Hotel.de

eDreams Odigeo

Opodo

Travel Republic

Promovacances

eLong(CTRP minority shareholder)

ViajaNet

HotelTonight

Bookit, Getaroom

Makemytrip

AutoEurope

Bravofly. Webjet

Hipmunk, Iibibo

Lola

TripAdvisor

Google

Trivago (EXPE majority

shareholder)

Qunar (Ctripminority

shareholder)

Kayak (PCLN)

Skyscanner(BIDU)

Momondo

HotelsCombined

Traveloka

Tripping

Cheapoair

Airbnb

HomeAway (EXPE)

VRBO (EXPE)

Holiday Lettings (TRIP)

Niumba (TRIP)

Flipkey (TRIP)

Vacation Home Retals (TRIP)

Onefinestay (Accor)

Wimbdu

9flats

Couchsurfing

HouseTrip

VayStays

VacayHero

Roomorama

Travelmob

Stopsleepgo

Bedycasa

WaytoStay

Marriot

Starwood

Intercontinental

Wyndham

Choice Hotels

Accor

Best Western

Jing Jiang

Hilton

Carlson

Hyatt

Motel 6

La Quinta

Premier

Whitbread

Carlson Wagonlit

American Express

Thomas Cook

Tui Travel

Egencia (EXPE)

Booking.com (PCLN)

Uber

Lyft

BlaBlaCar

Zipcar (Avis)

Gett

Didi Kuaidi

Ola

OpenTable (PCLN)

LaFourchette(TRIP)

Seatme (YELP)

Zomato

Bookable

Quandoo

Source: Credit Suisse.

Overall, we think OTAs have a favorable competitive position vs. supplier direct (hotel sites), as OTAs offer vast supply selection, app ease of use, and widespread app distribution, which are supported by billions of dollars in marketing spend for demand generation. We estimate Priceline and Expedia will spend $4.5b and $3.5bn+ on marketing in 2017. Consumer preference for OTAs vs. suppliers' sites is also a global trend evidenced by OTA vs. supplier survey results highlighted in Figure 54 and Figure 55.

10 January 2017


Figure 54: Which of the following travel Web sites or apps do you use to shop for hotels or accommodations? Figure 55: Reasons Travelers Book with OTAs

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U.S. UK Australia France Germany Russia China Brazil

OTA Supplier0% 10% 20% 30% 40% 50%

The site is easy to use

I am used to booking with online travel…

I trust the brand

Online sites typically have better prices

It's easy to book travel in one place

The site has more selection

It's easy to change/cancel a booking

I like their mobile app

I couldn't find what I was looking for…

I am a member of the online agencies…


While we note that the majority of travel bookings still take place on desktops, looking at the top travel apps on the iOS and Android app stores across several geographies enables us to make several conclusions about the global competitive landscape:

Booking.com has a leading position in most European markets, and its position in the U.S. lags its position in Europe;

Expedia is playing catch-up to Booking.com internationally;

TripAdvisor is very popular globally;

Airbnb is emerging as a global competitor for OTAs;

Agoda (Priceline) has strong position in Asia (ex-China);

Expedia appears well positioned in Brazil given its ~$300mn investment in Decolar; and

Hotels do not appear as top ten apps in any of the selected countries we examined.

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Figure 56: Top Ten Travel Apps Across Select Geographies

Rank iOS Android iOS Android iOS Android iOS Android1 Uber Yelp DB Navigator Google Earth Uber Booking.com Uber BlaBlaCar2 Lyft Google Earth Booking.com Immobilien Scout24 Trainline UK TripAdvisor SNCF Airbnb3 Yelp Airbnb TripAdvisor Booking.com TripAdvisor Ryanair BlaBlaCar Booking.com4 Uber Driver GasBuddy FlixBus FlixBus Booking.com Google Earth Voyages-scnf.com Google Earth5 Google Earth United Airlines Airbnb clever-tanken.de easyJet Airbnb Airbnb TripAdvisor6 Airbnb TripAdvisor Google Earth TripAdvisor Ryanair easyjet Booking.com PagesJuanes7 TripAdvisor Booking.com WelectGo Airbnb Google Earth The AA RATP OUIBUS8 United Airlines Southwest Airlines Ryanair BlaBlaCar National Rail Enquiries London Live TripAdvisor Mappy9 Southwest Airlines Google Maps Lufthansa Ryanair Airbnb Skyscanner FlixBus OUIGO

10 Fly Delta Fly Delta mytaxi GPS Navigation/Maps The AA RinGo Parking Heetch FlixBus

Rank iOS Android iOS Android iOS Android iOS Android1 Booking.com Booking.com TripAdvisor TripAdvisor 9292 9292 Yandex.Taxi 2GIS: map & directory2 Ryanair TripAdvisor Trenitalia Google Earth NS Reisplanner NS Reisplanner Uber Yandex.Navigator3 TripAdvisor Google Earth Ryanair Booking.com Parkmobile Parking Parkmobile Gett Yandex.Maps4 Airbnb BlaBlaCar Booking.com Ryanair Uber Booking.com BlaBlaCar BlaBlaCar5 BlaBlaCar Ryanair FlixBus FlixBus Booking.com Google Earth Rutaxi GPS АнтиРадар6 RenfeTicket Airbnb eDreams Airbnb TripAdvisor Onderweg Rail Russia MAPS.ME7 Uber Wikiloc Airbnb GPS Navigation Airbnb VakantieVeilingen Aeroflot Navitel Nvigator GPS8 Vueling Airlines SocialDrive Google Earth MAPS.ME KLM Airbnb OneTwoTrip Live Camera Viewer9 Skyscanner MAPS.ME Skyscanner Skyscanner Pechhulp Allsecur Booking.com Aeroflot

10 Cabify mytaxi Trainline Europe BlaBlaCar OV-chipkaart OV-chipkaart Maxim Aviasales

Rank iOS Android iOS Android iOS Android iOS Android1 Uber Decolar.com Traveloka Traveloka Grab GO-JEK Uber Airbnb2 Airbnb Google Earth Grab Google Maps GO-JEK Traveloka Airbnb Booking.com3 Decolar.com Airbnb AirAsia Google Earth Uber Google Maps Jetstar Google Earth4 Booking.com Trivago Agoda AirAsia Traveloka Google Earth Virgin Australia TripAdvisor5 99Taxis Booking.com Nok Air DekDev, Inc. Agoda Friend Locator Booking.com TripView Lite6 Cabify Google Maps Uber Nok Air Tiket.com GPS Navigation/Maps Qantas Public Transport Victoria7 LATAM Entertainment WiFi Map Booking.com Agoda Pegipegi.com Tiket Kereta TripAdvisor Qantas Airways8 Azul Airlines Friend Locator Thai Lion Air GPS Navigation/Maps Google Street View Pegipegi otel TripView Lite Opal Travel9 TripAdvisor Multiplus Cheap flights Thailand Post Garuda Tiket.com Public Transport Victoria Pass2U Wallet

10 Trivago TripAdvisor THAI Smile Airways Thai Lion Air Kereta Trivago Google Earth Jetstar

U.S Germany UK France

Spain Italy Netherlands Russia

Brazil Indonesia AustraliaThailand

Source: App Annie (November 2016), Credit Suisse.

Figure 57: Booking.com, Expedia, TripAdvisor, and Airbnb App Rankings in Select Countries

App iOS Rank Android Rank iOS Rank Android Rank iOS Rank Android Rank iOS Rank Android RankBooking.com 15 7 2 3 4 1 6 3Expedia 13 11 48 57 30 25 68 70trivago 29 18 43 24 26 14 51 33TripAdvisor 7 6 3 6 3 2 8 5Airbnb 6 3 5 7 9 5 5 2

App iOS Rank Android Rank iOS Rank Android Rank iOS Rank Android Rank iOS Rank Android RankBooking.com 1 1 4 3 5 4 9 12Expedia 68 65 29 37 40 43 NR NRtrivago 29 24 20 18 46 28 39 28TripAdvisor 3 2 1 1 6 11 14 23Airbnb 4 6 7 6 7 8 24 32

App iOS Rank Android Rank iOS Rank Android Rank iOS Rank Android Rank iOS Rank Android RankBooking.com 4 5 7 14 18 19 5 2Agoda NA NA 4 7 5 NA NA NAExpedia 56 79 19 23 51 NA 22 23trivago 10 4 21 21 12 10 18 13TripAdvisor 9 10 15 18 17 22 7 4Airbnb 2 3 17 31 14 27 2 1

Italy

U.S

Netherlands Russia

Brazil

Germany UK France

Spain

Thailand Indonesia Australia

Source: App Annie (November 2016), Credit Suisse.

Take Rate PressureWhile hotel fundamentals weakened in the U.S. in 2016, occupancy rates remain above historical averages and hotel sector consolidation has increased the bargaining power of large chains in the U.S. We expect chains to extract some value from OTAs in the U.S. when/if contracts are renewed in 2017 assuming a stable macro-backdrop, which we view as a larger risk for Expedia than for Priceline given Expedia's large chain exposure. (Priceline's hotel supply is more fragmented, and Priceline had indicated that it has less

10 January 2017


than 15% chain exposure.) We note that take rate pressure on Expedia abated in 3Q16, but recent commentary from Marriot indicates that Marriot’s contract with Expedia has better terms than Starwood, so it’s likely Marriot will revisit commission rates with Expedia.

In addition, Expedia take rates declined in 2016, as Expedia used consumer loyalty incentives and lower hotel commissions to increase supply in international markets to drive bookings. Also, the Expedia Traveler Preference program drove mix-shift to agency bookings (lower commission vs. merchant) over the past few years (lower take rate vs. merchant).

It has been a challenge to determine Expedia's organic take rates given its recent consolidation efforts, but investors may focus more on take rates in 2017 as year-over-year take rate comparisons become cleaner. Investors have largely given Expedia a pass on take rate compression over the past 18 months, as lower take rates have been offset by faster room night growth. Should Expedia's room night growth decelerate, we expect take rate pressure to become an investor focal point for Expedia. We note that Priceline's take rate at Booking.com has been very stable over the past few years largely owing to fragmented international supply.

Figure 58: Priceline Take Rate (Agency Revenue/Bookings)

Figure 59: Expedia Take Rate (Core OTA Bookings/Revenue

10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

13.0%

13.5%

14.0%

14.5%

15.0%

2013A 2014A 2015A 2016E 2017E 2018E10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

13.0%

13.5%

14.0%

14.5%

15.0%

2013A 2014A 2015A 2016E 2017E 2018E


Terrorism and Natural DisastersHistorically, terrorist events and natural disasters have negatively affected travel demand. For example, the Paris terrorist attacks (2015), Hurricane Sandy (2012), Japan Tsunami (2011), Thai flooding (2011), Thai civil unrest (2010 and 2014), etc. have disrupted travel demand over the short term, but demand quickly recovers from these disruptions. Also, we highlight that recent terrorist attacks in Europe have negatively affected Chinese outbound travel to Europe.

Foreign Exchange VolatilityExpedia generates approximately 45% of revenue in international markets, and Priceline generates 85% of gross profit in international markets (approx. 60% of which is in Europe). As a result, FX volatility can create demand volatility and positively or negatively affect both companies' financial performance, as operating results from international operations are translated in U.S. dollars. The Credit Suisse Foreign Exchange Strategy Team 12-month euro and pound forecasts are $1.00 and $1.20.

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Marketing Deleverage and GoogleOTAs have experienced marketing deleverage over the past several years owing to increased online marketing customer acquisition costs, investments in new international markets, and investments in TV advertising for Priceline. Google remains a large X factor for the OTA sector, as it is an important traffic acquisition channel. Google constantly makes changes to its search engine results that drive inflation in search marketing costs and lower the volume of free traffic generated on Google for OTAs. Newsflow surrounding Google changes to the way it displays travel-related search results or potential new Google travel-focused products historically negatively affect OTA sentiment. According to SimilarWeb, search drives approximately 39% of desktop traffic on average for online travel sites.

Figure 60: Desktop Search Traffic Mix for Online Travel

72% 69%

41% 41% 39%34% 34% 33%

30% 26% 25% 22%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Source: SimilarWeb, Credit Suisse estimates.

10 January 2017


Figure 61: Desktop Traffic Mix for Online Travel

0%

20%

40%

60%

80%

100%

Direct Referral Search Social e-Mail Display

Source: SimilarWeb, Credit Suisse estimates.

The three most important recent Google travel initiatives are Google Hotel Ads, Google Destinations, and Google Trips.

Google Hotel Ads: Google launched Google Hotel Ads in 2015. The ad format enables hotels to display available rates on Google search results and is priced on a commission basis vs. conventional Google AdWords that are priced on a CPC basis. Commission-based pricing enables hotels to compare ad costs vs. the OTA channel and creates more competition on Google, creating search channel cost inflation for OTAs.

Google Destinations: Google Destinations is a new search experience that helps consumers discover and plan vacations. Google Destinations offers consumers a curated search results page, which could be disruptive to OTAs and content providers given that the search results are more curated than conventional search results. Google Destinations is currently a mobile-only experience.

Google Trips: Google recently launched Google Trips, a stand-alone Android and iOS app that helps users plan travel, including integrating itinerary information from Gmail and providing information on things to do, restaurants, potential itineraries, and important city-specific information. Importantly, Google Trips includes crowdsourced information as well as information from Google Maps (business listings, photos, and reviews) and has the potential to negatively affect companies such as Yelp and TripAdvisor.

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Figure 62: Google Trips Screenshot Figure 63: Google Trips Screenshot


Figure 64: Google Hotel Ads Screenshot Figure 65: Google Destinations Screenshot


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BrexitUncertainty exists about the long-term impact of Brexit. Generally, we expect British travelers to trade down as they travel to Europe or internationally owing to the depreciation of the pound (less affordable), but the impact to OTAs will likely be somewhat offset by more inbound travel to Britain owing to increased affordability. Priceline has significantly higher exposure to Britain and Europe vs. Expedia

Lodging Cycle and Hotel SupplyAccording to Smith Travel Research, weakening occupancy rates and RevPAR growth likely signal a weakening lodging cycle. While ADR growth was 3.3% y/y in 2016, it decelerated from 3.7% y/y in 2015. With hotel supply growth returning to historical levels, it's likely that ADR growth will compress again in 2016. ADR growth has been a significant tailwind for OTAs over the past several years, and it's likely that ADRs will become a modest headwind over the coming years, especially if (1) hotel supply growth accelerates in 2017 and 2018, (2) macro conditions deteriorate, and (3) Airbnb increasingly cannibalizes hotel bookings and/or Airbnb starts offering unique hotel inventory on its marketplace. Smith Travel Research expects ADR growth of 3.8% in 2017, while CBRE Hotels expects 3.3% ADR growth in 2017.

10 January 2017


ValuationWe use P/E multiples for the online travel companies for ease of comparability.

We note that Priceline changed its Non-GAAP reconciliation methodology recently (no longer excludes SBC from its Non-GAAP reconciliation). The methodology change reduced Priceline's Non-GAAP EPS by ~$6 and makes Priceline look optically more expensive by 1-2 multiple points.

Priceline has traded at a 10-25x forward P/E multiple over the past ten years with an average P/E of 18x on FY2 estimates. Priceline currently trades at ~21x our 2017 EPS estimate of $72.75 and 18x our 2018 EPS estimate of $84.35. Priceline also trades at a 6% FCF yield on our 2018 FCF estimate of $4.6bn.

Figure 66: Priceline Historical P/E – FY2

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

FY2 P/E

High

Average

Low

Source: Company data, Thompson, Credit Suisse estimates.

Expedia has traded at a 5-25x forward P/E multiple over the past ten years with an average P/E of 12x on FY2 estimates. Expedia currently trades at 22x our 2017 EPS estimate of $5.77 and 18x our 2018 EPS estimate of $6.86. Expedia also trades at a 8% FCF yield on our 2018 FCF estimate of $1.5bn. We note that the combined impact of faster organic room night growth and the positive Street view on acquisitions drove Expedia's multiple expansion over the past several years. While we use P/E multiples for comparability with Priceline and TripAdvisor, we also use a sum-of-the-parts analysis in our target price methodology.

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Figure 67: Expedia Historical P/E – FY2

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

FY2 P/E

High

Average

Low


TripAdvisor has traded at a 17-40x forward P/E multiple over the past five years with an average P/E of 29x on FY2 estimates. TripAdvisor currently trades at 33x our 2017 EPS estimate of $1.58 and 26x the 2018 Street EPS estimate of $1.99. TripAdvisor also trades at a 5% FCF yield on our 2018 FCF estimate of $356mn.

Figure 68: TripAdvisor Historical P/E – FY2

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x

45.0x

12/23/2011 12/23/2012 12/23/2013 12/23/2014 12/23/2015

FY2 P/E

High

Average

Low


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Figure 69: Priceline, Expedia and TripAdvisor Historical P/E – FY2

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x

45.0x

3/23/2012 3/23/2013 3/23/2014 3/23/2015 3/23/2016

PCLN

EXPE

TRIP


Figure 70: Online Travel Comp SheetEV/EBITDA P/E EV/Sales

Company Name 2016 2017 2018 2016 2017 2018 2016 2017 2018Online Travel Agency (OTAs)Expedia Inc. 12.0x 9.5x 7.9x 25.5x 19.6x 16.2x 2.2x 1.9x 1.7xCtrip.com International, Ltd. NM 47.4x 25.0x NM 63.1x 32.4x 7.2x 5.3x 4.0xMakeMyTrip Ltd. NM NM NM NM NM NM 6.9x 6.4x 4.3xThe Priceline Group Inc. 19.0x 16.0x 13.4x 23.7x 20.4x 17.1x 7.6x 6.4x 6.4xTravelzoo Inc. 9.5x 10.5x 11.0x 23.1x 24.9x 25.1x 0.9x 0.9x 0.9xOTA Average 13.5x 20.9x 14.3x 24.1x 32.0x 22.7x 5.0x 4.2x 3.5x

MetasearchQunar Cayman Islands Limited NM 80.9x 38.2x NM 85.5x 27.0x 5.5x 4.3x 3.1xTripAdvisor Inc. 18.0x 18.1x 11.9x 36.4x 37.3x 22.9x 4.4x 4.1x 3.7xAverage 18.0x 49.5x 25.1x 36.4x 61.4x 25.0x 4.9x 4.2x 3.4x

OTA and Metasearch Average 14.6x 30.4x 17.9x 27.2x 41.8x 23.5x 5.0x 4.2x 3.4x

The Priceline Group Inc. 19.0x 16.0x 13.4x 23.7x 20.4x 17.1x 7.6x 6.4x 6.4xExpedia Inc. 12.0x 9.5x 7.9x 25.5x 19.6x 16.2x 2.2x 1.9x 1.7x

Priceline and Expedia Average 15.5x 12.8x 10.7x 24.6x 20.0x 16.7x 4.9x 4.1x 4.0x

Source: Company data, Credit Suisse estimates, Thompson.

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ADRs, Occupancy Rates, and RevPARFigure 71: Europe, North America, and Asia Occupancy, ADR and RevPAR GrowthEurope Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 1Q16 2Q16 3Q16 4Q16Occupancy 54.7% 63.1% 66.2% 71.4% 73.4% 77.1% 76.7% 75.8% 81.0% 75.3% 70.3% 61.3% 74.0% 77.8% 72.8%ADR (in Euros) € 100.5 € 103.0 € 105.3 € 109.5 € 114.3 € 119.5 € 118.8 € 115.9 € 123.2 € 113.5 € 107.1 € 102.9 € 114.4 € 119.3 € 110.3RevPAR € 55.0 € 65.0 € 69.7 € 78.2 € 83.9 € 92.1 € 91.1 € 87.9 € 99.8 € 85.5 € 75.3 € 63.2 € 84.7 € 92.9 € 80.4

Y/Y ChangeOccupancy 70 bps 90 bps 20 bps 240 bps -30 bps -60 bps -30 bps -110 bps 70 bps -30 bps 280 bps 60 bps 50 bps -23 bps 125 bpsADR (in Euros) 1.6% 3.7% 1.9% 3.8% 2.1% 1.3% 3.9% 0.0% 2.6% -1.6% 1.5% 2.4% 2.4% 2.2% -0.1%RevPAR 2.9% 5.2% 2.2% 7.5% 1.7% 0.5% 3.5% -1.4% 3.4% -2.0% 5.7% 3.4% 3.2% 1.8% 1.9%

North AmericaOccupancy 53.9% 61.5% 66.1% 67.8% 66.9% 72.9% 74.5% 70.5% 68.9% 68.4% 60.8% 60.5% 69.2% 71.3% 64.6%ADR (in U.S. Dollars) $116.0 $120.0 $123.5 $122.1 $122.9 $125.3 $128.1 $124.9 $126.3 $125.5 $118.8 $119.9 $123.4 $126.4 $122.2RevPAR $62.51 $73.82 $81.66 $82.80 $82.19 $91.36 $95.44 $88.03 $87.03 $85.86 $72.23 $72.66 $85.45 $90.17 $79.05

Y/Y ChangeOccupancy -20 bps -60 bps -20 bps 140 bps -30 bps 20 bps -60 bps -30 bps 110 bps -20 bps 150 bps -33 bps 43 bps 7 bps 65 bpsADR 3.1% 3.8% 3.5% 3.0% 2.7% 3.5% 3.8% 2.8% 4.3% 2.1% 3.5% 3.5% 3.1% 3.6% 2.8%RevPAR 2.7% 2.8% 3.2% 5.2% 2.2% 3.8% 2.9% 2.3% 5.9% 1.8% 6.2% 2.9% 3.7% 3.7% 4.0%

Southeastern AsiaOccupancy 68.6% 71.3% 70.3% 68.8% 67.3% 62.3% 71.3% 73.1% 67.5% 67.0% 69.6% 70.1% 66.1% 70.6% 68.3%ADR (in U.S. Dollars) $123.6 $123.5 $112.6 $108.7 $104.9 $104.4 $111.0 $110.9 $107.7 $106.5 $107.8 $119.9 $106.0 $109.8 $107.2RevPAR $84.78 $88.05 $79.18 $74.81 $70.62 $65.02 $79.14 $81.05 $72.66 $71.38 $75.02 $84.00 $70.15 $77.62 $73.20

Y/Y ChangeOccupancy 330 bps 180 bps 240 bps 380 bps 250 bps -170 bps 450 bps 80 bps 260 bps -70 bps -30 bps 250 bps 153 bps 263 bps -50 bpsADR -1.5% 1.4% -1.6% -2.5% -0.7% -2.1% -1.0% -1.7% -4.2% -3.0% -1.7% -0.6% -1.8% -2.3% -2.3%RevPAR 3.5% 4.1% 1.9% 3.2% 3.1% -4.7% 5.7% -0.6% -0.4% -4.0% -2.1% 3.1% 0.5% 1.6% -3.0%

Australia & OceaniaOccupancy 73.4% 78.8% 77.5% 76.4% 72.9% 71.9% 77.2% 76.5% 78.4% 78.9% 80.7% 76.6% 73.7% 77.4% 79.8%ADR (in U.S. Dollars) $135.2 $142.0 $136.8 $128.0 $125.4 $125.9 $130.5 $130.7 $131.9 $138.2 $139.3 $138.0 $126.4 $131.0 $138.7RevPAR $99.23 $111.89 $106.00 $97.79 $91.38 $90.55 $100.77 $99.99 $103.40 $109.02 $112.42 $105.70 $93.24 $101.39 $110.72

Y/Y ChangeOccupancy 140 bps 50 bps 30 bps 210 bps 100 bps 220 bps 150 bps 170 bps 170 bps -10 bps 110 bps 73 bps 177 bps 163 bps 50 bpsADR 3.8% 4.6% 2.0% 3.4% 2.0% 3.1% 2.4% 1.6% 3.6% 2.5% 3.0% 3.5% 2.8% 2.5% 2.8%RevPAR 5.9% 5.2% 2.4% 6.3% 3.4% 6.3% 4.4% 4.0% 5.8% 2.4% 4.4% 4.5% 5.3% 4.7% 3.4%

Source: Smith Travel Research, Credit Suisse estimates.

Figure 72: Europe and North America RevPAR Growth

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16Europe North America

Source: STR, Credit Suisse estimates.

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Airbnb RevPAR in Top 25 CitiesFigure 73: Airbnb RevPar – 50th Percentile

16-Jan 16-Feb 16-Mar 16-Apr 16-May 16-Jun 16-Jul 16-Aug 16-Sep 16-OctAnaheim 119.03 133.20 134.10 130.11 128.29 159.59 192.28 154.40 126.50 134.20Atlanta 77.41 75.65 89.18 89.94 85.47 76.40 96.23 74.75 89.43 82.70Boston, MA 77.14 84.32 104.27 140.22 156.53 161.62 172.71 163.70 174.60 168.82Chicago 49.78 56.34 72.78 85.53 103.13 119.95 125.84 102.64 113.70 100.63Dallas, TX 75.80 76.84 75.48 80.53 81.19 85.89 81.31 69.74 84.98 79.67Denver 73.17 79.88 86.11 96.54 102.11 122.56 132.73 124.50 122.15 111.32Detroit, MI 64.64 52.30 51.35 62.33 72.29 80.89 70.86 68.07 73.73 63.42Houston 66.15 67.41 85.37 71.02 74.91 72.38 73.26 63.65 63.30 65.43Los Angeles 97.87 114.70 115.62 112.11 110.85 124.99 140.04 133.70 106.09 99.43Miami Beach 120.43 139.35 144.14 109.34 101.76 93.55 106.37 92.81 79.63 78.40Minneapolis-St Paul, MN-WI 54.34 54.36 55.96 66.21 81.45 95.01 104.04 100.49 93.29 85.42Nashville, TN 71.25 90.11 120.65 136.07 140.50 144.95 143.17 117.87 139.60 143.46New Orleans, LA 76.73 128.52 117.12 156.59 113.28 90.41 80.79 69.52 85.20 105.96New York 76.88 92.38 111.91 134.68 150.90 150.07 137.41 133.73 161.74 157.15Norfolk-Virginia Beach, VA 59.24 65.36 70.04 77.91 105.63 138.27 145.34 136.35 82.70 63.80Honolulu 140.63 153.34 118.34 108.09 109.72 126.18 141.50 133.08 121.31 103.40Orlando 84.52 104.22 107.62 65.47 61.36 73.40 80.29 66.75 58.97 60.94Philadelphia, PA-NJ 58.85 57.31 75.28 119.59 108.81 100.95 144.33 95.32 93.76 86.12Phoenix 107.69 129.60 129.52 75.22 66.03 58.43 54.86 52.61 62.66 66.92San Diego 94.58 113.89 124.05 111.08 109.43 136.78 170.12 141.35 114.13 97.23San Francisco/San Mateo, CA 164.40 163.26 164.39 133.97 150.07 172.35 187.24 183.48 166.07 161.28Seattle 62.96 68.63 81.19 80.70 99.94 130.21 145.88 140.92 120.04 89.41St Louis, MO-IL 41.00 46.48 64.45 73.23 73.27 78.63 87.73 73.84 75.61 72.81Tampa 88.18 104.90 104.55 82.05 67.29 69.52 70.17 77.21 60.74 71.17Washington, D.C 65.60 74.25 112.83 120.98 119.30 120.55 113.38 94.77 109.77 115.31Washington, DC-MD-VA 64.98 101.67 121.13 103.78 118.58 137.30 119.54 100.59 108.11 112.23Average 82.05 93.40 101.44 100.90 103.54 112.34 119.90 106.38 103.38 99.10 y/y Change 12% 9% 28% 6%

London 84.99 98.73 100.19 107.01 114.74 126.48 136.07 111.09 119.30 111.91Paris 60.11 68.33 71.19 63.54 70.06 85.57 68.61 53.65 75.47 73.51Barcelona 40.13 73.47 65.21 87.27 89.52 98.77 109.08 109.79 95.96 99.53Florence 36.32 43.18 49.78 71.32 81.28 85.86 74.03 67.80 81.28 74.50Berlin 38.82 48.92 50.05 54.96 62.31 65.84 69.84 64.84 70.18 65.40Amsterdam 65.38 90.07 93.52 121.98 122.15 119.18 115.09 109.85 114.30 115.61Madrid 45.57 52.48 53.16 61.24 63.61 61.10 51.92 47.72 64.56 71.18Munich 49.30 53.31 58.55 70.07 63.62 69.70 76.59 64.63 91.67 69.40Rome 35.62 47.90 55.28 79.20 83.56 81.90 74.64 69.29 80.85 84.40Prague 29.56 32.93 34.87 41.99 55.11 48.79 55.31 54.86 55.55 47.92Average 48.58 60.93 63.18 75.86 80.60 84.32 83.12 75.35 84.91 81.34 y/y Change 4% 2% 9% -3%

Source: AirDNA, Credit Suisse.

10 January 2017


Airbnb Occupancy in Top Cities Figure 74: Airbnb Occupancy Rates – 50th Percentile

16-Jan 16-Feb 16-Mar 16-Apr 16-May 16-Jun 16-Jul 16-Aug 16-Sep 16-OctAnaheim 43% 52% 53% 57% 55% 64% 80% 62% 60% 63%Atlanta 52% 53% 65% 61% 57% 53% 67% 58% 60% 58%Boston, MA 42% 50% 57% 60% 70% 73% 80% 75% 77% 74%Chicago 33% 38% 55% 60% 68% 72% 74% 64% 68% 58%Dallas, TX 55% 61% 60% 60% 60% 65% 67% 54% 61% 58%Denver 54% 61% 68% 70% 71% 83% 87% 82% 80% 73%Detroit, MI 45% 49% 48% 50% 45% 67% 55% 56% 60% 48%Houston 53% 57% 61% 48% 56% 58% 60% 48% 48% 50%Los Angeles 68% 79% 79% 74% 72% 77% 84% 79% 69% 67%Miami Beach 58% 68% 60% 53% 48% 47% 55% 53% 43% 42%Minneapolis-St Paul, MN-WI 44% 41% 49% 55% 64% 77% 83% 78% 68% 65%Nashville, TN 32% 41% 60% 57% 59% 59% 61% 48% 58% 60%New Orleans, LA 32% 52% 57% 63% 52% 43% 38% 34% 40% 48%New York 40% 55% 65% 74% 81% 80% 74% 74% 85% 83%Norfolk-Virginia Beach, VA 31% 30% 45% 43% 48% 64% 74% 57% 41% 29%Honolulu 75% 80% 65% 60% 68% 72% 81% 73% 73% 62%Orlando 52% 61% 60% 40% 36% 45% 52% 45% 40% 39%Philadelphia, PA-NJ 33% 38% 55% 60% 62% 70% 65% 65% 60% 58%Phoenix 64% 76% 80% 40% 42% 40% 45% 39% 47% 48%San Diego 50% 62% 65% 56% 52% 63% 71% 65% 57% 48%San Francisco/San Mateo, CA 65% 59% 70% 56% 70% 77% 81% 79% 74% 71%Seattle 47% 52% 64% 59% 73% 83% 88% 84% 79% 63%St Louis, MO-IL 32% 36% 50% 59% 61% 71% 74% 62% 61% 57%Tampa 67% 82% 81% 60% 52% 57% 59% 61% 52% 56%Washington, D.C 48% 52% 79% 82% 80% 80% 77% 68% 75% 79%Washington, DC-MD-VA 37% 54% 75% 66% 74% 76% 65% 55% 59% 59%Average 48% 55% 63% 59% 61% 66% 69% 62% 61% 58% y/y Change 3% 0% 15% 3%

London 48% 59% 58% 60% 65% 71% 77% 65% 74% 74%Paris 50% 55% 61% 61% 67% 77% 60% 48% 76% 75%Barcelona 31% 48% 55% 77% 72% 71% 81% 80% 77% 82%Florence 26% 41% 42% 67% 77% 75% 68% 65% 77% 73%Berlin 48% 63% 61% 67% 74% 80% 83% 75% 80% 77%Amsterdam 45% 65% 65% 81% 79% 78% 75% 72% 76% 77%Madrid 48% 59% 58% 67% 68% 67% 54% 55% 73% 77%Munich 46% 55% 61% 59% 62% 67% 77% 62% 52% 58%Rome 25% 46% 46% 69% 71% 70% 65% 65% 73% 77%Prague 26% 47% 43% 53% 68% 64% 76% 76% 77% 70%Average 39% 54% 55% 66% 70% 72% 72% 66% 74% 74% y/y Change -1% -2% 6% 5%

Source: AirDNA, Credit Suisse.

10 January 2017


Online Travel Acquisition HistoryFigure 75: Expedia, Priceline, and TripAdvisor Acquisition HistoryDate Acquirer Target Value Description15-Jul-08 Expedia Venere €200 Corporate travel18-Oct-10 Expedia Mobiata Not disclosed Mobile app 12-Mar-12 Expedia Via Travel Not disclosed Nordic corporate travel12-Mar-14 Expedia Trivago (62% stake) $560 Hotel meta search26-Jun-14 Expedia Auto Escape Group Not disclosed Rental car booking sites6-Jul-14 Expedia Wotif $650 Australian online travel agency23-Jan-15 Expedia Travelocity $280 Online travel agency17-Sep-15 Expedia Orbitz $1,600 Online travel agency4-Nov-15 Expedia HomeAway $3,900 Leading vacation rental site

Date Acquirer Target Value Description21-Sep-04 Priceline Active Hotels Not disclosed European online travel agency14-Jul-05 Priceline Booking BV $133 European online travel agency10-Nov-07 Priceline Agoda Not disclosed Asia online travel agency18-May-10 Priceline Rentalcars.com Not disclosed Rental car booking site9-Nov-12 Priceline Kayak $1,800 Meta search10-Jun-14 Priceline Buteeq/Hotel Ninjas $100 Hotel software19-Jun-14 Priceline OpenTable $2,600 Restaurant booking site3-Sep-15 Priceline AS Digital Not disclosed Restaurant booking site8-May-15 Priceline Pricematch Not disclosed Data analytics for hotels

Date Acquirer Target Value DescriptionSeptember, 2006 TripAdvisor Travelpod Not disclosed Blogging platformFebruary, 2007 TripAdvisor Bookingbuddy.com Not disclosed Travel comparison shopping sitesFebruary, 2007 TripAdvisor Smartertravel.com Not disclosed Travel comparison shopping sitesMarch, 2007 TripAdvisor Seatguru.com Not disclosed Airline seat mapsMay, 2007 TripAdvisor Cruisecritic.com Not disclosed Cruise review siteFebruary, 2008 TripAdvisor HolidayWatchdog.com Not disclosed Travel information and comparison siteApril, 2008 TripAdvisor Airfarewatchdog.com Not disclosed Travel information and comparison siteJune, 2008 TripAdvisor Virtualtrourist.com Not disclosed Travel guidesAugust, 2008 TripAdvisor Flipkey.com Not disclosed Vacation rental siteOctober, 2009 TripAdvisor Kuxun Not disclosed Chinese hotel searchJune, 2010 TripAdvisor HolidayLettings.com Not disclosed Vacation rental siteFebruary, 2011 TripAdvisor Everytrail.com Not disclosed Social trail siteApril, 2013 TripAdvisor Jetsetter Not disclosed Travel flash sale siteMay, 2013 TripAdvisor Niumba Not disclosed Vacation rental siteMay, 2013 TripAdvisor Cruisewise.com Not disclosed Cruise researchJune, 2013 TripAdvisor GateGuru.com Not disclosed Flight and airport informationOctober, 2013 TripAdvisor Oyster Not disclosed Hotel reviewsMay, 2014 TripAdvisor Vacation Home Rentals Not disclosed Vacation rental siteMay, 2014 TripAdvisor La Fourchette $240 Restaurant reservationsJuly, 2014 TripAdvisor Viator $200 Tours and activitiesFebruary, 2015 TripAdvisor ZeTrip Not disclosed Personal journal appApril, 2015 TripAdvisor BestTables Not disclosed Restaurant reservationsMay, 2015 TripAdvisor Dimmi $25 Restaurant reservatiosnAugust, 2015 TripAdvisor CityMaps Not disclosed City guides


10 January 2017


comScore Travel DataFigure 76: Desktop Unique Visitors for Priceline and Expedia

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q16 2Q16 3Q16 4Q16Expedia 21.8 25.0 24.2 22.0 26.3 30.7 31.3 25.2 20% 23% 29% 14%Priceline 16.0 17.5 17.2 13.8 15.8 18.0 18.6 13.6 -2% 3% 8% -1%TripAdvisor 29.4 31.0 37.2 33.2 31.5 33.5 32.4 28.4 7% 8% -13% -15%Internet 230.6 231.3 232.7 232.2 233.8 232.7 231.9 231.9 1% 1% 0% 0%

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q16 2Q16 3Q16 4Q16Expedia 79.1 80.8 74.4 63.9 76.2 82.6 88.9 74.1 -4% 2% 19% 16%Priceline 101.8 103.5 106.0 88.7 97.1 95.3 103.1 83.9 -5% -8% -3% -5%TripAdvisor 113.4 131.8 157.9 139.4 124.8 127.3 128.9 115.1 10% -3% -18% -17%Internet 1,812.1 1,841.9 1,864.2 1,877.5 1,903.7 1,918.1 1,923.2 1,925.9 5% 4% 3% 3%

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q16 2Q16 3Q16 4Q16Expedia 57.3 55.9 50.2 41.8 50.0 51.9 57.6 48.8 -13% -7% 15% 17%Priceline 85.7 86.1 88.8 74.9 81.3 77.3 84.5 70.3 -5% -10% -5% -6%TripAdvisor 84.0 100.8 120.7 106.2 93.4 93.7 96.5 86.7 11% -7% -20% -18%Internet 1,581.5 1,610.6 1,631.5 1,645.3 1,669.9 1,685.4 1,691.3 1,694.0 6% 5% 4% 3%

Y/Y Growth

Y/Y Growth

Y/Y Growth

Total Unique Visitors (MM) - Desktop, United States

Total Unique Visitors (MM) - Desktop, Worldwide

Total Unique Visitors (MM) - Desktop, Worldwide

Source: comScore, Credit Suisse.

10 January 2017


Global Travel MarketFigure 77: Global Travel Market Estimates

2014E 2015E 2016E 2017E 2018E 2019E 2020E CAGRGlobal Travel Market ($B) '16-'20US 324 338 357 376 396 408 418 4.0%% Total 27% 29% 29% 30% 30% 29% 28%

Air 138 139 143 149 154 158 162 3.2%Hotels 133 144 157 168 176 181 185 4.2%Other 53 54 57 59 66 68 71 5.7%

EU* 353 321 314 296 305 313 321 0.5%% Total 30% 27% 26% 23% 23% 22% 22%

Air 150 137 134 127 131 134 138 0.7%Hotels 121 109 107 100 102 104 106 -0.2%Other 83 75 73 70 72 75 77 1.2%

APAC 351 346 367 392 420 452 488 7.4%% Total 30% 29% 30% 31% 31% 32% 33%

Air 163 157 164 172 182 193 206 6.0%Hotels 115 110 117 124 134 145 159 8.1%Other 74 79 87 95 104 113 123 8.9%

LATAM 86 92 98 105 111 117 122 5.6%% Total 7% 8% 8% 8% 8% 8% 8%

Air 33 35 38 40 42 45 48 6.1%Hotels 45 48 51 55 59 61 63 5.3%Other 8 9 9 10 10 11 11 4.9%

ME 72 80 89 98 106 114 122 8.1%% Total 6% 7% 7% 8% 8% 8% 8%

Air 52 59 66 72 79 85 90 8.2%Hotels 19 21 23 25 27 29 31 7.9%Other .5 .5 .5 .5 .5 .6 .6 2.9%

Total 1187 1177 1225 1267 1339 1404 1471 4.7%Air 536 527 544 560 588 615 644 4.3%Hotels 432 433 454 473 498 521 544 4.6%Other 218 217 227 234 253 268 282 5.6%


10 January 2017


Figure 78: Global Accommodation MarketPhocusWright Estimates except vacation rental and sharing economy Credit Suisse estimates

2014E 2015E 2016E 2017E 2018E 2019E 2020E CAGRAccomodation Market ($B) '16-'20U.S Hotel 133 144 157 168 176 181 185 4.2%% Total Hotel 31% 33% 34% 36% 35% 35% 34%

Offline 86 92 100 107 111 112 112 2.9%Online 47 53 57 62 66 70 73 6.5%Online Penetration 36% 36% 36% 37% 37% 38% 40% 2.2%

EU Hotel* 121 109 107 100 102 104 106 -0.2%% Total Hotel 28% 25% 23% 21% 20% 20% 19%

Offline 82 71 68 62 62 62 62 -2.1%Online 39 38 39 38 40 42 44 3.0%Online Penetration 32% 35% 37% 38% 39% 40% 42% 3.2%

APAC Hotel 115 110 117 124 134 145 159 8.1%% Total Hotel 27% 25% 26% 26% 27% 28% 29%


LATAM Hotel 45 48 51 55 59 61 63 5.3%% Total Hotel 10% 11% 11% 12% 12% 12% 12%


ME Hotel 19 21 23 25 27 29 31 7.9%% Total Hotel 4% 5% 5% 5% 5% 6% 6%

Offline 15 16 16 17 17 18 18 2.4%Online 4 5 7 8 10 11 13 19.0%Online Penetration 22% 25% 28% 32% 36% 39% 42%

Total Hotel 432 433 454 473 498 521 544 4.6%Offline 302 293 301 307 314 318 322 1.7%Online 130 139 153 166 182 197 212 8.4%Online Penetration 30% 32% 34% 35% 37% 38% 39%

Vacation Rental 101 105 108 111 114 118 121 3.0%

Sharing Economy 4 9 17 29 44 62 81 48.0%

Total Accomodation Market 538 547 579 612 656 700 746 6.6%


Note: Sharing economy does not refer to one company. EU estimates reflect FX depreciation in 2015-16.

10 January 2017


Figure 79: Credit Suisse Economic Forecast

2015 2016E 2017E 2018E 2015 2016E 2017E 2018EGlobal 100% 2.9 2.5 3.0 2.9 2.3 4.0 4.3 4.0DM 61.7% 2.2 1.6 2.0 1.9 0.2 0.8 1.7 1.7EM 38.3% 4.1 3.8 4.5 4.6 5.7 9.1 8.5 7.6US 26.9% 2.6 1.6 2.3 2.2 0.1 1.3 2.2 2.1Canada 2.3% 1.1 1.2 1.9 1.9 1.1 1.6 2.1 2.1LatAm 7.5% -0.4 -1.3 0.9 1.9 18.8 38.0 33.6 28.9Brazil 2.7% -3.8 -3.5 0.0 1.5 10.7 6.3 5.7 5.5Mex ico 1.7% 2.6 2.1 1.7 2.5 2.1 3.4 4.0 3.5Argentina 0.8% 2.5 -2.2 2.9 2.8 20.6 37.1 20.1 14.9Venezuela 0.4% -5.7 -10.0 -6.1 -2.8 180.9 501.7 468.7 403.3Colombia 0.4% 3.1 2.0 2.7 3.1 6.8 5.7 4.2 3.3Chile 0.4% 2.3 1.8 2.2 2.6 4.4 3.0 3.2 3.0Peru 0.3% 3.3 4.0 4.5 3.7 4.4 3.1 2.6 2.5Euro area 17.3% 1.9 1.6 2.0 1.8 0.0 0.2 1.5 1.2Germany 1.5 1.8 2.0 1.8 0.1 0.4 1.5 1.4France 1.2 1.3 1.7 1.8 0.1 0.3 1.4 1.1Italy 0.6 1.0 1.3 1.2 0.1 0.0 1.0 1.0Spain 3.2 3.2 2.8 2.1 -0.6 -0.3 1.5 1.6Netherlands 2.0 2.0 2.1 1.8 0.2 0.1 1.2 0.8Belgium 1.5 1.2 1.5 1.6 0.6 1.8 2.8 2.4Austria 0.8 1.5 1.7 1.8 0.8 1.0 2.4 2.0Greece -0.3 0.4 3.2 3.3 -1.1 0.0 0.8 0.4Finland 0.2 1.5 1.3 1.3 -0.2 0.4 1.7 1.3Portugal 1.6 1.3 1.7 1.5 0.5 0.7 1.5 1.1Ireland 26.3 4.4 4.0 3.3 0.0 -0.2 0.8 0.4UK 4.3% 2.2 2.1 1.2 1.3 0.0 0.6 2.3 2.5Sw itzerland 1.0% 0.8 1.0 1.3 1.5 -1.1 -0.4 0.0 0.5Sw eden 0.7% 3.9 3.2 2.2 2.2 0.7 1.1 1.4 1.7Norw ay 0.6% 1.7 1.2 1.6 1.8 2.2 3.2 2.3 2.5EEMEA 6.9% 1.0 0.9 2.1 2.3 1.9 1.3 1.4 1.3Russia 2.0% -3.7 -0.4 1.5 1.7 12.9 5.5 4.2 4.0Turkey 1.1% 6.1 2.3 3.1 3.0 8.8 7.6 8.4 8.0South Africa 0.5% 1.3 0.4 1.1 2.0 5.2 6.5 6.0 4.7Israel 0.4% 2.5 3.4 3.2 3.3 -1.0 -0.1 1.0 1.2Ukraine 0.1% -9.9 1.6 3.4 2.2 43.3 12.0 7.7 6.2Japan 6.2% 1.2 0.9 0.8 0.7 0.6 -0.3 0.4 1.1Australia 2.0% 2.4 2.9 2.7 2.9 1.5 1.3 2.1 2.4New Zealand 0.3% 3.0 2.8 2.7 2.6 0.3 0.7 1.6 1.9NJA 23.8% 6.0 5.8 6.0 5.8 1.7 2.4 2.6 2.6China 16.3% 6.9 6.6 6.8 6.5 1.3 2.2 2.3 2.2India 3.1% 7.6 6.9 7.4 7.5 4.8 5.0 5.2 5.3South Korea 2.1% 2.5 2.5 2.5 2.7 1.1 1.4 1.5 1.9Indonesia 1.3% 4.8 5.1 5.3 5.2 3.4 3.0 4.5 4.7Taiw an 0.8% 0.7 1.2 1.8 2.0 0.1 2.6 1.5 1.7Thailand 0.6% 2.8 3.2 3.3 3.4 -0.9 0.9 1.9 2.3Malay sia 0.4% 5.0 4.1 4.5 4.2 2.7 1.6 2.8 2.4Singapore 0.4% 2.0 1.4 1.1 1.1 -0.6 0.0 0.0 0.2Hong Kong 0.5% 2.4 1.3 1.7 2.0 2.5 1.4 1.6 1.5Philippines 0.4% 5.9 6.8 6.4 6.2 1.5 1.7 2.6 3.7

Real GDP Growth (%, Annual Average) Inflation (%, Annual Average)Weights (%)

Source: Company data, Credit Suisse estimates

10 January 2017


Companies Mentioned (Price as of 06-Jan-2017)Accor (ACCP.PA, €37.88)Alphabet (GOOGL.OQ, $825.21)American Express Co. (AXP.N, $75.47)Choice Hotels (CHH.N, $54.5)Ctrip.com International, Ltd. (CTRP.OQ, $42.5)Delta Air Lines, Inc. (DAL.N, $49.68)Expedia (EXPE.OQ, $116.45, OUTPERFORM, TP $145.0)Hilton Worldwide Holdings (HLT.N, $57.47)Hyatt Hotels (H.N, $54.97)Intercontinental Hotels (IHG.L, 3666.0p)La Quinta Holdings Inc. (LQ.N, $14.3)Lufthansa (LHAG.F, €12.43)Marriott International (MAR.OQ, $82.3)Qantas (QAN.AX, A$3.33)Qunar (QUNR.OQ, $30.3)Ryanair Hldgs (RYAAY.OQ, $82.75)Southwest Airlines Co. (LUV.N, $49.93)The Priceline Group Inc (PCLN.OQ, $1520.57, OUTPERFORM, TP $1900.0)Travelzoo (TZOO.OQ, $10.2)TripAdvisor, Inc. (TRIP.OQ, $50.77, NEUTRAL, TP $51.0)Trivago (TRVG.OQ, $11.91)United Continental Holdings, Inc. (UAL.N, $71.37)Virgin Australia (VAH.AX, A$0.23)Whitbread (WTB.L, 3941.0p)Wyndham Worldwide Corp (WYN.N, $76.88)Yelp (YELP.N, $39.31)

Disclosure AppendixAnalyst Certification I, Paul Bieber, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Expedia (EXPE.OQ)

EXPE.OQ Closing Price Target Price Date (US$) (US$) Rating 07-Feb-14 74.45 78.00 N 01-Aug-14 84.45 85.00 31-Oct-14 84.97 87.00 21-Nov-14 84.69 * 14-Jan-15 85.39 93.00 N 06-Feb-15 77.87 88.00 14-Apr-15 98.09 105.00 01-May-15 101.69 104.00 10-Jul-15 107.97 102.00 31-Jul-15 121.44 116.00 09-Oct-15 125.34 138.00 30-Oct-15 136.30 140.00 12-Jan-16 111.90 136.00 11-Feb-16 103.37 130.00 29-Apr-16 115.77 134.00 15-Jul-16 114.62 132.00 29-Jul-16 116.65 130.00 17-Oct-16 121.78 133.00 * Asterisk signifies initiation or assumption of coverage.

Target Price Closing Price EXPE.OQ

01- Jan- 2015 01- Jan- 2016 01- Jan- 201760

80

100

120

140

N EU T RA L

10 January 2017


3-Year Price and Rating History for The Priceline Group Inc (PCLN.OQ)

PCLN.OQ Closing Price Target Price Date (US$) (US$) Rating 13-Feb-14 1276.07 1450.00 O 21-Feb-14 1315.65 1500.00 11-Aug-14 1309.28 1600.00 15-Oct-14 1058.75 1550.00 04-Nov-14 1097.70 1450.00 21-Nov-14 1151.46 * 14-Jan-15 1035.67 1400.00 O 10-Jul-15 1143.19 1500.00 05-Aug-15 1351.21 1550.00 09-Oct-15 1313.29 1600.00 05-May-16 1240.85 1580.00 15-Jul-16 1330.57 1570.00 05-Aug-16 1414.22 1660.00 17-Oct-16 1437.65 1750.00 08-Nov-16 1578.13 1790.00 * Asterisk signifies initiation or assumption of coverage.

Target Price Closing Price PCLN.OQ

01- Jan- 2015 01- Jan- 2016 01- Jan- 2017900

1,100

1,300

1,500

1,700

1,900

O U T PERFO RM

3-Year Price and Rating History for TripAdvisor, Inc. (TRIP.OQ)

TRIP.OQ Closing Price Target Price Date (US$) (US$) Rating 12-Feb-14 90.27 94.00 O 15-Apr-14 83.30 105.00 14-Jul-14 104.05 125.00 24-Jul-14 101.79 120.00 05-Nov-14 71.95 105.00 21-Nov-14 71.31 * 14-Jan-15 69.73 92.00 O 12-Feb-15 82.40 88.00 14-Apr-15 83.27 90.00 07-May-15 78.47 91.00 24-Jul-15 80.86 86.00 09-Oct-15 67.98 83.00 06-Nov-15 77.42 82.00 12-Jan-16 77.36 88.00 12-Feb-16 59.90 80.00 18-Apr-16 65.44 74.00 06-Jun-16 71.46 R 08-Jun-16 68.63 74.00 O 05-Aug-16 60.81 73.00 17-Oct-16 61.46 78.00 10-Nov-16 51.83 65.00 * Asterisk signifies initiation or assumption of coverage.

Target Price Closing Price TRIP.OQ

01- Jan- 2015 01- Jan- 2016 01- Jan- 201740

60

80

100

120

140

O U T PERFO RMREST RIC T ED

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activitiesAs of December 10, 2012 Analysts’ stock rating are defined as follows:Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned

10 January 2017


where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time.Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings DistributionRating Versus universe (%) Of which banking clients (%)Outperform/Buy* 45% (64% banking clients)Neutral/Hold* 38% (59% banking clients)Underperform/Sell* 15% (53% banking clients)Restricted 3%*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Important Global Disclosures Credit Suisse’s research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made available through CS PLUS. The services provided by Credit Suisse’s analysts to clients may depend on a specific client’s preferences regarding the frequency and manner of receiving communications, the client’s risk profile and investment, the size and scope of the overall client relationship with the Firm, as well as legal and regulatory constraints. To access all of Credit Suisse’s research that you are entitled to receive in the most timely manner, please contact your sales representative or go to https://plus.credit-suisse.com . Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html . Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research:

Target Price and RatingValuation Methodology and Risks: (12 months) for Expedia (EXPE.OQ)

Method: Our Outperform rating and target price is a blended average of Sum of the Parts, P/E, and DCF valuations. In our Sum of the Parts valuation, we assign values to the Core OTA business, Trivago, Egencia, HomeAway, and Overhead to arrive at sum of $160. In our P/E valuation, we apply a 20x multiple to our 2018 Adj. EPS estimate to arrive at a value of $130. In our DCF, we apply a 10% WACC and 3% terminal growth rate to arrive at a value of $146. Taking the average of these results, we arrive at a value of $145.

Risk: Risks to our Outperform rating and $145 target price include: 1) Increased competition - particularly from Priceline, TripAdvisor, Google, Airbnb, and hotel chains; 2) Online marketing deleverage due to higher customer acquisition costs; 3) Increased pressure on take rates.

Target Price and RatingValuation Methodology and Risks: (12 months) for The Priceline Group Inc (PCLN.OQ)

Method: Our Outperform rating and target price are based on a blended average of EV/EBITDA, P/E, and DCF valuations. In our EV/EBITDA valuation, we apply a 16x multiple to our 2018 Adj. EBITDA estimate to arrive at a value of $1,935. In our P/E valuation, we apply a 22x multiple to our 2018 Adj. EPS esitmate to arrive at a value of $1,893. In our DCF, we apply a 10% WACC and 3% terminal growth rate to arrive at a value of $1,872. Taking the average of these results, we arrive at a target price of $1,900.

Risk: Risks to our Outperform rating and $1,900 target price include: 1) FX Volatility; 2) Potential marketing deleverage; 3) Increased competition - particularly from Expedia, TripAdvisor, Google, Airbnb, and hotel chains; 4) Potential higher tax rate in the Netherlands; 5) Terrorism and natural disasters.

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10 January 2017


Target Price and RatingValuation Methodology and Risks: (12 months) for TripAdvisor, Inc. (TRIP.OQ)

Method: Our Neutral rating and target price are based on a blended average of P/E, EV/EBITDA, and DCF valuations. In our P/E valuation, we apply a 25x multiple to our 2018 Adj. EPS estimate to arrive at a value of $47. In our EV/EBITDA valuation, we apply a 15x multiple to our 2018 Adj. EBITDA estimate to arrive at a value of $53. In our DCF valuation, we apply a WACC of 11% and terminal growth rate of 2.5% to arrive at a value of $55. Taking the average of these results, we arrive at a target price of $51.

Risk: Risks to our Neutral rating and $51 target price include: 1) Persistence of Instant Book headwinds; 2) Hotel shopper growth deceleration; 3) Potential multiple compression.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names The subject company (EXPE.OQ, PCLN.OQ, TRIP.OQ, CTRP.OQ, AXP.N, QAN.AX, ACCP.PA, WTB.L, VAH.AX, GOOGL.OQ, YELP.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.Credit Suisse provided investment banking services to the subject company (EXPE.OQ, TRIP.OQ, AXP.N, VAH.AX, GOOGL.OQ) within the past 12 months.Credit Suisse provided non-investment banking services to the subject company (AXP.N, QAN.AX) within the past 12 monthsCredit Suisse has managed or co-managed a public offering of securities for the subject company (AXP.N, GOOGL.OQ) within the past 12 months.Credit Suisse has received investment banking related compensation from the subject company (EXPE.OQ, TRIP.OQ, AXP.N, VAH.AX, GOOGL.OQ) within the past 12 monthsCredit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (EXPE.OQ, PCLN.OQ, TRIP.OQ, CTRP.OQ, AXP.N, ACCP.PA, WTB.L, VAH.AX, GOOGL.OQ, YELP.N) within the next 3 months.Credit Suisse has received compensation for products and services other than investment banking services from the subject company (AXP.N, QAN.AX) within the past 12 monthsCredit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (ACCP.PA, GOOGL.OQ).For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683. 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Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.The following disclosed European company/ies have estimates that comply with IFRS: (QAN.AX, ACCP.PA, IHG.L).Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (EXPE.OQ, AXP.N, GOOGL.OQ) within the past 3 years.Principal is not guaranteed in the case of equities because equity prices are variable.Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.This research report is authored by:Credit Suisse Securities (USA) LLC ...............................................................Paul Bieber ; Stephen Ju ; Vikram Kesavabhotla ; Christopher FordImportant Credit Suisse HOLT Disclosures With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report.The Credit Suisse HOLT methodology does not assign ratings to a security. 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The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur.CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

10 January 2017


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