BELLEVUE, WASHINGTON In a stunning move, Expedia Inc. is planning to spin off TripAdvisor—the undisputed king of user-generated travel review sites—as a way to unlock the brand’s value, which analysts believe could approach US$4 billion.
Expedia CEO Dara Khosrowshahi calls the move a “shareholder-friendly transaction,” saying TripAdvisor has become an entity that can stand on its own as a pure-play media company. Wall Street seems to like the decision, which was announced after the close of trading on Thursday. Expedia stock soared 14% in after-hours trading.
The spinoff should help both entities concentrate on their core businesses. Despite TripAdvisor’s market domination, it has always been viewed by outsiders as a secondary business for Expedia, which is far better known for its OTAs, including Expedia.com, Egencia, Hotels.com and Hotwire.
TripAdvisor boasts 50 million unique visitors per month worldwide, and it accounted for about 15% of Expedia’s revenue last year.
Although most analysts have lauded the spinoff, Wall Street is not universal in its approval. Fitch Ratings has downgraded Expedia’s issuer default rating following the announcement, saying the move could result in Expedia creating a new competitor for itself. “Expedia bondholders are left with a weaker operating entity with much reduced growth expectations going forward if the divestiture proceeds as proposed,” Fitch says in a statement. “TripAdvisor as a stand-alone entity will likely represent a significant new competitor to Expedia. Fitch believes that TripAdvisor will now have much more flexibility to pursue a model akin to competitors such as Kayak that can promote hotel direct bookings in favor of directing traffic to online travel agencies such as Expedia.”