From: allin
Initial reports emerged of Uber exploring a bid to purchase Expedia [00:37:37]. These reports were later dispelled as very preliminary, with no serious talks ongoing [00:37:41]. The Financial Times had reported that advisors were examining if a deal structure would be possible between the two companies [00:37:49].
Upon the news, Expedia’s market capitalization of 170 billion, dropped by 3% [00:38:03].
Background of Dara Khosrowshahi
Uber’s CEO, Dara Khosrowshahi, previously served as Expedia’s CEO from 2005 to 2017 and remains on its board [00:38:07]. It is suggested that this exploration of a deal was a “trial balloon” [00:38:13]. Khosrowshahi has publicly stated his goal of creating a “super app,” similar to those found in China and other markets [00:38:24].
Expedia encompasses several products, including Hotels.com, Orbitz, Travelocity, and VRBO (Vacation Rental By Owner), which predated Airbnb [00:38:30]. Since Khosrowshahi’s departure in 2017, Expedia’s stock price has remained relatively flat, with only modest revenue growth [00:38:49].
Financial Rationale for Acquisition
Despite initial skepticism, a financial rationale for the acquisition could be constructed [00:39:07].
Uber currently boasts approximately 150 million monthly active users, while Expedia serves 45-50 million paying customers annually [00:39:34]. This presents an opportunity to market Expedia’s services and cross-sell to Uber’s existing customer base [00:39:47]. Expedia spends about 720 million on G&A costs [00:39:58]. Their current run-rate EBITDA is around $3 billion [00:39:58].
An acquisition could involve cutting approximately half of Expedia’s G&A costs due to overlap with Uber’s operations, and about 30% of sales and marketing expenses through cross-selling into the Uber user base [00:40:08]. Such cuts could potentially increase Expedia’s EBITDA by 75% to 100%, possibly reaching $6 billion [00:40:08].
Assuming a 40-50% price premium over Expedia’s 90-day average stock price (typical for such deals), the acquisition cost could be around 4 billion in net cash, this would result in an enterprise value of approximately 6 billion in potential EBITDA, this would represent a low multiple of four times EBITDA, making the deal financially attractive [00:40:08].
Dara Khosrowshahi’s intimate knowledge of Expedia’s operations from his tenure could allow for effective changes and improvements, particularly in areas like VRBO, which is considered under-monetized and underutilized [00:41:26]. Additionally, Expedia’s high-margin vacation and travel packages, which differ from low-margin flight bookings, offer significant potential for growth and personalization [00:41:46].
Strategic Concerns and Arguments Against
Fragile Business Model
One significant concern highlighted is the fragility of Expedia’s business model, particularly in the age of AI [00:40:24]. The core data for flight information and other services is licensed from third parties [00:40:51], making Expedia primarily a “UI and a front door” [00:40:51]. With AI advancements, such as Perplexity’s checkout concept which allows direct transaction completion, these UI layers could become vulnerable [00:41:22].
The idea of cross-selling travel services to Uber customers was also questioned [00:41:31]. The argument against this posits that Uber users primarily seek immediate gratification and efficiency when using the app for rides or food delivery [00:42:51]. Introducing travel booking, which requires days or weeks of planning, might be perceived as “clutter” [00:43:32] and not align with the user’s mindset [00:43:34]. While Uber Eats works as a cross-promotion due to its immediate gratification nature and relation to the taxi business [00:43:35], hotel integration has also been successful [00:43:47].
Some propose that Uber could acquire companies directly involved in self-driving AI, such as Waymo, Pony.ai, or WeRide, to double down on their core ride-hailing business [00:41:27].
The Future of Travel Platforms
The debate extends to the future of app design: whether the pendulum will swing back to “super apps” that consolidate many features, or if specialized, narrow-feature apps will continue to dominate [00:43:52].
AI and Data Assets
In a future where AI agents facilitate transactions, the value of traditional UI real estate might diminish [00:44:56]. Instead, the key assets will be valuable data and valuable services [00:44:59]. AI agents could potentially cannibalize search functions by directly accessing data feeds from providers and executing transactions [00:45:25], making the acquisition of an existing UI like Expedia less valuable [00:45:51].
However, the brand value of “Uber Travel” could be a factor, similar to how “Uber Eats” has grown [00:46:01]. While Uber users currently use separate apps for flights and hotels, a third tab for travel within the Uber app, alongside rides and eats, could integrate seamlessly and leverage existing customer payment information [00:46:19].