Guess Who Spends $1 Billion a Year on Search Terms and Mightn’t Like Google’s Frommer Deal?

In 2010 Google (GOOG) invested in HomeAway, a vacation home rental service. Last year it bought ITA Software, a flight information software company. Now it’s buying Frommer’s travel guides for $25 million or so.

This news set off Stephen Kaufer, chief executive of TripAdvisor (TRIP), who told the Wall Street Journal that he’s worried that Google will give Frommer’s a leg up in searches. His investors also expressed some concern that Google's move will hurt TripAdvisor:

TRIP Chart

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Priceline (PCLN)'s investors don't appear bothered by the Frommer's news.

PCLN Chart

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But they should be just as worried. Priceline and TripAdvisor have crushed competitors like Expedia (EXPE) and Orbitz (OWW).

TRIP Chart

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Priceline’s revenue has been growing, and its net income even more so.

PCLN Revenue TTM Chart

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Its margins are steadily widening.

PCLN Profit Margin Chart

PCLN Profit Margin data by YCharts

But Priceline’s growth is tied to Google. Priceline spent $919.2 million last year on online advertising, up from $552.1 million in 2010. A big chunk of that probably went straight to Google for ads that appear by searches.

And Priceline knows that Google is a potential competitor. As Priceline said in its annual filing: “Large, established Internet search engines with substantial resources and expertise in developing online commerce and facilitating Internet traffic are creating - and intend to further create - inroads into online travel, both in the U.S. and internationally.” It goes on to discuss Google, as well as Microsoft's (MSFT) Bing (far less of a threat as no-one uses it).

Priceline also licenses an airline “faring engine” from ITA Software, which Google bought last year. Kayak (KYAK) is in the same boat (har har) and discussed this at length in its S-1. When Google bought ITA, it was clear that it could create its own flight search tools to compete with the likes of Kayak or Priceline. Moreover, it could also stop licensing ITA at favorable terms.

“If Google chooses to provide comprehensive travel search results such as flight and hotel pricing and availability, and further chooses to integrate such offerings with other Google services such as Google maps and weather information, then the number of users that visit our websites and our ability to attract advertising dollars could be negatively impacted,” wrote Kayak.

Google barely paid anything for Frommer’s, so the investment itself is less of a threat than the fact it confirms Google's interest in travel, if there was any doubt. Eventually, Priceline’s going to need more customers to go directly to its site when they’re making a reservation.

From the editors of YCharts.YCharts Pro Investor Service includes professional stock charts, stock ratings and portfolio strategies.



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