Re-blog from TickerHound Blog:
I saw this question come up on TickerHound the other day and just had to write a post on it.
A member asked, “Expedia’s been up this week on Google acquisition rumors - what do you think?” read more>>
Ok, now I might have to eat my hat on this one but my gut (and plain business logic) makes me think otherwise. Anybody who is saying different, I won’t mention them by name, is probably doing so out of ignorance, desire for attention or a bit of both.
One has to understand that Google isn’t some “dot com” growth engine that’s looking to build at any cost. This company is extremely disciplined when it comes to its finances and it shows in the bottom line – but more on that in a moment.
The point I’m trying to make is that Google is not going to swallow up a company simply to add eyeballs, revenue or whatever else to the Google pie. They’ll only acquire a company when it compliments their core business of search and search advertising.
For example, YouTube.com – Google acquired the company for $1.6 billion last year and hasn’t looked back since. YouTube serves up roughly hal the videos on the web right now and I really believe Google has the wallet, connections, etc. to deal with the copyright issues the service faces. The other thing to recognize is that YouTube wasn’t just some online video site. The service fit within Google’s model of content aggregation, indexing and search – and then monetizing that through advertising.
YouTube doesn’t create content, they aggregate it, index it and make it available to the public…strangely similar to Google’s search engine. The same applies to many of the acquisitions, albeit smaller, that Google has made over the years…
- Writely.com which formed the foundation of Google’s Office applications: users publish documents and Google hosts and indexes them.
- Blogger.com: Bloggers post tons of content which Google indexes and monetizes with advertisements.
- And the list goes on…
Now if Google acquired Expedia they would be entering an entirely new business: E-Commerce.
This might make you say, “Well, why does that matter, money is money, right?”.
Money is always money, but the question is, what does it COST to get that money? In other words, what’s your Return on Capital?
Right now Google has an average Return on Equity of 21%.
Why on earth would Google take on a business that would make its margins worse off?
Answer: They wouldn’t!
Like I said, this is just my opinion and if Google comes out next week and announces that they’ve taken over Expedia, I’ll issue a public apology on TickerHound.com. But, as I said before, my gut and business logic are telling me otherwise.
The one travel company I could realistically see Google taking over would be Kayak.com – it’s a privately held travel SEARCH company. They index and search over 140 travel sites in an effort to find you the cheapest airfares, hotels, etc.
While I “think” this would be a match made in heaven, Kayak is a privately held company and I have no idea what their financials look like. But from a synergistic perspective, Google-Kayak makes a lot more sense than the Expedia story.