Google Inc’s (GOOG) revamped air ticket portal launched without much fanfare on Tuesday. Without a doubt, the search giant is entering the travel market, something made easy with its acquisition of ITA Software, which was recently cleared by the Justice Department.
As may be expected with any strategic acquisition, there was a significant amount of controversy and opposition from other companies offering travel services or dependent on ITA technology, such as Microsoft Corp (MSFT), Kayak and Expedia Inc (EXPE).
Priceline.com (PCLN) was less affected, although its CEO Jeffrey Boyd mentioned that Google was stepping on its toes with its new Hotel Finder site and the ITA acquisition. Kayak stated that its technology was superior and that it was ready to take on the competition from Google. Some bravado, considering the fact that these companies had gone all out to secure continued licensing rights to ITA technology, which the judge enforced until 2016.
Google’s flight search site is currently not exceptional and more or less comparable with services offered by its competitors. There are two main differences — first, it appears to be a good bit faster and second, it is still restricted to U.S. cities alone. Google has built its position through incremental improvements to its technology and services, so we think that any loopholes will be plugged before too long. In any case, it seems like a good idea to launch in a small way and ride the learning curve as business expands.
Google has the number one search business in the world, having witnessed extremely strong growth rates over the last few years. The company has been developing its capabilities across a number of verticals, although not all its efforts have met with great success.
We think that the main reason Google’s efforts in travel have met with so much publicity is the growth potential in the market. Not only has the domestic business proved more resilient in recessionary conditions and exiting the recession, but there is also significant potential abroad. In fact, international growth is one of the key drivers of business at companies such as Expedia and Priceline.
We view this development as a baby step by Google in the travel market and expect much more to follow. In the meantime, we reiterate our long-term Neutral stand on the shares.
Google shares currently have a Zacks #3 Rank, implying a Hold recommendation in the short term (1-3 months).
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