Why MakeMyTrip Limited Stock Skyrocketed Today

By Markets Fool.com

Image source: Getty.

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What happened

MakeMyTrip Limited(NASDAQ: MMYT) stock was soaring today as the Indian travel website announced it would acquire rival Ibibo Group to create the biggest company in the country's fast-growing travel bookings market. As of 2:56 p.m. EDT, the stock was up 52%.

So what

The deal will value the combined company at $1.5 billion, north of MakeMyTrip's valuation around $1.3 billion in afternoon trading. The two companies together processed over 34 million transactions and their internet properties include MakeMyTrip, goibibo, redBus, Ryde, and Rightstay.

The deal comes at a time when MakeMyTrip's stock has been suffering. The company has missed earnings estimates seven quarters in a row, and analysts see the company headed for a $0.63-per-share loss in its upcoming earnings report.

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Now what

The merger should help MakeMyTrip on its path to profitability, but the online travel agency industry can be cutthroat, as rampant consolidation showed in the U.S. market, wherePricelineandExpediahave emerged as the two key players. The deal will give MakeMyTrip 20% market share in online flight bookings, but only single-digit market share in hotel and bus bookings.

Naspers and Tencent, the owners of Ibibo, will hold a 40% stake in the new company, whileCtrip.comwill own another 10%. Considering the market's reaction and MakeMyTrip's series of losses, I wouldn't be surprised to see another acquisition in the company's future.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Priceline Group. The Motley Fool recommends Ctrip.com International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.