Instant Analysis: Report Says Expedia Picks Underwriters for Trivago IPO


What happened?

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Online travel agency incumbentExpedia (NASDAQ: EXPE) has apparently made big strides in a planned IPO of one of its business units. Reuters, citing "sources familiar with the matter," reported that the company has lined up a syndicate of investment banks to underwrite the stock flotation of its Trivago hotel search engine.

Image source: Expedia.

According to the article, the issue's "global coordinators" will be JPMorgan Chase's J.P. Morgan, Goldman Sachs, and Morgan Stanley. Supporting them will be Citigroup, Bank of America-- presumably its investment bank arm Merrill Lynch -- and Deutsche Bank, acting as bookrunners.

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Expedia tipped its hand about the issue in its most recent quarterly earnings release. It wrote that it and "the founders of Trivago have agreed to explore the feasibility of an IPO of Trivago shares."

The sources cited by the Reuters article say that the issue will probably take place later this year, or in 2017.

Neither Expedia nor any of the six banks have yet commented on the report.

Does it matter?

The six named financials are all heavy hitters with long and deep experience in the IPO space. This indicates that the issue will besizable, creating a new and well-capitalized company in the online travel segment.

The Trivago float would represent somewhat of a departure from the recent drive toward consolidation in the business. Over the past few years, Expedia and its top rival Priceline Group (NASDAQ: PCLN), have become the two OTA incumbents by aggressively building their respective asset bases.

In addition to its namesake travel portal and Trivago, Expedia also owns, Orbitz Worldwide, HomeAway, and numerous others. Priceline Group has, Kayak, and OpenTable among other brands in its portfolio.

According to Expedia, as of earlier this year Trivago's trailing 12-month revenue was over $660 million. The unit's top line has grown by six times since it acquired the company in 2012. Since Trivago is a relatively fast-growing enterprise, Expedia might feel it is better off operating on its own, rather than among its parent's more mature brands.

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Eric Volkman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Priceline Group. The Motley Fool recommends Bank of America. 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.