(By Salman - iStockAnalyst Writer)
Shares of Expedia Inc (NASDAQ: EXPE) surged up on Tuesday on renewed speculation that the online travel company might be acquired by Google Inc (NASDAQ: GOOG).
In the options market too, heavy call buying activity was witnessed on Tuesday.
According to Reuters, both Google and Expedia declined to comment on the story.
However, it is not for the first time that the Google buyout rumor has surfaced. Last year to, it was being speculated that the search giant is interested in the acquisition of Expedia in order to expand its business.
Expedia Chief Executive Dara Khosrowshahi noted that consolidation is unlikely as credit markets remain crippled amid economic recession. Speaking at the Reuters Travel and Leisure Summit, Khosrowshahi had said "Right now, access to capital markets is essentially nil and consolidation typically requires capital." He added "I don't see anything happening until the credit markets ... ease."
Majority of the analysts are of the opinion that Google's buyout of Expedia would not make much sense. Google's core business is advertising whereas Expedia is more about e-commerce. It is being contended that Google usually acquires only those tech firms whose business complements with its own business and hence, a Google takeover of Expedia is highly unlikely.
However, few others feel that Google is under pressure to expand beyond advertising business. It is being pointed out that online travel is a big market with huge potential. Moreover, cash rich Google may also use depressed valuation of Expedia to its advantage.
The Bellevue, Washington-based Expedia has been particularly hit hard as consumers have continued to cut back on their spending amid mounting layoffs. Increased competition from rivals such as Priceline (NASDAQ: PCLN) too has further complicated the matters for the company.
Last month, Expedia reported dismal fourth quarter results.Net loss totaled $2.76 billion, or $9.60 per share, compared with a year-ago profit of $65.4 million, or 22 cents per share. On an adjusted basis, the company earned 22 cents per share, missing consensus estimates of 24 cents per share. For full fiscal year 2008, Expedia reported a loss of $2.52 billion, or $8.63 per share, after a profit of $295.9 million, or 94 cents per share, in the previous year.
Expedia rose 56 cents or 7.64% to $7.89. Shares of the company are down over 65% from 52 week high of $25.50.
Disclosure: Author does not own any of the stocks discussed here.
