March 13, 2018

Online travel is a huge opportunity for Amazon

Amazon's advertising spend per transaction could be meaningfully lower than OTAs Booking Holdings and Expedia thanks to Amazon's proven ability to drive repeat and internal traffic on its platform.

There's a large barrier to entry in online travel for most companies due to the cost of global hotel supply. Nowak estimates Booking Holdings and Expedia spend roughly $620 million each on their hotel supply annually, but that number pales in comparison to the $6.4 billion Amazon is spending on streaming video content in 2018.

If Amazon is able to build a successful online travel business, Morgan Stanley analyst Brian Nowak says it could provide a huge boost to the company's bottom line.

"Our sensitivity table shows that if AMZN could build an online hotel business even 50 percent the size of EXPE's hotel business ... it would add roughly $600 million to operating profit," Nowak says. He says a more aggressive approach and/or a more efficient ad spend could bump that operating profit as high as $1.5 billion annually.

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