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July 6, 2010
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Chicago, IL – July 6, 2010 – Zacks.com Analyst Blog features: Google Inc. (GOOG), Expedia (EXPE), Orbitz Worldwide (OWW), Microsoft Corp (MSFT) and Darden Restaurants Inc. (DRI).
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Here are highlights from Friday’s Analyst Blog:
Google Beefing Up Travel Services
Google Inc. (GOOG) has offered to buy ITA Software, a technology company owning specialized software that enables the provision of sophisticated flight information services to customers. Google intends to make the purchase for $700 million in cash.
The software would help Google offer comparison shopping for airline tickets and so could put online travel agencies such as Expedia (EXPE), Orbitz Worldwide (OWW) and Travelocity.com at risk. It is important to note that Google is not entering the travel business, so it will not be earning money on tickets sold. Google’s services will be limited to sending customers to the least-cost site at any given time. The company will continue to earn money on advertisements sold in the process.
However, these online travel companies could well be concerned, since this move obviously takes away their ability to differentiate their products, limits their ability to provide adjacent services and commoditizes their offerings through increased price competition with each other. Moreover, some airline companies could also be concerned, given the fact that they might have to compete with the travel agencies for listing on the search engine.
Google believes the search engine will in fact drive higher sales for online travel agencies, since the effectiveness of its services will pull more customers online, materially changing offline buying habits. However, it will position the company more favorably versus its archrival Microsoft Corp (MSFT).
Microsoft acquired Farecast some time back, which enabled it to offer fare comparison services through Bing. It seems the strategy paid off very well for Microsoft, enabling it to generate incremental traffic. Google’s move will be particularly strategic in the sense that most of the comparison shopping for airline tickets offered by Bing, Expedia’s Hotwire, Orbitz and Kayak is currently enabled through the licensing of ITA software. Although Google has promised to honor existing contracts, it is doubtful that the licensing to competitors (in this case Microsoft) would continue if the acquisition does actually take place.
Strategic acquisitions of this nature will no doubt draw the attention of regulators, especially when parties like Microsoft and Expedia are involved. However, there is a possibility that Google could come out the winner in the end.
Earnings Scorecard: Darden Restaurants
Over the last 7 days, 5 of the 22 analysts covering Darden Restaurants Inc. (DRI) made upward earnings estimate revisions for first quarter fiscal 2011. A more positive trend is noticed for the second quarter and fiscal 2011, with estimates having been increased by 9 and 11 out of 21 and 26 analysts, respectively. On the other hand, downward revisions in estimates were made for the upcoming two quarters and fiscal 2011 by 3, 1 and 2 analysts, respectively.
Over the last 30 days, second quarter and fiscal 2011 estimates for Darden Restaurants were increased by most of the analysts, while downward revisions have been comparatively fewer. This indicates a positive bias of the analysts toward the company.
Over the 7 days period, no clear directional movement was noticed for fiscal 2012, with 2 out of 15 analysts raising estimates and 2 lowering them.
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