What will Google Search remedies mean for online travel?

A U.S. District Judge's ruling in the Google Search antitrust case, which bans Google's exclusive search agreements, is poised to reshape online travel, benefiting OTAs like Booking and Expedia. This decision could allow OTAs to bypass Google's 'tax' by negotiating directly with device manufacturers for search placement, potentially boosting their profitability and fragmenting the search funnel. While Google's formidable presence remains, analysts see this as a significant opportunity for OTAs to disintermediate and gain market share.

Analysis

A U.S. District Court ruling against Google's exclusive search agreements is a significant regulatory development poised to benefit Online Travel Agencies (OTAs) including Booking, Expedia, and Airbnb. According to Bernstein analysts, the decision, which bans deals that guaranteed Google default placement on platforms like Apple and Verizon, is "good news for the OTAs" as it curbs Google's disruptive power. This creates a potential pathway for OTAs to disintermediate Google by negotiating directly with device manufacturers for pre-installed apps or by leveraging revived features like "Apple suggestions" to route queries directly to their platforms, bypassing Google's search results. Analysts suggest that eliminating this "Google tax" would "near certainly raise the profitability" of paid search traffic. However, the ruling's impact is tempered by Google's formidable position in travel, underscored by its ongoing innovation and the negative impact its algorithm changes had on Tripadvisor's Q2 organic traffic. Despite the rise of AI, Google remains the "most important top of funnel player," with Booking itself reporting increased Google clicks in Q2, indicating that while the ruling is a positive development for OTAs, its ultimate effect on market dynamics is not yet definitive.

Key Decisions for Investors

• Investors with positions in Online Travel Agencies (BKNG, EXPE, ABNB) should view this regulatory development as a potential long-term tailwind, as a reduction in traffic acquisition costs could lead to margin expansion.
• Holders of GOOGL should monitor for any revised revenue guidance or management commentary related to the financial impact of losing exclusivity in high-margin search verticals like travel.
• It is prudent to watch for tangible evidence of OTAs striking direct deals with device manufacturers or a quantifiable reduction in their marketing spend with Google in subsequent quarterly reports before materially altering positions.
• The specific mention of Tripadvisor's (TRIP) struggles highlights the ongoing risk from Google's algorithmic power, suggesting investors should differentiate between OTAs based on their respective reliance on paid versus organic search traffic.