Google’s ITA acquisition will trigger regulators, analysts say

Citigroup
is neutral on the buy, noting that they anticipate rigorous regulatory reviews.

We view this step as very similar to (tho much more $ than) Google’s Comparison Ad move into the Credit Card & Mortgage verticals. Instead of sending Paid Clicks to metasearch engines/lead generators who qualify the leads and generate higher fees from the end providers (issuers, banks, airlines), Google is seeking to qualify the leads itself and capture those higher fees. From Google’s perspective, it’s a win/win/win, because Search users may get a better overall experience on Google (potentially boosting query market share), end providers will continue to get high

quality leads, and Google will capture more of the economics.

They also note small downsides for Expedia (EXPE) and Priceline (PCLN). $630 price target.

Susquehana thinks:

• Regulatory process could take six months or more and the deal might not close until as late as 1H11
• Orbitz (OWW) and Kayak (current partners of ITA) are exposed short term, Expedia and Priceline long term
• According to Fast Company, ITA software enables 65% of online air bookings.
• The opportunities for Google include incremental advertising dollars through increased consumer traffic and increasingly targeted lead generation.

Deutche Bank sees the deal as being about mobile and improving the travel booking experience for mobile users.  Secondary benefits include additional pageviews for targeted advertising and the possibility of creating a Hotel bidding exchange in the future. Price target: $700.

Merrill Lynch‘s Justin Post sees significant regulatory issues because Kayak, Travelport and Expedia were interested in buying ITA, which owns 2/3rds of the market.  Also, it puts Google squarely in the travel sector.  Price target $630.

Think Equity
(Price target: $660):

The acquisition 1) improves Google’s competitive position versus vertical travel search engines as well asBing which uses ITA Software 2) could drive more traffic to Google as a staringpoint for travel search versus online travel agencies and hence increasingly monetize consumer travel searches.

The acquisition 1) improves Google’s competitive position versus vertical travel search engines as well asBing which uses ITA Software 2) could drive more traffic to Google as a staringpoint for travel search versus online travel agencies and hence increasingly monetize consumer travel searches.

Barclay
‘s believes, “Google’s agreement to acquire ITA represents a strategy shift as Google may now feel more urgency to pursue vertical search opportunities given slowing core search growth.”  Their summery:

• We expect extensive regulatory review of the proposed $700M deal, but it doesn’t need European approval & we expect the deal to ultimately go through.
• We believe ITA & the shift toward vertical search pushes GOOG more in the direction of CPAbased search advertising. We have long thought search would ultimately move toward more of a CPA model—at least in certain categories—with air ticketing a prime CPA opportunity.
• We believe the competitive impact of Google-ITA is greater on metasearch co’s like Kayak than on OTAs EXPE & PCLN, but OTAs could ultimately be pressured if Google has success in integrating travel into its search interface.
• OWW the most exposed OTA w/direct ITA deal & 72% of bookings from air…PCLN the least.
• Deal could spark more OTA/metasearch consolidation as co’s align vs. stronger competitor.
• We view deal as move by GOOG to regain position at end of the consumer purchase funnel.

They have a $650 price target on Google.

William Blair & Company
said the purchase was made, in part, to bolster its travel search.  google’s current offering lags behind Microsoft’s (MSFT) Bing and its ability to allow users to book flights. They also anticipate regulatory scrutiny.

For more on the deal, see Google’s dedicated site.