Expedia (NASDAQ:EXPE), an online travel company in the United States and internationally announced the acquisition of Wotif Group on July 6, 2014. This article discusses the acquisition, the positives from the acquisition and the other growth triggers for Expedia, which make the company an attractive long-term investment option.
Acquisition of Wotif Group
On June 6, 2014, Expedia announced the acquisition of Wotif Group for a consideration of $658 million or $3.09 per share. The acquisition is a positive step by Expedia and is likely to bring significant long-term benefits.
Wotif Group is an Australian-based online travel company with Asia-Pacific region with a portfolio of leading travel brands. Wotif Group operates online travel brands in the Asia-Pacific region including, Wotif.com, lastminute.com.au, travel.com.au, Asia Web Direct, LateStays.com, GoDo.com.au and Arnold Travel Technology. The company’s multi-product portfolio focuses primarily on hotel and air, offering consumers more than 29,000 bookable properties in destinations around the world.
- Warning! GuruFocus has detected 2 Warning Signs with EXPE. Click here to check it out.
- EXPE 15-Year Financial Data
- The intrinsic value of EXPE
- Peter Lynch Chart of EXPE
One of the biggest positives for Expedia is an increased exposure to the Asia pacific region, which is a high growth region as compared to developed markets. Expedia has been looking to expand its presence in Asia Pacific and the acquisition fits perfectly in the company’s strategy to target high growth markets.
In one of my earlier articles, I had discussed the long-term prospects for make MakeMyTrip (NASDAQ:MMYT) and also the growth the company has witnessed with strong presence in India. An increasing presence in the Asia Pacific region will boost Expedia’s growth as well and the acquisition is a positive step in that direction. Priceline (NASDAQ:PCLN) has also adopted a similar growth strategy for expanding in the Asia Pacific and it is working for the company.
I believe that Expedia will be on a look-out for more interesting acquisitions in Asia Pacific. The company seems to be on an acquisition spree as the company acquired Escape Group in June 2014 as well. Escape Group is one of Europe's leading online car rental reservation companies.
Positive Clarification on eLong (NASDAQ:LONG)
There were rumours in the recent past that Expedia is considering selling its 65% stake in eLong. On July 7, 2014, Expedia announced that the talk on selling the stake was indeed a rumour and Expedia remains a long-term investor in eLong to support eLong's drive to become the leading Chinese travel site.
This is another positive announcement coming from Expedia in the last few days. I do believe that eLong has the potential to become one of the leading travel sites in China. eLong is already the second largest online travel company in China. The fact that eLong is backed by the world’s largest online travel company is encouraging and eLong will continue to enjoy strong funding support for its expansion activities in China.
Strong Fundamentals To Support Acquisition Spree
Expedia has a strong balance sheet and cash flow position and this will support the company’s aggressive acquisition spree and expansion into high growth markets. As of December 2013, Expedia had a cash balance of $1 billion. Further, the company had a low debt to capitalization of 36%, giving the company sufficient room to take debt for expansion or acquisition.
For the year ended December 2013, Expedia also had an operating cash flow position of $763 million as compared to cash interest payment of $84 million. Therefore, debt servicing is not a concern at all for the company.
Besides the growth from emerging markets and the capital appreciation benefits from that, Expedia also has a current annual dividend of $0.6 per share and a dividend yield of 0.8%. I believe that the company’s dividend payout will also increase in the future with strong operating cash flows.
Expedia is certainly not complacent with its current position as the world’s leading online travel company. The company is actively looking for new growth opportunities and attractive acquisitions. I believe that Asia Pacific will play a key role in the company’s growth with the acquisition of Wotif Group.
Analyst estimates peg Expedia’s earnings growth for 2014 and 2015 at 33% and 23% respectively. The stock, with a strong growth outlook, is a buy for the long-term. However, broad markets are trading at stretched levels and investors can buy the stock in a staggered investment style than bulk to average out on any decline.