Established in 1996, Expedia Group Inc. (EXPE, Financial) is a Seattle-based online travel services company.
The company functions as an intermediary between suppliers of travel-related services and travelers by offering travel planning, travel purchases and travel experience sharing. These services are inclusive of a wide variety of destination and flight plan choices, maps, local restaurants, activities to engage in, cruises, special offers and customer reviews, and the company’s wide coverage gives freedom to travelers to make decisions based on their preferences and budget. The company operates under the retail, business-to-business and Trivago segments.
Expedia had a rough 2020 because of the global lockdown, but the most recent quarterly earnings suggest it is recovering quickly. The travel industry is expected to gain momentum this year with the easing of restrictions and the success of the global vaccination drive. These positive macro-level developments will help Expedia’s recovery as well.
The financial performance is getting back on track
Normalization of travel trends to pre-Covid levels along with an improved cost structure helped Expedia report better-than-expected earnings for the fourth quarter of 2021. Compared to the fourth quarter of 2019, aggregate revenue was down 17% at $2.2 billion, but was up 148% compared to the corresponding quarter last year. Total gross bookings came in at $17.5 billion, up 131% year over year. The company also reported an adjusted net income of $167 million compared to a loss of $376 million in the fourth quarter of 2020. Adjusted Ebitda was $479 million, which was a record high for Expedia.
For the full financial year, the retail segment grew 71%, the business-to-business segment grew 55% and the Trivago segment clocked in 51% revenue growth. All these numbers suggest Expedia is recovering at a fast pace thanks to the pent-up demand for travel and other leisure activities.
The international footprint is a game-changer
Expedia has a strong international presence. To achieve this, the company acquired several profitable, smaller companies such as Wotif, Travelocity, Orbitz and Vrbo. These acquisitions have helped Expedia penetrate new markets. Wotif continues to aid the company's presence in Australia and New Zealand, while Travelocity and Orbitz are full-service travel brands with websites in seven European nations. Orbitz has added some powerful flights technology and helped the company solidify its leading position in the domestic market. The acquisition of Vrbo has added vacation rental apartments to Expedia’s hotel portfolio, which is a brand-new area with notable growth prospects that could drive gross bookings higher in the future.
Loyalty is another key focus area. The company continues to invest in this area to thwart the threat of competitors. The loyalty program is centered around offering member discounts, rewards and redemptions on flights, hotels, vacation rentals, car rentals and cruises. So far, member-only deals and loyalty rewards have saved around $10 billion for Expedia’s customers. To remain relevant in key international markets, the company will continue to offer discounts and attractive rewards to loyal customers who keep coming back to its platforms, which seems to be the right strategy to thrive amid increasing competition.
The industry outlook is promising
In addition to the ongoing travel rebound, the increasing popularity of remote work is also encouraging people to travel more because of the flexibility that they have found with their work arrangements. According to Deloitte, there is a high demand for accommodation-type lodgings and working vacationers are likely to spend a lot more on travel than they did back in 2019. Air traffic numbers also indicate a strong comeback for the travel industry, and Deloitte found that more Americans are saving to see the world, having been domesticated for two long years. This is a good sign for Expedia as the company has already ramped up investments in international markets to attract more travelers to its online platforms.
Takeaway
Expedia is making a strong comeback from its 2020 lows, moving in the right direction by focusing on international markets. The company seems well positioned to make steady progress this year, aided by favorable macroeconomic developments. The stock has gained more than 15% this year while the S&P 500 Index is down close to 10%, which is a testament to the positive investor sentiment toward travel companies. This winning streak might continue through the end of this year if the company delivers strong earnings growth.
