Expedia (EXPE, Financial) shares jumped almost 13% to $121.44 in today´s trading day after the company´s Q2 results. The company reported stronger-than-expected revenue and earnings. Further, it received a price target increase. Revenue was up more than 15%, beating the consensus, and reported second-quarter earnings of $0.89, beating analysts' estimates of $0.84 per share. Expedia also announced it raised its September dividend to $0.24 per share, a 33% increase over its previous dividend.
At the end of May, the stock also jumped in response to news that the firm was selling its majority stake in Chinese travel company eLong (LONG, Financial) to Ctrip.com (CTRP, Financial). I think this was a strategic move, apart from reducing exposure to China, because the firm can focus on valuable ideas in the long haul instead of losing time and sources in that business.
Expedia is the world’s largest travel agent, providing travel products and services. With a market share of about 5%, we believe it will expand it as well as achieving double-digit revenue growth. Expedia is positions as a dominant online travel company in the U.S. When considering gross billings it tripled its nearest competitor, Priceline (PCLN, Financial).
Although this company is expected to grow at a faster pace due to its international operations in Europe and Asia, we believe Expedia will grow in an important way, for example with the purchase of Orbitz Worldwide (OWW, Financial).
Ratings
Most analysts have a bullish opinion on it: 10 Hold Rating(s), 15 Buy Rating(s). When looking at the consensus price target, it stands at $111.46, according to MarketBeat, giving an 8.2% upside potential. Jefferies increased the price target to $115 from $106 per share but maintained its hold rating.
Final comment
The company is the largest professional social networking website that ever exists. A very important intangible asset is its users, with more than 300 million users.
Although I am not as bearish as Eric Mindich (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Ray Dalio (Trades, Portfolio) and Mario Cibelli (Trades, Portfolio), because all of them sold out the stock in Q1, looking at the future, I must say that I worry about competitors and also that the stock looks quite expensive.
In terms of valuation, the stock sells at a trailing P/E of 34.3x, trading at a premium compared to a median of 23.3x for the industry. To use another metric, its price-to-book ratio of 9.07x indicates a premium versus the industry median of 1.85x while the price-to-sales ratio of 2.66x is above the industry average of 1.74x and is trading close to a 10-year high.
Disclosure: Omar Venerio holds no position in any stocks mentioned
