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Nicholas Kitonyi
Nicholas Kitonyi
Articles  | Author's Website |

Expedia Bounces on Strong Quarterly Results

Shares rose 8% after posting revenue beat

April 28, 2018 | About:

Shares of Expedia Group Inc. (NASDAQ:EXPE) rose 8% on Friday after announcing its first-quarter results after the market closed Thursday. Shares of the travel giant jumped 10% after-hours, signaling a positive sentiment from investors.

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Expedia closed at $106 per share on Thursday, but has since rallied to trade at $115 per share. The Bellevue, Washington-based company's stock has not moved much since the start of the month. But in February, it fell approximately 23% after posting disappointing fourth-quarter earnings. 

The company’s heavy spending on marketing squeezed earnings per share to just 84 cents, missing analyst estimates by 31 cents. Revenue of $2.32 billion missed estimates by a whopping $40 million. Expedia has not recovered from that fall, and even Friday’s rally fell below its previous high of $130.

Nonetheless, investors can look at the company’s most recent quarterly performance with optimism since it beat Wall Street's expectations.

The company posted growth of 15% in both gross bookings and revenue, topping $27.2 billion and $2.5 billion respectively. Expedia’s top line beat analyst estimates by $70 million, while earnings of 46 cents per share missed by just 2 cents.

The company also surprised on earnings before interest, taxes, depreciation and amortization, posting $124 million versus a consensus estimate of $116 million. Total Lodging stayed rooms were up 15% as a result of the Easter holiday. The company’s global growth brands, Brand Expedia, Hotels.com, Expedia Partner Solutions and Egencia, posted a 16% increase.

On the other hand, HomeAway, which will play a role in helping Expedia grow its portfolio of properties, registered a 46% increase in gross bookings, while room nights rose 36%.

Expedia is targeting the $120 billion alternative accommodation market to drive growth and continues to dominate many charts in the global travel market share. Expedia now has 665,000 properties, up 74% after HomeAway added 25,000 to the company’s portfolio.

The company also enjoys high levels of liquidity with $4.7 billion worth of cash and marketable securities reported in the most recent quarter. On the other hand, free cash flow was $1.5 billion.

While the company only managed $52 million in operating income, which was boosted by the $167 million depreciation charge added back, investors remained optimistic, rallying the stock higher today.

This could be because of its strong cash position. The company’s free cash flow of $1.5 billion values it at just 11.33x in P/FCF ratio, compared to the current P/E ratio of 50.35x. Therefore, it looks like shareholders are valuing the company based on free cash flow than its current earnings.

The company has been transitioning from subscription-based business model to transactional business in a bid to optimize performance and especially adapt to the changes in the current business environment.

However, in 2017, it managed to flip the scales with transactional gross bookings now accounting for 68% of the total.

As the company continues to focus on the big picture, there will certainly be some inconsistencies in earnings, and this probably explains why it chose to provide guidance on Ebitda and earnings. In the earnings call, the company said, "A reconciliation of adjusted EBITDA guidance to the closest corresponding GAAP measure is not provided because we are unable to predict the ultimate outcome of certain significant items without unreasonable efforts.”

Instead, the company issued a wide range of percentage estimates for the year, reaffirmed its initial projections.

“We are reiterating our guidance for consolidated adjusted Ebitda growth of 6% to 11%, or 10% to 15% excluding cloud,” management said.

For now, the company’s stock price seems to have stabilized at $115 per share, but it would be interesting to see how investors adjust with time to the changing business model.

Disclosure: I have no position in stocks mentioned in this article.

About the author:

Nicholas Kitonyi
Nicholas the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on research sites like Seeking Alpha and Benzinga.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. As a trader, Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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