INVESTMENT THESIS
Expedia Group Inc. (NYSE: EXPE) as the pandemic continues to batter the global travel industry. We also expect results at Expedia to be hurt by higher marketing costs and increased spending on technology. In all, we expect Expedia’s share of the global travel bookings market to grow from 6% in 2016 to 8% in 2024.
RECENT DEVELOPMENTS
On November 4, Expedia reported an adjusted 3Q20 loss of $0.22 per share, down from EPS of $2.71 a year earlier. Third-quarter revenue decreased 58% year-over-year to $1.5 billion. The lower revenue reflected the continued negative impact of the pandemic. By geography, EXPE generated 69% of revenues in the U.S., where revenue fell 48%. International revenue comprised 31% of revenue and was down 70% year-over-year. Gross bookings (both domestic and international) fell 68% year-over-year to $8.6 billion, missing the consensus estimate by $1.5 billion.
Lodging revenue contributed 82% of revenue and fell 52% from the prior year. Total room nights fell 88%, though this was partially offset by a 14% increase in revenue per room.
Airfare revenue fell 87% as tickets sold declined 74% and revenue per ticket was down 48%.
Advertising and media revenue fell 70%, reflecting sharp declines at trivago and Expedia Group Media Solutions. ‘Other’ revenue fell 67% from the prior year.
The adjusted EBITDA margin fell 540 basis points to 20%, reflecting higher selling and marketing, and technology and content costs.
EARNINGS & GROWTH ANALYSIS
Given the uncertain magnitude and duration of the coronavirus, the current severe downturn in the U.S..
In 2021, we expect revenue to be down 20% from pre-pandemic levels, and are lowering our EPS estimate to $0.60 from $2.00. Our revised estimates also reflect our expectations for increases in marketing and cloud technology spending.
FINANCIAL STRENGTH & DIVIDEND
Given weak demand for travel services, we think Expedia could violate its debt covenants in 2020. To ensure liquidity and financial flexibility during the coronavirus crisis, on March 18, Expedia took out a $1.9 billion revolving line of credit.
Despite the negative near-term outlook for the travel industry, our financial strength rating on Expedia remains Medium.
MANAGEMENT & RISKS
Barry Diller is Expedia’s executive chairman. Mr. Diller took over following the abrupt resignation of Mark Okerstron as CEO on December 4, 2019.
Expedia faces the risk of competition from a range of companies, including tech industry heavyweights Amazon, Facebook, and Google. The company would also be hurt by weaker economic conditions, which typically lead to reductions in business and leisure travel. It also faces currency risk as it generates more than 40% of revenue from international operations.
COMPANY DESCRIPTION
Expedia Group Inc. is an online travel agency (OTA). The company’s technology provides tools and information that help consumers to research, plan and book trips. With a market cap of approximately $17.6 billion, the shares are generally regarded as large-cap growth.
VALUATION
On November 19, HOLD-rated EXPE closed at $123.96, up $1.44.
Source: Argus
