Expedia Earnings Q3 2015 Preview: ELong Stake Sale Could Boost Profits.

  • Expedia earnings Q3 2015 is expected to be announced on Oct. 29 after market close.
  • The company is expected to report good top and bottom line results.
  • Expedia's bottom line in particular is expected to show some improvement after the company sold a majority stake of loss-making eLong.
  • Expedia shares still appear quite cheap even after its strong run this year and could have significant upside potential even in the near-term.

Online Travel Agency Expedia (NASDAQ:EXPE) will report Q3 2015 results on Oct. 29 after markets close. Expedia has missed consensus earnings estimates for the last three quarters running:

Expedia Earnings Surprise History

Quarter End
Per Share
EPS* Forecast
Jun2015 07/30/2015 0.58 0.71 -18.31
Mar2015 04/30/2015 -0.25 -0.06 -316.67
Dec2014 02/05/2015 0.78 0.86 -9.3
Sep2014 10/30/2014 1.83 1.62 12.96

Source: NASDAQ

Although Expedia was a bit tight lipped when providing forward guidance during its last earnings call, there is good reason to believe that its bottom line will perform much better when it reports third quarter earnings. Expedia had this to say during its last earnings call:

‘‘In terms of financial expectations for full year 2015, we are maintaining our adjusted EBITDA guidance for Expedia excluding eLong in line with our prior guidance range of 10% to 15%. Though Q2 came in a bit better than expected, we plan to put that upside back into the business mostly in Q3 to drive continued growth. And as a reminder, our guidance this quarter comes with the same caveats as last quarter. We remain cautious about where we will fall in our guidance range, due primarily to significant remaining foreign currency headwinds, which have gotten slightly worse since our Q1 call.’’

The only real number that we can easily decipher from those comments is that the company expects full year FY 15 EBITDA of $1127.28 million-$1,178.52 million. The company, however, only said that it expects Q3 EBITDA and EPS to be better than Q2 EPS of $0.89. Expedia’s EPS fell 13% Y/Y during the second quarter. There is, however, good reason to believe that the company’s bottom line fared much better during the third quarter. Expedia divested a 62.4% stake in loss-making eLong during the second quarter. Intense competition in the Chinese online travel agency market has been placing tremendous pressure on eLong leading to shrinking margins. In fact, without the impact of eLong, Expedia would have realized a 4% growth in EPS during the second quarter. Although eLong will continue to impact negatively on Expedia’s bottom line, its effect will be much reduced going forward.

Lower FX Headwinds than Rival Priceline

Priceline (NASDAQ:PCLN) is the company that Expedia is most closely compared to since they are the world’s two largest OTAs. While the two companies sport quite similar business models, the current business environment favors Expedia much more than it does Priceline. Expedia derives just about 45% of its revenue from international markets compared to a hefty 86% for Priceline. Priceline’s huge exposure to international markets has been making it feel the full wrath of the strong dollar and adverse forex rates. Priceline said during its last earnings call that it expects third quarter gross bookings to grow in the range of -1% to 6% and full year gross bookings to clock in the range of 0% to 7%. In comparison, Expedia recorded a healthy 24% increase in gross bookings during the second quarter and expects to maintain the same momentum for the full year.

Expedia has been expanding its business as well as its international footprint through a slate of acquisitions, its latest being Orbitz Worldwide. Investors have been happy with the company’s growth trajectory--Expedia shares are up 49.5% YTD and 61.5% over the past 12 months. In comparison, Priceline shares are up 18.8% YTD and 21.5% over the past 12 months.

Expedia (Bold Line) vs. Priceline (Green Line) 12-Months Share Returns

EXPE stock chart

Source: Expedia stock price chart by amigobulls.com

Both Expedia and Priceline are projected to grow earnings at 18% CAGR over the next five years. But given Expedia’s better top line growth, as well as its lower PE (Expedia sports a PE ratio of 20.6 compared to 30.2 for Priceline) it appears as if the shares still have plenty of upside left.

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