Expedia Earnings Review Q4 2014

  • Expedia reported its Q4 2014 earnings on Feb 5th, after the market close.
  • The company missed analyst estimates on both topline as well as bottomline, which sent the Expedia stock crashing in afterhours trade.
  • The forex headwinds and focus on international growth were major drivers of profit margin contractions.

Expedia (NASDAQ:EXPE), the Bellevue, Washington-based company reported its Q4 2014 results yesterday (February 5th) after market close. Expedia’s Q4 2014 net income of $66 million (50 cents per share) paled in comparison to the Q4 2013 net income of $94.7 million (or 70 cents per share. Adjusted earnings came in at 86 cents per share, missing analyst consensus by 14 cents per share while also registering a miss on the topline. EXPE stock lost over 8% in after-hours trade, closing the extended trading session at a price of $80.95. We review the Q4 numbers and update our Expedia outlook for 2015.

Expedia Earnings v/s Analyst Estimates

The company’s reported earnings missed analyst estimates after 5 consecutive quarters of beating estimates.

Analyst estimates Actual Beat/Miss
Revenue (in millions of $) 1369 1356 -0.9%
Non-GAAP EPS ($) 1 0.86 -14.0%

Source: Estimize

The company missed earnings estimates by 1% on a revenue miss of 14%. The miss is in stark contrast to an average earnings surprise of 2% on a revenue beat of 14.5% over the earlier 4 quarters. Moreover, the earnings miss meant that the company reported a year on year decline in earnings per share, a fact which sent the stock lower in after-hours trade.

Expedia Earnings Summary Q4 2014

Expedia revenue registered an 18% YoY growth. However, the revenue growth failed to translate in to earnings growth, as the earnings per share declined by 28% YoY while the Non-GAAP EPS declined by 7% YoY. The revenue costs and earnings growth is summarized in the table below.

YoY Growth Q4 2014
Revenue 17.7%
Selling and marketing 28.9%
Technology and content 17.0%
General and administrative 18.2%
EPS -28.3%
Non-GAAP EPS -6.5%

Each of the major expenses grew faster than the topline, causing a significant decline in the operating profit margin and net profit margin, with a 60 bps expansion in gross profit margin failing to drip to the net level. The operating profit margin declined by 5 percentage points, sending the bottomline into a YoY decline. The operating margin came in at a measly 7% with the net profit margin at 5%.

Expedia Operating Metrics

Let’s now take a look at the operating metric performance in Q4 2014.

Expedia Q4 Gross Bookings Growth

The gross bookings registered a growth of 24% YoY, driven by 29% growth in domestic market and 18% growth in international market. The international gross bookings growth was negatively impacted by forex headwinds, which wiped out 7 percentage points of growth.

Expedia Q4 Revenue Per Room Night And Take Rate

The take rate (revenue/gross bookings) dropped by 66 bps to 12% of gross bookings, leading to a 15% YoY growth in hotel revenue, which was slower than the gross bookings growth.  The decline in the revenue per room night was also a key driver of lower take rate. The growth in hotel revenue was a function of 28% growth in number of room nights stayed, which was offset by a 10% decline in the revenue per room night stayed. The decline in revenue per room night was a result of Expedia’s focus on increasing international hotel inventory, promotional activities in the form of loyalty programs and discounts and Forex headwinds through the quarter.

Expedia Valuation

At the pre-market price of $80.85, Expedia stock trades at the following LTM (Last twelve months) valuation multiples.

  • PE ratio of 27.04
  • Price to sales multiple of 1.60

The current analyst consensus expects the company to report an EPS of $4.64 on revenue of $6.54 billion in FY 2015. Using the current valuation multiples, the one year target price for Expedia stock could be fixed at $92, implying a 14% upside from the stock price at the time of writing. You can also watch our Expedia stock analysis videograph, updated post the latest earnings report.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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