- 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.
|Revenue (in millions of $)||1369||1356||-0.9%|
|Non-GAAP EPS ($)||1||0.86||-14.0%|
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|
|Selling and marketing||28.9%|
|Technology and content||17.0%|
|General and administrative||18.2%|
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.
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.