Expedia Inc. (NASDAQ:EXPE), the second largest online travel company, announced strong Q4 2013 results yesterday after market close. The company allayed investor fears of a Google ranking downgrade with a quarterly performance high on revenue as well as earnings growth. EXPE stock gained 12.08% in after-hours trade, closing the extended trading session at a price of $73.01. We review the Q4 numbers and update our Expedia outlook for 2014.
Expedia Q4 2013 performance
The company reported solid growth in revenues and adjusted earnings per share (EPS). The revenue and adjusted earnings growth over the last few years is displayed in the chart below.
Expedia reported a Y/Y revenue growth of 18.2% while the adjusted earnings per share saw a 46% Y/Y increase.
The topline growth was driven by 85% growth in Trivago segment. Also Trivago gained traction on the mobile platform, exiting the quarter with 30% of leads generated from mobile devices. Room night growth of 25% Y/Y was an important revenue driver, offsetting the 9% Y/Y decline in revenue per room night.
The earnings growth of 46% Y/Y was driven by revenue growth as well as better leverage of fixed costs and controlled growth in variable costs as the company saw margin expansion at the gross, operating as well as Net Income levels. The company also repurchased close to 2 million shares in Q4 which also had a positive impact on the company’s earnings growth. The impact of cost controls with respect to cost of revenue, Tech and content expenses and G&A expenses, saw EBITDA growth of 31% on a Y/Y basis. The EBITDA margin per se saw a 2 percentage point expansion over Q4 2012.
Actuals v/s Estimates
As we had mentioned in our preview, streetinsider.com consensus analyst estimate was Q4 revenue of $1.14 billion and earnings of 86 cents per share. The table below compares the actual revenue and earnings reported against analyst consensus estimates.
The company topped the consensus estimates with a revenue beat of .8% and an earnings surprise of 7%. Though the company fell marginally short of our revenue estimate of $1.16 billion, the Y/Y growth has been significant which has positively impacted our 2014 outlook on Expedia.
2014 Outlook: 7% Further upside potential
We expect the strong performance of Expedia, hotels.com, Trivago will continue to drive growth at the firm over the next one year. We estimate revenue growth of 18% - 20%, in-line with current year growth rates. However, this growth rate does not factor the impact of the Travelocity deal, which could push the 2014 revenue growth rate to more than 20% levels. We expect the EBITDA margin to drop close to 17% against the current year margin of 18.4% as management continues to reinvest in order to build the business and expand into new markets. Our Non-GAAP EPS estimate for FY2014 is $3.45. The table below summarizes our 2014 estimates for Expedia.
Expedia Stock Valuation
|Share price (in pre-market trade, at time of writing)||73.7|
|TTM Normalized EPS ($)||3.2|
|TTM P/E multiple||23.3|
|One year forward multiple||21.3|
|2014 EPS (estimate)||3.45|
|Target share price (at a P/E ratio of 23)||79.4|
Based on our one year estimates and current outlook, we expect Expedia to be fairly valued at a forward P/E multiple of 23 considering the expected potential revenue and earnings growth. Using a forward P/E multiple of 23, we get a target price of $79.4, a 7% further upside from the pre-market price (at time of writing) of $73.7. However, this is a conservative estimate which could be impacted by two factors: a higher than expected topline growth due to Travelocity deal and earning multiple (P/E) expansion, which is expected in an improving economic environment. Keep reading amigobulls.com to see our valuations of leading technology companies. You can additionally check the performance of our top stock picks on our stock picks page.
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