Expedia Stock Looks Strong Going Into Q4 Earnings

  • Expedia is slated to report Q4 2015 earnings on 10 Feb 2016 after markets close.
  • Expedia is expected to report yet another profitable quarter after snapping out of a long string of losses prior to Q3 2015.
  • Can Expedia stock gain on the company's improving profitability?

Giant Online Travel Agency, or OTA, Expedia (NASDAQ:EXPE) is slated to report Q4 2015 earnings on 10 Feb 2016 after market close. Wall Street consensus is for the company to report fourth-quarter revenue of $1.71B, good for 29.7% year-over-year growth, with non-GAAP EPS of $1.05, good for 34.6% Y/Y growth.

Even though Expedia has missed earnings estimates for the last four consecutive quarters including Q3 2015, the last quarter marked the first time the company broke from a long string of losses. Expedia managed to report net income of $283M primarily due to its divestiture of its 62.4% stake in eLong, a Chinese OTA. eLong has been pulling down Expedia’s profits due to the highly competitive nature of China’s online travel industry which has been forcing players in the space to cut rates to the bone. In Q4 2014, Expedia reported an operating profit of $94.7M but said that it would have reported operating profits of $125M excluding the negative impact by eLong. The positive impact on Expedia’s profits by the eLong divestiture should also be felt in the fourth quarter.

Expedia completed its $1.2B buyout of Orbitz in September. The company said that it expects full-year 2015 negative adjusted EBITDA impact from Orbitz of ~$32M in relation to integration related costs, with $15M of that coming during the fourth quarter. Expedia added that it expects Orbitz to deliver full-year 2015 adjusted EBITDA of ~$135M. Orbitz will, therefore, have a negative impact on Expedia’s EBITDA during the fourth quarter. The $15M impact on EBITDA by Orbitz includes Orbitz’s own EBITDA and works out to ~3.2% of Expedia’s EBITDA. The impact will therefore not be big enough to materially affect the company’s profitability.

Going forward, though, Orbitz will start contributing positively to Expedia’s EBITDA after the integration costs are charged fully in Q3 and Q4 2015. Expedia said that Orbitz’s full-year 2015 EBITDA as a standalone unit will be $135M, or ~8% of Expedia’s EBITDA. Expedia said that it expects its full-year 2015 EBITDA to grow 12%-15%, which implies fourth quarter EBITDA will grow at roughly a similar clip.

Regarding the effect that TripAdvisor’s new distribution channel Instant Bookings will have on its traffic and revenue, Expedia said that its effect would be counterbalanced by the rapid growth of Trivago, a major global hotel meta-search brand. About 9% of the traffic Expedia receives on its site comes from TripAdvisor. Instant Bookings is a new bookings channel on TripAdvisor’s website that allows people to book directly on the site instead of having to navigate to traditional OTAs to complete their bookings. After initial resistance, Priceline (NASDAQ:PCLN) recently agreed to make part of its inventory available on Instant Bookings, a major endorsement for the platform.

Lower FX Impact On Expedia Earnings

All companies with significant international exposure have been feeling the heat due the negative impact of a strong dollar. Luckily for Expedia, its international exposure is not quite as high as Priceline’s. About 45% of Expedia’s revenue comes from overseas markets compared to 88% for Priceline. As a result, many of Expedia’s growth metrics look healthier than Priceline’s

Expedia vs Priceline Q3 2015 Operational Metrics

  Revenue Growth (YOY) Bookings Growth (YOY) EBITDA Growth (YOY)
Priceline 9.2%
6.9% 12%
Expedia 13.5%
14% 13%

Source: Company Q3 2015 earnings report.

As long as the dollar remains strong, Expedia is likely to continue enjoying better growth than Priceline.

Investor Takeaway

Expedia stock rallied post Q3 2015 earnings call even despite the company failing to meet both top and bottom line estimates, primarily because the company was able to return to profitability. Meanwhile, the Expedia stock made robust gains of 45% in 2015 due to the company’s consolidation and acquisition efforts. Expedia stock is, however, down 24.8% YTD due to a general air of pessimism surrounding the online travel industry. Priceline and TripAdvisor issued weak outlooks during their last earnings calls and in the process pulled Expedia down. But Expedia stock can make good gains if the company manages to extend its profit streak and reports good growth numbers during its upcoming earnings call. As things stand right now Expedia appears set to continue growing its top and bottom lines at a healthy clip and remains a solid investment in the OTA space.

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Comments on this article and EXPE stock

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I can't see Expedia being a long term winner.

Google is moving more toward Universal Search where it shows flights and prices directly in search results. This will kill businesses like Expedia.

Trip Advisor has it's travel guides and reviews to draw in traffic; I don't see what Expedia has to offer.
Do share this awesome post