Expedia Stock Primed For Long Term Growth After Q4 Earnings

  • Expedia has reported Q4 2015 results that missed analysts' estimates.
  • The company, however, reported robust bookings growth across all its travel segments and issued upbeat EBITDA guidance for 2016.
  • Expedia's M&A strategy appears to be finally paying off by helping the company cover many bases.
  • Expedia stock appears well-primed for good long-term gains.

Expedia stock was up 12% in aftermarket trading after the online travel agency delivered Q4 2015 results that missed estimates but showed robust growth in bookings. Expedia (NASDAQ:EXPE) reported fourth quarter revenue of $1.7B, good for 25.0%Y/Y growth but $10M below Wall Street consensus estimate. Non-GAAP EPS of $0.77 was down 11% Y/Y and missed the street consensus by $0.23. The strong point here was that Expedia managed to grow its top line at 25%, 9 percentage points better than the 2015 average revenue growth of 16%. Although part of that can be attributed to the seasonally hot holiday quarter, it’s still considerably better than the 19% growth that the company posted in Q4 2014 which points to an improvement in the macroeconomic outlook.

Expedia said that the lower-than-expected profits were attributable to the negative effect of the company’s acquisition of HomeAway during the fourth quarter which it had not anticipated, as well as a $10M-$15M headwind in connection to the Paris attacks. Integration costs for HomeAway had a negative effect on EBITDA to the tune of $14M. Expedia however, pointed out that HomeAway will remain a largely independent unit operating inside Expedia.

All of the company’s revenue segments posted healthy growth: Hotel revenue during the quarter was up 24%; air revenue was up 61% after receiving a nice boost from Orbitz, an OTA that Expedia acquired in September of 2015; ad/media revenue grew 22% while Other revenues was up 37%. Expedia says the ‘‘Other’’ revenue here include revenue contribution by HomeAway which it will continue breaking out in the coming quarters. HomeAway revenue clocked in at $20M during the quarter (Expedia owned the business for just 17 days of the final quarter).

But it was Expedia’s strong bookings growth across the board that got the market excited. The company reported that gross bookings shot up a healthy 32% Y/Y (40% Y/Y when you exclude eLong) to $15B. Expedia said that its core travel agency business realized a strong 44% Y/Y growth in bookings to $13.6B while its corporate travel business, Egencia, posted a 13% growth in bookings to $1.4B. U.S. bookings were up a roaring 50% Y/Y to $9.6B while international bookings still managed to climb a healthy 26% to $5.4B in spite of the strong dollar.

U.S. room nights increased 33% with the international market reporting a 47% growth for the same metric. Air ticket revenue was up 70% thanks again to Orbitz.

The improvement in Expedia’s gross bookings growth was quite marked considering the company reported growth of 21% during Q3 2015 and 24% during Q4 2014.

The strong bookings growth by Expedia had shares of peers Priceline (NASDAQ:PCLN) and TripAdvisor (NASDAQ:TRIP) up 5% and 7%, respectively in aftermarket trading.

Healthy EBITDA Growth Projected

Expedia said that it expects 2016 EBITDA to grow 35%-45% Y/Y with Orbitz and HomeAway contributing $275M-$375M to that metric. Looked at in another way, the two newest acquisitions are expected to contribute 21% to Expedia’s EBITDA in 2016, which aptly demonstrates just how strategic the acquisitions were. Expedia, however, warned that integration costs for HomeAway would pressure Q1 2016 EBITDA.

It appears as if Expedia’s M&A strategy is generally paying off big time. The company reported strong performance by its other acquisitions including Trivago whose revenue grew nearly 60% Y/Y to €490 million.

Expedia’s latest set of results appears remarkable considering that growth is strong even in international markets where a strong dollar continues to wreak havoc. Meanwhile, although low oil prices led to a contraction of 5% in revenue/ticket due to a reduction in air fares, the effect was counteracted by the higher volume of tickets sold. So these supposed headwinds are not having a large impact on the company’s growth. Moreover, oil prices have started showing signs of recovery so the situation could start reversing soon.

Although Expedia did not give specific Q1 2016 revenue guidance, it appears as if the company’s numerous acquisitions are helping it cover many bases which is having a good overall effect on its growth. Expedia stock, therefore, appears well-primed for good long-term gains.

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