Orbitz Worldwide 3Q 2013: Continues To Be A Risky Bet

Online Travel Agency Orbitz Worldwide Inc (NYSE:OWW) stock plunged 19% after reporting a weaker-than-expected third quarter results. The numbers fell short of analyst’s estimates and the company also revised its full year guidance to the lower end of the band earlier announced.

Actual Performance v/s Analyst estimates

Gross Bookings came in at $2,771 million, up 5% on a Y/Y basis. The company reported revenue growth of 11% Y/Y boosted by 36% Y/Y increase in standalone hotel revenue while standalone air revenue fell 4% Y/Y. Expenses rose due to higher incentive based compensation and marketing expenses leading to drop in earnings. The company reported earnings of 11 cents for the quarter vis-à-vis Zacks’ analyst expectations of 14 cents. Let’s take a closer look at this quarter’s performance:

Orbitz Worldwide 2013 Q3 performance

2013 Q3 2012 Q3 Growth %
Revenue (In millions of USD) 220.9 198.3 11%
Operating Profit (In millions of USD) 27.4 24.9 10%
Operating Margin 12% 13% -1%
Net Income (In millions of USD) 12.9 14.8 -13%
Net Income Margin 6% 7% -22%
EPS (in cents) 11 14 -21%

As can be seen, the company is finding it difficult to convert its higher revenues to profits. The net profits for the last eight quarters have been very choppy.

The company revised its full year revenue guidance to $840mn from its earlier forecast of $840mn to $850mn revenue, owing to its declining exposure to the Air segment. Obviously, the company does not seem to feel that the growth on hotel business will compensate for the drop in airlines business.

Orbitz Worldwide Stock Analysis

Let’s take a look at the comparative analysis of Orbitz Worldwide with its competitors Priceline and Expedia. We compare the companies based on last twelve months valuation multiples: price to earnings ratio (PE ratio), and price to sales ratio (PS ratio).

Company PE ratio Price to sales ratio
Orbitz Worldwide 40.5 1.0
Priceline 35.6 9.5
Expedia 59 2

* Based on LTM non-recurring earnings

Despite a lower price to sales ratio, and marginally higher PE ratio as compared to Priceline, Orbitz has a very low profitability, which makes it an unattractive stock at its current valuation multiples. Unless the company is able to leverage on its growing hotel business to improve its margins, we would classify Orbitz stock as a risky bet.

To see Orbitz Worldwide’s current stock price, please click here: (NYSE:OWW)

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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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