What To Watch Out For In Expedia Inc. Q1 Earnings?

  • Expedia will announce its Q1 2016 earnings on April 28 after market close.
  • The current analyst consensus is for the company to report a loss of 6 cents per share on revenue of $1.84B.
  • Slowing Forex headwinds could give a good boost to core OTA business, which could lead to an earnings beat.

Expedia (NSDQ:EXPE), the Bellevue, Washington-based online travel agent, is set to report its Q1 2016 earnings on Thursday, April 28, after market close. The analyst consensus expects the company to report a loss of 6 cents per share, on revenue of $1.84 billion. Expedia stock has underperformed the broader markets in the year-to-date with a 14.4% decline in the stock price. The Nasdaq Composite (INDX:COMPX) is down 2% while the S&P 500 (INDX:SPAL) is up 2% in the comparable time frame.

EXPE stock chart

Source: Expedia stock price chart by amigobulls.com

Expedia Earnings History

Expedia has missed earnings estimates in each of the last 4 quarters. The company has, on an average, missed earnings estimates by 28% over the last 4 quarters.

Expedia earnings history

Source: Nasdaq.com

Expedia Revenue And Earnings Growth

Expedia topline growth has picked up momentum in the last three quarterly reports after hitting a low of 11% YoY growth in Q2 2015. While the topline numbers have missed expectations in 3 out of the last 4 quarters, topline growth has accelerated from 14% in Q1 2015 to 25% in Q4 2015. However, the story on the bottom line has been different. Expedia was expected to establish a consistent bottom line, following the sale of eLong, which was claimed to be a drag on profitability. However, the company slipped into the red in Q4 2015 with a $12 million loss, after delivering a solid $283 million of Net income inQ3 2015. Also, excluding eLong, the company registered a 2% YoY decline in net income in FY 2015. It will be interesting to see if Expedia can grow its bottom line and hence, investors should keep a close eye on Expedia profitability over the coming quarters.

Expedia Analyst Estimates And Price Target

Analysts expect Expedia to report a loss of 6 cents per share and revenue of $1.84 billion. This compares with a 3 cent loss and $1.37 billion in revenue in the year-ago quarter, implying a 33.8% YoY topline growth and 3 cent/share increase in the loss. The EPS consensus has shifted significantly lower from earnings expectations of 27 cents per share in three months ago. The earnings whisper is for Expedia to beat the current estimate with an EPS of 0 cents/share.

The current consensus target price for Expedia stock is $131, implying a 22% upside from the last closing price (April 27). With a consensus "Buy" rating, 17 out of the 28 analysts tracking the stock have a "strong buy" or "buy" rating with 10 "holds" and 1 "sell" rating. There was one upgrade and downgrade in the last one month.

Forex Headwinds Slowing

Expedia management had mentioned on the Q4 2015 earnings call that core business growth should rise in 2H 2016 with slowing forex headwinds. Quoting Dara Khosrowshahi, Expedia CEO, from the Q4 2015 earnings call:

I will remind you as far as the core business is that foreign exchange was a really, really significant headwind for our core business this last year, and while they will continue to be a headwind in Q1 and Q2 it ease up in the back half of the year.

However, as highlighted in our recent eBay preview, forex movements have been flat in Q1 2015 (YoY basis), which could give a good boost/upside to Expedia's core OTA business. The core OTA segment contributed over 90% of the total Adjusted EBITDA in FY 2015.

Conclusion

Expedia is set to report its Q1 2016 earnings on April 28, after market close. Analyst consensus expects the company to report a 33.8% YoY top line growth with a 6 cent loss per share. With forex headwinds abating and expectations falling, Expedia could deliver an earnings surprise for Q1 2016. The earnings whisper anticipates a 6 cent beat, which could send the Expedia stock higher following the earnings report. Apart from the top line and EPS number, investors should also keep a close eye on Expedia's bottom line trends.

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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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Comments on this article and EXPE stock

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brooke.fienman
neutral
They overpaid for home away. New service fee tactic are driving away customers and owners. It's a disaster for all involved right now.
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virendra
neutral
While Expedia might have overpaid, Let's look at a few numbers.

Airbnb: $25B plus valuation, 800K listings in 190 countries and close to $900M rev in 2015.

HomeAway: $3.9B valuation ($1B cash), 1M+ listings in 190 countries and close to $450M TTM revenue. Not a very clear case of overpaying when you consider the size of the market and valuations therein. (The alternative accomodations market is estimated to be a $100B plus market and definitely big enough for both the players.)

Coming to the pricing, I think HomeAway's pricing strategy ($349 to $999 annual fee or 10% to 13% per transaction plus a 2.5% card processing fees) should definitely change if they actually want to take a significant share of the alternative accommodations market. The pricing structure is one huge risk, I agree.

But given the giant that Expedia is, It could provide HomeAway with resources it previously lacked and leverage the growth in the home rental space.
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