North America

Earnings Preview: Expedia Q2 2016 (EXPE)

By: Craig Bowles

Overview

Expedia, Inc. (EXPE) is slated to report 2Q 2016 earnings after the bell on Thursday, July 28th. The earnings release is expected at approximately 4:00 p.m. ET followed at 4:30 p.m. with a webcast presentation available through Expedia Investor Relations. As one of the top two global online travel agents, Expedia’s earnings could influence the direction of index futures and other broad market gauges.

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Outliers & Strategy

Key measures:

  • Adjusted Earnings Per Share (EPS): The current Street estimate is $0.78 (range of $0.45 to $1.19. (Source: Yahoo! Finance) Consensus was $1.01 three months ago.
  • Revenues: Analysts expect an increase of 35.1% y/y to $2.25 bln (range $2.10 bln to $2.33 bln).
  • Expedia shares trade at 27.1 trailing earnings compared to the 5-year average of 28.7; Price/Book of 3.7 versus the 5-year average of 4.3; Price/Sales 2.2 vs 5-year average of 2.1; and Price/Cash Flow of 11.4 vs 5-year average of 9.9.
  • Analysts view Expedia with 15 Buy, 10 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 66,703 shares over the last three months and sold 255,866 shares in the past year. (source: NASDAQ.com)  Buybacks had been running at $500 mln per year before 2015’s $61 mln. Last 12 mths picked up to 203 mln. Buybacks pulled back was in 2007 in the face of economic worries.
  • Expedia and Priceline (PCLN) are the top two global online travel agents with similar gross-hotel bookings (US$30bn). Results could also impact other online travel agents, such as Ctrip (CTRP), Travelzoo (TZOO) and TripAdvisor (TRIP).
  • Expedia shares have a 1-day average price change on earnings of 8.62%. Options are pricing in an implied move of 7.17% off earnings.

Recent News

  • 07/17: Expedia is seeking to revolutionize rail travel with the launch of an international train ticket-booking service, according to a post on FT.com.
  • 06/30: Morgan Stanley predicts Priceline and Expedia are at the end of a “four-year war” with competitor Expedia in how they use advertisements on Alphabet’s (GOOGL) Believes the HomeAway’s business model transition – rolling out an incremental consumer fee – is likely to be more difficult than expected for Expedia, according to a post on Barron’s.com.
  • 06/29: Morningstar said Expedia has 30% of exposure to Europe and 8% to the U.K., according to a post on TheStreet.com.
  • 06/20: Atlantic Equities has upgraded Expedia to Overweight from Neutral, citing expectations of meaningful growth driven by the company’s non-core OTA assets, according to a post on SeekingAlpha.com.
  • 05/19: Expedia CEO thinks Facebook (FB) will emerge as an online travel booking threat, according to a post on Skift.com.
  • 05/12: Guggenheim Securities sees Facebook’s launch of Dynamic Ads for Travel as good news for Expedia, according to a post on Barron’s.com.
  • 05/05: Expedia Chairman Barry Diller said Airbnb and Homeway are going to take pieces out of the standard vertical hotel business, but they aren’t going to take it all away, according to a post on CNBC.com.

Technical Review

Expedia made an all-time high of $140.51 on November 5, 2015 two years after breaking out of a long consolidation between $30 and $60. Following a retracement to the $88.40 February 8th low, point and figure technicians now have a bullish price objective of $154. The 200-day MA at $113 has acted as a resistance area so far this year, so this is another test.  (Chart courtesy of StockCharts.com)

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Summary

Expedia’s revenue generation coming mostly from U.S. travel should be a positive given economic problems overseas and the strong dollar. Stock buybacks picked up after the lull in 2015. Expedia has beaten and missed earnings estimates the last four quarters by 12c on average.  Estimize consensus for an Adjusted EPS of $0.86 on revenue of $2.245 bln compares to analyst consensus of $0.78 on revenue of $2.25 bln.

 

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