North America

Earnings Preview: Expedia Q4 2014 (EXPE)

By: Craig Bowles

Overview:

Expedia, Inc. (EXPE) is slated to report 4Q 2014 earnings after the bell on Thursday, February 5th. The earnings release is expected at approximately 4:00 p.m. EST followed at 4:30 p.m. with a webcast presentation available through Expedia Investor Relations. This economically sensitive company is one of the top two global online travel agents and could therefore influence direction of the 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 $1.02 (range $0.86 to $1.25) (Source: Yahoo! Finance). Consensus was $1.07 three months ago.
  • Revenues: Analysts expect an increase of 18.6% y/y to $1.37 bln (range $1.32 bln to $1.41 bln).
  • Expedia shares trade at 27.2x trailing earnings and now back down close to the 5-year average of 26.9x; Price/Book of 5.8 versus the 5-year average of 3.4; Price/Sales 2.1 vs 5-year average of 2.0; Price/Cash Flow of 8.6 vs 5-year average of 8.1.
  • Analysts view Expedia with 11 Buy, 10 Hold, and 0 Sell ratings. (source: Analystratings.net)
  • Insiders sold 237,864 shares during the last three months and have sold a net 266,656 shares in the past year, so this is a big change from the previous buying. (source: NASDAQ.com) Expedia buybacks have averaged close to $500 million per year beginning in 2010 with the latest twelve months above average. Since 2011’s $317 million, buybacks have increased each year.
  • Expedia and Priceline (PCLN) are the top two global online travel agents with similar gross-hotel bookings (US$30bn) and results could also impact other online travel agents, such as Travelzoo (TZOO), TripAdvisor (TRIP) and Orbitz Worldwide (OWW).
  • Expedia shares have a 1-day average price change on earnings of 8.94%. Options are pricing in an implied move of 6.55% off earnings.

Recent News

  • 01/26: Expedia has been given a “BBB” credit rating by Morningstar. The research firm’s “BBB” rating indicates that the company is a moderate default risk. They also gave their stock a three star rating, according to a post on InterCooleronline.com.
  • 01/23: Expedia bought rival Travelocity for $280 million in another move to increase their customer base. Expedia already owns a slew of other big-name travel sites – think Hotels.com, Hotwire and Trivago, according to a post on Engadget.com.
  • 12/29: Piper Jaffray said online travel data continues to “appear favorable” with strong results in the U.S. and Europe but remains Neutral on Expedia. The company has been “more aggressive” in its guidance and its risk-to-reward ratio appeared to be “unfavorably balanced,” according to a post on Benzinga.com.
  • 12/06: Expedia CEO Dara Khosrowshahi unloaded 69,511 shares of the stock in a transaction dated Thursday, December 4th. The stock was sold at an average price of $90.05, for a total transaction of $6,259,465.55, according to a post on SleekMoney.com.

Technical Review

Similar to last quarter, Expedia shares have consolidated close to $85 ahead of the earnings release. The $90 area has acted as resistance with support coming in around $84. The next support is $80 and closer to the upward trending 200-day moving average. Seasonally, the stock has tended to do well in the fourth quarter amid holiday travel and the stock has indeed backed off since the December high. April or May tend to be more interesting from a seasonal strength standpoint.  (Chart courtesy of StockCharts.com)

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Summary

Expedia’s revenue generation coming mostly from U.S. travel could be a worry with the Fed having become less inclined to keep rates well below the combination of economic growth plus inflation. Monetary base having flattened out also suggests a less positive environment for cyclical companies. Despite global economic slowing, Expedia’s stock price has held up well so far supported by increased stock buybacks. Expedia has beaten estimates by 1c to 27c the last four quarters and the stock responded poorly to a 1c beat. The average beat is 13c and consensus was $1.07 three months ago, so the company probably needs to report an EPS of above $1.10 on revenue closer to $1.39 bln for the stock to challenge all-time highs during a period that isn’t seasonally strong.

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