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Expedia (EXPE) Down 7.7% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Expedia (EXPE). Shares have lost about 7.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Expedia due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Expedia's Q2 Earnings Beat, Revenues Up Y/Y

Expedia Group delivered second-quarter 2019 adjusted earnings of $1.77 per share, beating the Zacks Consensus Estimate by 7 cents. The figure also surged 28.3% on a year-over-year basis. Further, the figure reversed the loss of 27 cents in the previous quarter.

Revenues increased 9.5% year over year and 20.8% on a sequential basis to $3.15 billion. Notably, the figure outpaced the Zacks Consensus Estimate of $3.13 billion.

Robust performance of Expedia Partner Solutions, Brand Expedia and Vrbo drove the top line year over year. Further, growing stayed nights and expanding lodging portfolio continued to accelerate revenue generation.

Expedia recorded gross bookings of $28.29 billion in the second quarter, which came ahead of the Zacks Consensus Estimate of $28.24 billion. Moreover, the figure improved 9.2% year over year but declined 3.8% sequentially.

The company remains optimistic about its strong supply acquisition efforts, strategic investments and product innovation. These initiatives anticipated to aid growth in the Core OTA segment. Further, Expedia’s Vrbo is expected to continue strengthening presence in the accommodation space. Additionally, marketing investments and product enhancements are likely to aid trivago’s performance in the near term.

Revenues by Segment

Core OTA segment revenues (78.6% of total revenues) improved 10.1% year over year to $2.48 billion. The segment witnessed gross bookings of $23.3 billion, reflecting year-over-year growth of 11%. Increasing stayed room nights number within the segment that grew 12% during the reported quarter contributed to the top line. Further, strengthening lodging business was a major positive. Notably, the company added above 40,000 properties to the core lodging platform in the second quarter.

Egencia revenues (5.2% of revenues) increased 4.5% on year-over-year basis to $163 million. Further, quarterly bookings came in $2.12 billion, up 3% from the prior-year quarter. The company’s sustained focus toward delivering enhanced product experience with the aid of machine learning enabled features aided the segment’s performance.
 
Vrbo (11% of revenues) generated $347 million in the second quarter, advancing 17% from the year-ago quarter. This segment witnessed year-over-year growth of 2% in gross bookings, which came in at $2.86 billion. Further, Vrbo experienced growth of 8% in the stayed property nights on a year-over-year basis. Vrbo’s growing online bookable listings with the instantly bookable ones remained a tailwind throughout the second quarter.

Moreover, trivago revenues (7.9% of revenues) declined 10% year over year to $251 million. However, Expedia witnessed fall in the magnitude of decline in the revenues in the reported quarter owing to ongoing stabilization in the market.

Revenues by Business Model

Merchant model generated revenues of $1.68 billion (53.3% of revenues), up 10% year over year.

Agency division generated revenues of $841 million (26.7% of revenues), improving 8.2% from the prior-year quarter.

Advertising & Media yielded $285 million of revenues (9 % of revenues), increasing 4% from the year-ago quarter. This can primarily be attributed to currency headwinds and weak performance by trivago.

Moreover, Vrbo (11% of revenues) generated $347 million in the reported quarter, advancing 17% from the year-ago quarter.

Revenues by Geography

Expedia generated $1.84 billion revenues (58.3% of total revenues) from domestic regions, up 13% from the prior-year quarter. This was primarily driven strong domestic room nights, which improved 8% from the year-ago quarter. This led to increase in gross bookings in these regions, which surged 11% year over year.

Further, revenues generated by international regions were $1.31 billion (41.7% of revenues), up 5.4% on a year-over-year basis. Expedia witnessed solid growth of 15% in room nights in international regions during the reported quarter. Further, gross bookings rose 7% from the prior-year quarter.

Revenues by Product Line

Lodging revenues (70.8% of total revenues) came in $2.23 billion, advancing 12% from the prior-year quarter. This can primarily be due to robust stayed room nights growth on account of strong momentum in Expedia Partner Solutions, Brand Expedia and Hotels.com.

Further, Expedia’s global lodging portfolio reached 1.3 million properties as of Jun 30, 2019.

Air revenues were $228 million (7.2% of revenues), up 2.2% year over year. This was driven by 10% increase in air tickets sold due to well-performing Expedia Partner Solutions and Brand Expedia.

Operating Details

Adjusted EBITDA improved by 23% year over year to $568 million. This can be attributed to rise in Core OTA, Egencia and Vrbo EBITDA, which exhibited year-over-year growth of 11%, 24% and 8%, respectively. Further, trivago generated $20 million adjusted EBITDA compared with ($20) million in the year-ago quarter.

Further, adjusted selling and marketing expenses were $1.63 billion, up 7% year over year. However, as a percentage of these expenses contracted 100 bps year over year to 51.7%.

Additionally, general and administrative expenses were $180 million, which rose 6.5% from the prior-year quarter. As a percentage of revenues, the figure contracted 20 bps from the year-ago quarter to 5.7%.

Operating margin came in 8.4% in the reported quarter, which expanded 460 bps. This can be attributed to strong cost management strategies.

Balance Sheet & Cash Flow

As of Jun 30, 2019, cash and cash equivalents were $4.26 billion, up from $3.71 billion as of Mar 31, 2019. Short-term investments totaled $631 million, improved from $466 million in the previous quarter.

Further, Expedia generated $1.14 billion cash from operations during the reported quarter, down from $2.15 billion in the last reported quarter. It also generated free cash flow of $839 million.

Additionally, the company paid out quarterly dividend worth $48 million (32 cents per share) during the reported quarter.

Guidance for 2019

Expedia expects adjusted EBITDA to witness growth within the range of 12-15% in 2019. Notably, the company has raised the lower end of the guided range, which stood at 10% previously.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Expedia has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Expedia has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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