Expedia in 4Q15: Will the Optimistic Analysts Be Right?
It’s important to analyze analyst estimates before investing in a particular stock, as analyst estimates act as a proxy for what’s being priced into the stock. They often also serve as an effective first screener for investors.
For 4Q15, analysts are estimating Expedia’s (EXPE) revenues to increase 26%. That’s much higher than the growth seen in the last three quarters, which was led by strong domestic demand. This is in contrast to rival Priceline (PCLN), which is expected to be affected by the slowdown in the travel sector. For full year 2015, analysts are thus expecting a revenue growth of ~16% to $6,661 million.
Analysts expect Expedia’s revenue growth to continue in 2016. Sales are expected to increase by 30%, 33%, 30%, and 17% for 1Q16, 2Q16, 3Q16, and 4Q16, respectively. This leads to a full year revenue growth of 30% for 2016, higher than the growth in 2015. Revenue growth is expected to decline to 14% for 2017.
Macro trends support estimates
Increasing global uncertainty will affect online travel agencies (or OTAs) in the short term. However, the long-term growth story remains intact. IATA (International Air Transport Association) expects passenger travel demand to increase 6.9% in 2016, compared to a 6.7% growth projected for 2015 on the back of positive economic growth. Much of this demand is expected to come from developing countries with a growing middle class.
Hotel industry consolidation
Marriott International (MAR) recently bought Starwood Hotels & Resorts Worldwide (HOT) in an attempt to combat online travel agencies. Five major brands control 30% of the branded hotel market in the United States. Hotels are increasingly conscious of the growing power of OTAs. There’s a lot of speculation for further consolidation in the industry that would make life difficult for OTAs.
Strong dollar: Good or bad?
Expedia earns almost 50% of its revenues from international markets in which it transacts in local currencies. An appreciating dollar means less revenues in dollar terms. This would continue to impact EXPE’s revenue in the short term.
However, a strong US dollar along with low oil prices means increasing overseas travel demand from the United States, which bodes extremely well for EXPE’s growth.
EXPE makes up 1.4% of the Guggenheim S&P 500 Pure Growth ETF (RPG). For a complete overview of Expedia, please read An Investor’s Complete Guide to Expedia.
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