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Expedia (EXPE) Down 9.5% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
Cadence Design Systems (CDNS) closed the most recent trading day at $74.35, moving -0.46% from the previous trading session.

It has been about a month since the last earnings report for Expedia (EXPE). Shares have lost about 9.5% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Expedia Reports Loss in Q1, Revenues Up Y/Y

Expedia Group reported first-quarter 2019 adjusted loss of 27 cents per share, narrower than the Zacks Consensus Estimate of a loss of 36 cents. Further, the reported figure is also narrower than the loss of 46 cents per share in the year-ago quarter. Notably, the company reported earnings of $1.24 per share in the prior quarter.

Revenues increased 4% year over year and 1.9% on a sequential basis to $2.61 billion. Notably, the figure missed the Zacks Consensus Estimate of $2.69 billion.

The top line was driven by robust performance of Vrbo which was previously known as HomeAway, Brand Expedia and Expedia Partner Solutions. Further, improving stayed nights and strengthening lodging platform continued to contribute to the results.
   
Expedia recorded gross bookings of $29.41 billion in the first quarter, which came ahead of the Zacks Consensus Estimate of $29.38 billion. Moreover, the figure improved 8.1% year over year and 33.9% sequentially.

However, sluggishness in the Trivago segment and Easter shift acted as headwinds during the reported quarter.

Revenues by Segment

Core OTA segment revenues (78.1% of total revenues) increased 5.8% year over year to $2.04 billion. The segment witnessed gross bookings of $23.03 billion, reflecting year-over-year growth of 9%. Robust growth in stayed room nights and expanding international footprints of Core OTA brands drove the segment’s top line.

Egencia revenues (5.9% of revenues) increased 1.3% on year-over-year basis to $153 million. This can be attributed to strong performance in quarterly bookings which came in $2.22 billion, up 7% from the prior-year quarter.

The company’s strong supply acquisition efforts acted as a tailwind in accelerating room nights growth within this segment, which in turn drove the top line. Further, Expedia’s continued focus toward delivering enhanced product experience remained positive in attracting customers to this platform.

Vrbo (10.2% of revenues) generated $267 million in the fourth quarter, advancing 14.1% from the year-ago quarter. This segment witnessed year-over-year growth of 5% in its gross bookings, which came in at $4.16 billion. Further, Vrbo experienced growth of 8% in the stayed property nights on a year-over-year basis. Vrbo’s growing instant bookable listings remained a tailwind throughout the first quarter.

Moreover, Trivago revenues (9.1% of revenues) declined 25.7% year over year to $237 million.

Revenues by Business Model

Merchant model generated revenues of $1.39 billion (53.4% of revenues), up 4.3% year over year.

Agency division generated revenues of $686 million (26.3% of revenues), surging 4.3% from the prior-year quarter.

Advertising & Media yielded $264 million of revenues (10.1 % of revenues), declining 6.4% from the year-ago quarter. This was primarily owing to currency headwinds and weak performance by trivago.

Moreover, HomeAway (10.2% of revenues) generated $267 million in the reported quarter, climbing 14.1% from the year-ago quarter.

Revenues by Geography

Expedia generated $1.48 billion revenues (56.6% of total revenues) from domestic regions, up 9.2% from the prior-year quarter. This was primarily driven strong domestic room nights which improved 8% from the year-ago quarter. This led to acceleration in gross bookings in these regions, which surged 11% year over year.

Further, revenues generated by international regions were $1.13 billion (43.4% of revenues), down 2.1% on a year-over-year basis. Excluding the impact of trivago headwinds, revenues would have reflected growth of 2% from the year-ago quarter. Further, foreign exchange fluctuation remains a concern. Nevertheless, Expedia witnessed solid growth of 11% in room nights in international regions during the reported quarter. Further, gross bookings rose 4% from the prior-year quarter.

Revenues by Product Line

Lodging revenues (66% of total revenues) came in $1.73 billion, rising 7% from the prior-year quarter. This can be primarily attributed to year-over-year growth of 9% in stayed lodging room nights. Further, strong momentum in Expedia PartnerSolutions, Brand Expedia and Hotels.com drove lodging revenues.

Further, Expedia’s global lodging portfolio exceeded 1.1 million properties as of Mar 31, 2019.

Air revenues were $248 million (10% of revenues), up 3% year over year. This was driven by 11% increase in air tickets sold.

Operating Details

Adjusted EBITDA improved massively by 42% year over year to $176 million. This can be attributed to rise in Egencia and Core OTA EBITDA which exhibited year-over-year growth of 9% and 6%, respectively.

Moreover, adjusted selling and marketing expenses were $1.5 billion, up 1.1% year over year.

Expedia incurred operating loss of $131 million in the reported quarter, compared with the year-ago quarter’s loss of $165 million. This came on the back of accelerated growth in cost of revenues.

Balance Sheet & Cash Flow

As of Mar 31, 2019, cash and cash equivalents were $3.71 billion, up from $2.44 billion as of Dec 31, 2018. Short-term investments totaled $466 million, increasing from $28 million in the previous quarter.

Further, Expedia generated $2.15 billion cash from operations during the reported quarter. Also, it generated free cash flow of $1.87 billion.

Additionally, the company paid quarterly dividend worth $47 million (32 cents per share) during the reported quarter.

Guidance for 2019

Expedia expects adjusted EBITDA to witness growth within the range of 10-15% in 2019.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -7.51% due to these changes.

VGM Scores

Currently, Expedia has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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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