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Will Expedia’s Margins Continue to Fall in 2016?

Ally Schmidt

Analyzing Expedia's 4Q15: Is a Brighter 2016 Ahead?

(Continued from Prior Part)

Expedia’s 4Q15 and 2015 performance

For 4Q15, Expedia’s (EXPE) EBITDA (earnings before interest, tax, depreciation, and amortization) increased by just 1% to $280 million compared to $277 million in 4Q14. Expedia’s margins, however, fell from 21% in 2014 to 16.5% in 2015.

For 2015, EXPE’s EBITDA rose by 11% to $1,165 million in 2015 from $1,051 million in 2014. Its EBITDA margins, however, fell to 17.5% from 18.8% a year earlier.

Marketing expenses continue to rise

EXPE’s margins fell as a result of increasing expenses. One of EXPE’s major expenses continues to be marketing costs as it tries to reach a global scale. Another cost that rose significantly in the quarter was technology and content expenses. This rise was due to high people costs and low capitalization rates.

Outlook

Expedia expects its adjusted EBITDA to grow by around 35%–45% in 2016. Approximately $275–$325 million is expected to be contributed by EXPE’s two major 2016 acquisitions, Orbitz and HomeAway. The company’s management expects no significant effects from TripAdvisor’s instant booking platform.

Analysts, too, are expecting 40% growth in Expedia’s EBITDA, driven by EXPE’s acquisitions, with EBITDA margins of 19% in 2016 and 21% in 2017.

Priceline’s (PCLN) margins are expected to rise to 41% in 2016 from 40% in 2015. TripAdvisor’s (TRIP) margins are expected to stay constant at 31%, and Ctrip.com’s (CTRP) margins are expected to rise to 14% in 2016 from 9% in 2015.

EXPE makes up 1.4% of the Guggenheim S&P 500 Pure Growth ETF (RPG).

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