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Expedia’s Valuation: What Is Priced In?

Ally Schmidt

Expedia in 4Q15: Will the Optimistic Analysts Be Right?

(Continued from Prior Part)

Current valuation

Expedia (EXPE) currently trades at a forward PE (price-to-earnings) multiple of 16.79x. This is significantly higher than its average valuation of 12.61x since November 2008. It’s also higher than rival Priceline’s (PCLN) forward PE multiple of 15.06x and the industry median multiple of 16.89x.

The market is expecting EXPE’s EBITDA (earnings before interest, taxes, depreciation, and amortization) to grow by 42% in 2016 and then reduce to 27% in 2017. Rival PCLN’s EBITDA is expected to grow at a much slower rate of 16% in 2016 and then increase to 18% in 2017.

As can be seen from the graph above, EXPE has mostly traded below the industry median since 2008. Peers used in the industry median calculation include PCLN and EXPE. Other players such as TripAdvisor (TRIP), Ctrip.com (CTRP), and Qunar (QUNR) are not strictly comparable and thus excluded.

Our analysis

Valuation multiples help us understand the market’s perception of risk, growth, and investors’ willingness to pay. Investors seem to be optimistic about Expedia’s future growth.

The online travel industry is set for another year of growth on the back of increasing travel demand and global economic growth. Growing consumer disposable income is expected to bode well for the industry, despite the uncertainty brewing up.

However, the strengthening US dollar and increasing competition will keep Expedia’s growth in check. Investors should thus keep track of the trends in the US dollar.

Investors should also keep an eye on EXPE’s increasing leverage, as increasing leverage will make the stock more volatile.

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

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