It has been about a month since the last earnings report for Expedia (EXPE). Shares have added about 7.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Expedia due for a pullback? 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 drivers.
Expedia's Q3 Earnings & Revenues Miss Estimates
Expedia Group reported third-quarter 2019 adjusted earnings of $3.38 per share, missing the Zacks Consensus Estimate by 11.5%. The figure also declined 7% on a year-over-year basis. However, the bottom line improved 90.9% from the previous quarter.
Revenues increased 9% year over year and 12.8% on a sequential basis to $3.56 billion. Top-line growth was driven by robust performance of Expedia Partner Solutions, Vrbo and Hotels.com. Further, growing stayed nights and expanding lodging portfolio continued to accelerate revenue generation.
However, the figure lagged the Zacks Consensus Estimate of $3.58 billion.
Unfavorable foreign exchange fluctuation remained an overhang during the reported quarter. Further, sluggishness in trivago impacted the top line negatively.
Expedia witnessed gross bookings of $26.93 billion in the third quarter. Moreover, the figure improved 9.1% year over year but declined .8% sequentially. Further, the figure was lower than the Zacks Consensus Estimate of $27.03 billion.
Nevertheless, the company remains optimistic about its strong supply acquisition efforts, strategic investments and product innovation. These initiatives are anticipated to drive business in the days ahead.
Revenues by Segment
Core OTA segment revenues (76.8% of total revenues) improved 8.1% year over year to $2.73 billion. The segment witnessed gross bookings of $22.23 billion, reflecting year-over-year growth of 10%. Increasing stayed room nights number improved 11% during the reported quarter. Further, strengthening lodging business was a major positive. Notably, the company added above 40,000 properties to the core lodging platform in the third quarter.
Egencia revenues (4.1% of revenues) increased 4.3% on year-over-year basis to $145 million. Further, quarterly bookings came in $2.1 billion, up 5% from the prior-year quarter. Growing room night growth and rising hotel attach rates drove the segment’s top line.
Vrbo (13.1% of revenues) generated $467 million revenues in the third quarter, advancing 14% from the year-ago quarter. This segment witnessed year-over-year growth of 5% in gross bookings, which came in at $2.63 billion. Vrbo’s growing online bookable listings remained a tailwind throughout the third quarter. Further, accelerating transactional revenues contributed to the segment’s revenues.
Moreover, trivago revenues (7.8% of revenues) declined 5.4% year over year to $279 million. Introduction of new advertiser features impacted trivago’s performance in its market place during the reported quarter. This in turn affected the top line.
Corporate (0.7% of revenues) is a new segment comprising Bodybuilding.com, which was acquired in the Liberty Expedia Holdings, Inc. transaction in the beginning of third quarter. The segment generated $24 million of revenues during the reported quarter.
Revenues by Business Model
Merchant model generated revenues of $1.86 billion (52.4% of revenues), up 10% year over year.
Agency division generated revenues of $917 million (25.8% of revenues), improving 5% from the prior-year quarter.
Advertising & Media yielded $311 million of revenues (8.7 % of revenues), improving 3% from the year-ago quarter. This can primarily be attributed to strong performance of Expedia Group Media Solutions. However, revenues were hurt by currency headwinds and weak performance by trivago.
Moreover, Vrbo (13.1% of revenues) generated $467 million in the reported quarter, advancing 14% from the year-ago quarter.
Revenues by Geography
Expedia generated $1.98 billion revenues (55.7% of total revenues) from domestic regions, up 11% from the prior-year quarter. This was primarily driven by strong domestic room nights, which improved 8% from the year-ago quarter. This led to increase in gross bookings in these regions resulting in an improvement of 10% year over year.
Further, revenues generated by international regions were $1.58 billion (44.3% of revenues), up 6.2% on a year-over-year basis. Expedia witnessed solid growth of 13% 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 (73% of total revenues) came in $2.59 billion, climbing 11% from the prior-year quarter. This can primarily be attri9buted to robust stayed room nights growth on account of strong momentum in Expedia Partner Solutions, Vrbo and Hotels.com.
Further, Expedia’s global lodging portfolio reached over 1.4 million properties as of Sep 30, 2019.
Air revenues were $202 million (5.7% of revenues), down 3% year over year. This was due to slowdown in revenue per ticket, which plunged 10% year over year.
Adjusted EBITDA was $912 million, which remained flat year over year. Notably, Core OTA and Vrbo EBITDA witnessed year-over-year growth of 3% each. However, Egencia and trivago EBITDA were down 1% and 60% from the year-ago quarter, respectively.
Further, adjusted selling and marketing expenses were $1.63 billion, up 11% year over year. As a percentage of revenues, these expenses expanded 90 bps year over year to 46%.
Additionally, general and administrative expenses were $182 million, which rose 8% from the prior-year quarter. As a percentage of revenues, the figure remained flat from the year-ago quarter to 5.1%.
Operating margin came in 17.1% in the reported quarter, which contracted 340 bps from prior-year quarter.
Balance Sheet & Cash Flow
As of Sep 30, 2019, cash and cash equivalents were $3.79 billion, down from $4.26 billion as of Jun 30, 2019. Short-term investments totaled $658 million, improved from $631 million in the previous quarter.
Further, Expedia utilized $861 million cash in operations during the reported quarter against $1.14 billion of cash generated from operations in the prior quarter. Further, free cash flow was ($1.15) billion compared with $839 million in the previous quarter.
Unfavorable changes in timing of payables impacted the company’s cash flow negatively.
The company paid out quarterly dividend worth $50 million (34 cents per share) during the reported quarter.
Guidance for 2019
Expedia revised the guidance for adjusted EBITDA growth downward from 12-15% to 5-8% for 2019. This includes the impact of high cost channels and low ADRs.
Further, the company expects sluggish contributions from Vrbo and trivago in 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -28.24% due to these changes.
At this time, Expedia has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Expedia has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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