Leading online travel agency Expedia (NSDQ:EXPE) is scheduled to release its first quarter results Thursday, April 26. This quarter’s earnings may be impacted by the gloomy macroeconomic environment and consumer spending. The airline sector is going through a consolidation phase with most big players in the capacity caution mode. Consistent hikes in passenger fares have impacted the passenger volumes, which will likely impact the company’s earnings this quarter. During the first quarter, Expedia’s corporate travel management arm, Egencia, also announced its plan to acquire leading Nordic corporate travel company, VIA Travel. This acquisition will strengthen its position in international markets. Further, the company plans to invest heavily in new platforms and mobile applications to explore new growth drivers and effectively deal with competition. Expedia competes with other leading online travel agencies such as Priceline.com (NSDQ:PCLN), Travelocity and Orbitz (NASDAQ:OWW).
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The addition of the largest travel management company in Nordic countries to Egencia will further enhance the company’s corporate travel service portfolio. The acquisition also opens up opportunities to strengthen Expedia’s position in European markets. Egencia currently forms only 2.8% of Trefis price estimate for Expedia. VIA Travel will add to the company’s market share as well as Egencia’s share in Trefis value for the parent company. Expedia is also pushing into Asian markets with key focus on emerging economies. It plans to invest $20 million in the next two years to expand India operations.
Squeezing Operating Margins
Expedia understands the importance of being apace with latest technologies. It is leveraging its prior acquisition, Mobiata, to develop new mobile applications for its brands. Recently, Hotels.com, the company’s hotel booking arm, launched a mobile application for Windows 7 platform.
The company also expects to launch new air and package platforms in 2012. It launched its hotel connectivity platform Expedia Connect 2 which enables reservation providers to design, build and deploy standardized interfaces to connect directly with Expedia. While these initiatives may help Expedia to keep itself at pace with competition, the costs associated with technology and marketing are expected to rise. As a result, the EBITDA margins may fall this quarter.
We have a $33.19 price target on Expedia, which represents a 5% upside to the current market price. We will review our price estimate post this quarter’s earnings release.