Expedia Is Gearing Up For Future Growth Though The Company Might Face Setbacks In The Short Term

October 26th, 2016 by Trefis Team
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Expedia is slated to release its Q3 2016 earnings on October 27th. The company’s various arms are gearing up for future growth, while the company is cosying up with its hotel partners by offering them extra benefits and perks (such as allowing them to offer ancillary services on its websites). Though the company faltered in its Q2 results on account of integration issues of its acquired entities on its websites, we expect Expedia to be on track for long-term growth. Currently, Expedia and its metasearch arm, Trivago, are exploring for an initial public offering and they aim to complete it by the end of 2016. The company might also be in the search for acquisition targets in the corporate travel sector. Even after facing a challenging Q2 2016 Expedia has raised its dividend by ~8% to $0.26 per share. This implies that the management has ample confidence in Expedia’s future growth prospects despite the company falling short of expectations in its recent performance. However, its short term performance might be dampened by its internal integration issues as well as the current slowdown of the U.S. domestic and inbound travel growth.

U.S. Industry’s Slow Growth Might Affect Expedia’s Results

The domestic U.S. leisure travel has been witnessing lackluster growth lately. Inbound international travel is also lagging behind due to the U.S. dollar’s steep rise with respect to a lot of other currencies. Visits from Canada are on the decline, while Europe is still reeling under the Brexit decision. This slow trend is expected to continue in the second half of the year as well. This might not bode well for Expedia as it derives most of its revenues from North America and is the biggest entity in the region after its consolidation efforts.

HomeAway’s Introduction Of Booking Fees Might Help Expedia’s Future Growth

Expedia’s 2015 acquisition, HomeAway – the world’s largest vacation rental marketplace – is expected to be one of the biggest drivers of growth for the company in the future because of the introduction of its booking fees in 2016. With its 1 million properties, HomeAway made Expedia one of the leading accommodation providers in the world. In its 2015 year end call, Expedia’s management stated that HomeAway is expected to generate around $350 million in EBITDA in 2018. According to industry analysts, this might be a conservative estimate and the figure could go up to anywhere between $450 million to $600 million.

Trivago Is Exploring IPO Opportunities

Trivago is the primary driver to bolster Expedia’s revenues from the advertising and media segment and we currently expect the revenues to grow at a CAGR of ~11% between 2016 to 2023.

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Currently Expedia and Trivago are exploring the possibility of an initial public offering which they aim to complete by the end of 2016. The IPO might give Trivago the credibility among investors as a standalone company, though Expedia will still manage its 63% stake in Trivago. According to industry experts, Trivago’s adjusted EBITDA is expected to rise by 142% from around $64 million in 2016 to around $155 million by 2018. They also expect Trivago to attract a valuation of close to $6.5 billion for its IPO.

Egencia Might Be Looking For Expansion

Egencia, Expedia’s corporate travel arm, is undergoing an internal restructuring as a part of its 10 year growth plan, according to Skift. This might include the company being divided into two global divisions rather than the existing segregations of the Americas, Asia Pacific, and EMEA (Europe, Middle East, and Africa) divisions. Egencia is among the top 5 corporate travel companies globally. A few months ago, Expedia’s CEO Dara Khosrowshahi hinted that the company might be looking for acquisition targets in the corporate travel sector mentioning the existing opportunities of consolidation in the corporate travel sector. Expedia currently enjoys around 450 million monthly visitors to its websites and hence it gives the company good opportunities to cross-sell its travel products.

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