What To Expect From Expedia Post Q1 Results

by Trefis Team
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Expedia‘s (NASDAQ: EXPE) non-gaap earnings per share came in ahead of market expectations, but revenue missed in its first quarter results. In Q1 2019, the company’s revenues grew 4% year-over-year (y-o-y) to 2.6 billion, driven by 8% y-o-y growth in overall gross bookings. However, foreign currency fluctuations cut into both bookings and revenue by three full percentage points. In addition, Expedia’s adjusted EBITDA grew 42% during this period, largely due to the company’s efforts to optimize its direct marketing spend. Going forward, we expect the company to sustain this momentum and generate around $3.1 billion in revenues in Q2 2019, which would represent year-on-year growth of nearly 9%.

Expedia’s stock price is up around 15% since the beginning of 2019. We have maintained our price estimate for Expedia at $133, which is slightly ahead of the current market price. We have created an interactive dashboard on What Has Driven Expedia’s Recent Results, which outlines our forecasts for the company. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation and see more of our Information Technology company data here.

FY 2019 Outlook

  • Here’s a quick look at Expedia’s key revenue sources: The company’s revenues grew 12% year-over-year (y-o-y) to 11.2 billion in 2018.
    • Core Online Travel Agency (OTA) Segment: $8.7 billion in fiscal 2018 (78% of total revenues). The Core OTA segment provides a full range of travel and advertising services to the company’s customers through a variety of brands including Expedia, Hotels.com, Orbitz, CheapTickets, ebookers, Hotwire, Travelocity, Wotif Group and SilverRail Technologies.
    • Vrbo Segment (formerly HomeAways): $11.7 billion in fiscal 2018 (10% of total revenues). This segment operates an online marketplace for the vacation rental industry.
    • Trivago Segment: Nearly $690 million in fiscal 2018 (6% of total revenues). Trivago generates advertising revenue primarily from sending referrals to online travel companies and travel service providers from its hotel metasearch websites.
    • Egencia Segment: Around $ 600 million in fiscal 2018 (5% of total revenues). Egencia provides managed travel services to corporate customers worldwide.
  • Looking at full-year 2019 revenues, we forecast $9.6 billion in revenues for the core OTA business, nearly $1.3 billion for the Vrbo business, over $900 million for Trivago, and over $600 million for Egencia. We estimate a take rate of around 11% for 2019, which is similar to the figure for the past few years. This, combined with a gross booking forecast of $87.5 billion, should help generate OTA revenue of $9.6 billion in 2019.

  • Expedia also expects its consolidated adjusted EBITDA growth to be in the range of 10-15% in 2019.
  • To add to that, Expedia also expects cloud expenses to increase from $141 million in 2018 to around $250 million in 2019. The company continues to leverage its data-driven approach to marketing optimization while continuing to aggressively drive its global expansion plans. We expect this to drive the company’s value in the near term.

  • Turning to Expedia’s expenses – we expect the company’s expenses to increase by nearly 8% in 2019. Among the expense components, Expedia incurred $5.7 billion of selling and marketing expenses in 2018 (67% of the total operating expenses). We expect the company’s selling and marketing expense to grow at a slower rate and add nearly $150 million to total operating expenses. The company expects a bigger impact on the cost rationalization efforts at Trivago in 2019.
  • Further, we expect Technology & Content expense to add nearly $350 million to operating expenses in 2019. This is due to higher cloud cost as well as continued investments in product enhancements and platform initiatives across the company in 2019.

 

 

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