What’s Happening With Expedia’s Stock?

by Trefis Team
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Expedia’s stock (NASDAQ: EXPE) at around $125 has crossed the mark it was at before the drop in February due to the coronavirus outbreak becoming a pandemic. In fact, the stock is up 16% from levels seen since the beginning of 2020. The major reasons for the stock price gain were the announcement of a Covid vaccine, in addition to stronger-than-expected Q3 results, and the U.S. federal elections. And, we believe that all the good news appears to be factored into the company’s stock price so far. The fact of the matter is that Expedia was struggling with the increasing pressure from Google in advertising, and from nimble startups such as Airbnb even before the pandemic. Needless to say, growing competitive threats and a heavy debt load of more than $8 billion could result in Expedia’s stock price declining in the longer term.

Expedia stock has underperformed the broader markets between fiscal 2017 and now. The company’s stock is around 4% higher than it was at the end of fiscal 2017, compared to 38% growth in the S&P. Our dashboard, What Factors Drove 4% Change in Expedia’s Stock Between Fiscal 2017 and Now? provides the key numbers behind our thinking, and we explain more below.

Expedia’s stock declined 10% from around $120 in 2017 to around $108 in 2019. During this period, Expedia’s revenues grew by 20%. Despite this, Expedia’s stock price declined during this period, as the market became skeptical about the company’s future performance due to increasing competitive pressures. The P/S ratio contracted from about 1.8x in 2017 to 1.3x in 2019 – down nearly 27%. While the company’s P/S is up to about 1.5x now, given the optimism surrounding the vaccine, there is also a downside risk when the current P/S is compared to levels seen in the past year.

How Is Coronavirus Impacting Expedia’s Stock?

The travel sector has been severely hit this year. As evident, Expedia’s revenues declined a major 54% year-over-year (y-o-y) so far. For Q3, Expedia saw demand rebound, but the numbers were still far below 2019 levels. The company’s revenue grew nearly 166% sequentially from only $566 million in Q2 2020 to $1.5 billion in Q3 2020. But the revenues were still down 58% from year-ago quarter levels in Q3. In addition, gross bookings were down 68% y-o-y during the quarter.

With roughly half of its expenses coming from sales and marketing, Expedia has high variable costs, making it easier for the company to conserve cash and survive the crisis, including a tough 2020 holiday period and likely limited gains in travel demand in the first half of 2021. The company currently reported unrestricted cash and short-term investments of a total of $4.4 billion and a $650 million drawn on its credit revolver.

In 2020, Expedia plans to cut $700 million to $750 million in fixed costs relative to 2019, along with some $200 million in variable cost cuts based on 2019 revenue, resulting in a possible earnings growth from 2021 onward (if the situation normalizes). But Expedia will likely continue posting losses well into next year, as travel demand could continue to struggle in the next few months. With Covid-19 cases still surging and many parts of the world back into lockdowns, Expedia will continue to see a difficult time in the near-term. The travel industry is now heavily reliant on the availability of the vaccine at scale.

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