After a 9% growth over the last six months, at the current price of around $187 per share, we believe Expedia’s stock (NASDAQ: EXPE), a travel company providing everything from airline tickets, to hotel rooms, and car rentals – could still see a modest rise. EXPE stock has increased from $172 to $187 in the last six months, outperforming the broader indices, with the S&P growing only marginally over the same period. Expedia’s ongoing investment in alternate accommodation, payments, flights, and merchandising should help it gain a greater share of the broader travel market in the long term. The company’s recovery from the negative effects of Covid-19 was temporarily derailed due to higher cancellation rates seen in the December and early January time period due to the Omicron variant, but there are positive signs relating to bookings witnessed in January 2022 and early-February 2022.
EXPE recently reported its Q4 report, wherein revenues were lower but earnings were much above our estimates. The company reported Q4 revenues of $2.3 billion, up nearly 150% year-over-year (y-o-y) on gross bookings that advanced more than 130% to $17.5 billion. By the looks of things, travel is recovering well from the pandemic-driven restrictions in 2020. However, it should be noted that the fourth-quarter revenue was still about 17% lower and gross bookings fell 25% when compared to the same quarter two years ago. That said, the y-o-y recovery in revenue translated to much better profitability, with adjusted net income climbing back to $167 million, or $1.06 per share, compared to the year-ago steep loss of $376 million (-$2.64 per share).
In Q4 2021, trends for lodging, air, and other travel products all declined sequentially from Q3 due to seasonality as well as the impact of the Omicron variant in the latter part of the quarter. However, adjusted EBITDA was still better than expected and came in at $470 million compared to a loss of $160 million a year ago. EXPE also saw stayed room night growth of 74% in the recent Q4. While December 2021 gross bookings were down by 27% as compared to 2019 levels, EXPE’s January 2022 gross bookings only declined by 11% as compared to January 2019. Notably, EXPE’s gross bookings in early-February 2022 were already higher than what the company achieved during the same period in February 2019.
We have updated our model following the Q4 release. We forecast Expedia Revenues to be $11.8 billion for the full year 2022, up 38% y-o-y. Looking at the bottom line, we now forecast EPS to come in at $7.78. Given the changes to our revenues and earnings forecast, we have revised our Expedia’s Valuation to $193 per share, based on $7.78 expected EPS and a 24.8x P/E multiple for fiscal 2022 – almost 3% higher than the current market price.
Expedia derives a majority of its revenues from its home market the U.S., and the recent Q4 2021 revenue already exceeded its Q4 2019 domestic revenue by 5%. However, sales from foreign markets were still 47% below the company’s Q4 2019 international revenue. That said, EXPE’s business should be unaffected by the ongoing war in Ukraine, but intensifying economic sanctions or a refugee crisis across the European continent could make the situation worse. In such a case, it is likely that the broader markets may see lower levels in the near term. And, a further dip in EXPE stock can be used as a buying opportunity for better gains in the long run.
While EXPE stock looks poised for more gains in the future, it is helpful to see how its peers stack up. Check out how Expedia’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.
|S&P 500 Return||3%||-5%||102%|
|Trefis MS Portfolio Return||2%||-9%||259%|
 Month-to-date and year-to-date as of 3/24/2022
 Cumulative total returns since the end of 2016