28% Gains Left For Expedia Stock?

+3.29%
Upside
116
Market
120
Trefis
EXPE: Expedia logo
EXPE
Expedia

Expedia’s stock (NASDAQ: EXPE), a travel company providing everything from airline tickets to hotel rooms and car rentals, fell roughly 48% – declining from from about $181 at the beginning of 2022 to around $94 currently, underperforming the S&P500, which slid 17%. Why? The company’s stock traded lower as anxiety over a potential recession, staffing issues with airlines, and higher interest rates have swept over the entire travel sector. Despite these macro headwinds, the company saw strong travel demand in the first three quarters of 2022. In fact, Expedia surpassed its 2019 levels of active loyalty members in August 2022. Also, new Expedia customers that became loyalty members in the quarter grew by nearly 50% compared to the third quarter of 2019. In addition, the rollout of the verified loyalty program, One Key, is on track for this year 2023, which will be a big catalyst for continued membership growth. That said, the company is showing plenty of opportunities to keep expanding going forward. We discuss more in the sections below.

But is this all there is to the story?

No, not quite. Despite the company’s stock rally, Trefis estimates Expedia’s valuation at about $120 per share, around 28% above the current market price based on two key opportunities.

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The first opportunity we see is Expedia’s Revenues growth. The company’s financial results for both 2020 and 2021 were significantly impacted due to the decrease in travel demand related to Covid-19. However, EXPE experienced a recovery in travel demand and gross bookings nearly recovered to pre-Covid levels during the first nine months of 2022. The travel company’s revenue increased 43% year-over-year (y-o-y) to $9 billion so far in FY 2022, driven by a 36% increase in bookings to almost $75 billion. Further, the improvement in travel in 2022 resulted in room nights growing by 33%  y-o-y and air ticket volumes increasing by 11% in the first nine months of 2022. While Expedia’s management did not give formal guidance, they mentioned on the earnings call that strong demand has continued into Q4 as consumers prioritize travel over other discretionary categories. It also said that bookings for 2023 were already outpacing 2019 levels.

The second trigger is an improved trajectory for Expedia’s bottom line. The company’s adjusted earnings per share rose 15% y-o-y to $4.05 in the recent Q3. In addition, EXPE’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also topped $1 billion for the first time in Q3 2022, increasing 26% to $1.1 billion. As such, we believe a P/E multiple close to 17x will be appropriate for the stock. Our price estimate of $120 for Expedia stems from a 16.7x P/E multiple and $7.19 in earnings per share in 2022. This implies around a 28% premium to the current market price of $94. 

While consumers are certainly feeling the proverbial itch to travel, a great number of headwinds could easily start to blow again. There are still uncertainties in the form of geopolitical conflicts, significant fluctuations in currency values, sustained levels of increased inflation, sovereign debt issues, and ongoing challenges from Covid-19 which could have a negative impact on the travel industry.

It is also 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? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Jan 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 EXPE Return 7% 7% -17%
 S&P 500 Return 1% 1% 74%
 Trefis Multi-Strategy Portfolio 3% 3% 224%

[1] Month-to-date and year-to-date as of 1/10/2023
[2] Cumulative total returns since the end of 2016

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