What To Expect From Expedia’s Stock Post Q2?

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Expedia (NASDAQ: EXPE), a travel company providing everything from airline tickets, hotel rooms, and car rentals, to cruises, is scheduled to announce its fiscal second-quarter results on Thursday, August 3. We expect Expedia’s stock to likely trade lower due to revenues and earnings missing estimates marginally. As a result of the rapid recovery of the traveling and lodging industry, the company’s revenue and operating cash flow have exceeded pre-pandemic levels – but still, its profitability continues to remain below the pre-pandemic levels. We believe that the current weaker macroeconomy could continue to pressure the company’s margins. Recent years have also seen the company accumulate its largest debt burden.

Expedia is spending heavily to enhance its tools in anticipation of further growth. Expedia is also taking advantage of the latest advances in artificial intelligence, deploying new AI and machine learning tools and integrating ChatGPT into its iOS app. This is an interesting approach, as it could help draw customer loyalty to the brand. It might also not be that hard for other large players in the industry to adopt generative AI since they have already been using AI algorithms for years. That said, it’s not clear how far ahead Expedia will be in this space at the moment and whether it will maintain a lead.

Our forecast indicates that Expedia’s valuation is $110 per share, which is 10% lower than the current market price. Look at our interactive dashboard analysis on Expedia Earnings Preview: What To Expect in Q2? for more details.

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(1) Revenues expected to be slightly below the consensus estimates

Trefis estimates Expedia’s Q2 2023 revenues to be around $3.3 Bil, slightly below the consensus estimate. In Q1, the company’s revenue increased 19% year-over-year (y-o-y) to $2.67 billion. Also, Expedia’s gross bookings were up 20% y-o-y to $29.4 billion in the first quarter. The company’s emerging B2B business, which offers vacation bookings through third-party company-branded websites, saw revenue jump 55% to $668 million. It should be noted that EXPE’s Q1 lodging revenue logged a 26% increase compared to the same period last year, the biggest increase in all service types. Its arch-rival, Airbnb saw fewer bookings. It will be interesting to see how Expedia holds up in the next few quarters. For the full year of 2023, we expect Expedia Revenues to grow 11% y-o-y to $12.9 billion.

(2) EPS likely to miss consensus estimates marginally 

Expedia’s Q2 2023 earnings per share (EPS) is expected to come in at $2.29 as per Trefis analysis, marginally missing the consensus estimate. In Q1, the company’s earnings per share came in at a loss of 95 cents, compared to a loss of 78 cents in the prior year quarter. This was in spite of a 10% improvement in operating income and a jump in interest income from $3 million in 2022 to $43 million in 2023.  However, EXPE’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by 7 % y-o-y to $185 million. We expect the Q2 EPS value (which includes the summer travels) to come in higher than Q1 based on the seasonality of the travel industry.

(3) Stock price estimate lower than the current market price

Going by our Expedia’s Valuation, with an EPS estimate of around $9.40 and a P/E multiple of around 11.8x in fiscal 2023, this translates into a price of $110, which is 10% lower than the current market price.

It is helpful to see how its peers stack up. EXPE Peers shows how Expedia compares against its peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.

Returns Aug 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 EXPE Return 0% 40% 8%
 S&P 500 Return 0% 19% 105%
 Trefis Multi-Strategy Portfolio 0% 29% 314%

[1] Month-to-date and year-to-date as of 8/1/2023
[2] Cumulative total returns since the end of 2016

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