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Expedia (EXPE) Shares Soar on Record Revenue Growth, Earnings Beat

Expedia Inc. EXPE shares gained 10.8% in extended trading yesterday, as quarterly revenue growth was the strongest in several years and earnings beat the Zacks Consensus Estimate.

The company saw extremely strong volumes in the last quarter across hotel, air and car product lines. It is apparent that management’s acquisition strategy is beginning to pay off.

Management said going into the year that full-year ex-eLong adjusted EBITDA will be up 35-45%, although the first half will be weak, likely because of ongoing integrations. Both Orbitz and HomeAway are expected to make a nice contribution.

The offloading of eLong and the Ctrip deal has clearly been a good deal for Expedia because it could exit the business at a profit while at the same time ensuring dollar denominated revenue flow. Not only that, but the Chinese market is highly competitive, so Expedia’s strategy enables it to maintain margins.

The other thing worth mentioning is Exedia’s growing strength in mobile where management says growth rates are very high although there will be tougher comps going forward. Penetration varies by brand, with Hotwire one of the highest at 40%. As app downloads have increased over time, management is now tracking transactions via apps. So they will probably tell us more about transactions made through mobile apps in the future. App transaction growth can show loyalty, which is a good indicator of growth. 


Revenue for the quarter was $1.90 billion, down 12.1% sequentially, up 38.6% year over year and topping the Zacks Consensus Estimate by 4.5%. This is the strongest year over year growth ever and significantly better-than-normal seasonality.

Revenue by Segment

Core OTA segment revenue was up 2.3% sequentially and 31.6% year over year.

trivago was up 60.0% sequentially and 47.9% from last year. While awareness in the U.S. continues to increase, trivago is seeing very strong growth in international markets. trivago’s revenue from the relatively mature European market also grew 33% compared to 2015’s 20%. Other international markets grew 69%.

Egencia grew 2.8% on a sequential basis and 12.2% year over year. Egencia still has a large business in Europe, especially the Nordic region because of the integration of Via. Other than the currency situation, oil prices are negatively impacting client signups in the region. Management said that the business signed up over 1.1 billion new clients in 2015. The plan going forward is to integrate the Orbitz business into Egencia.

HomeAway, which was added last quarter, jumped 610% sequentially from $20 million to $142 million.

Core OTA, trivago, Egencia and HomeAway contributed 78%, 9%, 6% and 7% of gross revenue (before inter-company eliminations), respectively.

Revenue by Channel

Around 56% of total revenue was generated through the merchant business (direct sales), another 27% came through the agency model (where Expedia operates as an agent of the supplier) and roughly 9% came from Advertising and Media with HomeAway accounting for the remaining 7%. The three channels were up 5.7%, 2.0% and 25.2%, respectively from the December quarter of 2015. Growth from the year-ago quarters were 39.8%, 21.4% and 42.6%, respectively.

Revenue by Geography

Around 59% of Expedia’s quarterly revenue was generated domestically, with the remaining 41% coming from international sources. The domestic business grew 14.0% sequentially and 45.2% from a year ago. The international business grew 9.4% sequentially and grew 37.9% from last year.

Management estimates that the company has a 45% share of the global online travel market. While its share of the North America and EMEA region is quite high, Asia/Pac and Latin America are growing fast.

Revenue by Product Line

Hotel and Air, the two main product lines grew 25% and 54%, respectively from the year-ago quarter. The increase in Hotel revenue came from a 37% increase in room nights (acquisitions added 13 percentage points of this growth). But this was offset by a 3% decline in the average daily rate (“ADR”). Revenue per night dropped 9%.

While management doesn’t break out car volume yet, they mentioned on the call that it was up 39%. Car days were up 48%, partially offset by a 6% decline in revenue per day. Orbitz contributed 27 percentage points to car volume growth.

In the last quarter, international room night growth of 44% trumped the domestic room night growth of 32%. 

The 54% increase in ticket revenue was attributable to a 52% increase in ticket volumes, offset by an 8% decline in airfares. Revenue per ticket grew 1%, the first time the number grew since December 2013. Organic room night growth was 24% with Orbitz alone contributing 34 percentage points to air volume growth.  

Bookings and Revenue Margin

Gross bookings were $18.88 billion in the last quarter, up 26.3% sequentially and 32.3% year over year. The revenue margin was 10.1%, down 127 bps sequentially but still 46 bps above the year-ago level.

Conversions were weaker in both Core OTA and Egencia, so all of the strength came from trivago and the addition of HomeAway. Both domestic and international grew from last year although international conversions were stronger. The year-over-year increase in conversions was about even across agency and merchant channels.


The pro forma gross margin for the quarter was 78.8%, down 123 bps sequentially and up 228 bps year over year. The year-over-year expansion in gross margin was because of higher volumes which offset related costs of customer operation, data center operation, credit card processing as well as acquisitions. This led to a 42.8% year-over-year increase in gross profit dollars.

The operating expenses of $1.49 billion were up 21.3% sequentially and 38.9% from last year. The operating margin shrank 714 bps sequentially and expanded 215 bps year over year to 0.8%, with technology & content growing from both previous and year-ago quarters and G&A declining from both periods. Selling & marketing costs grew 821 bps sequentially as a percentage of sales while remaining 93 bps below year-ago levels.   

Adjusted EBITDA as reported by the company was $176.6 million, up 73.5% (31% excluding eLong) from the year-ago quarter.

Net Income

On a pro forma basis, Expedia generated a net loss of $25.6 million, or 1.3% net loss margin compared to net income of $67.0 million, or 3.9% in the previous quarter and loss of $28.4 million or 2.1% net loss margin in the same quarter last year.

Our pro forma estimate excludes intangibles amortization charges, restructuring charges and other charges on a tax-adjusted basis but includes deferred stock compensation. Our pro forma calculations may differ from management’s presentation due to the inclusion/exclusion of some items that were not considered by management.

Including the above special items, as well as non controlling interests, the GAAP loss attributable to Expedia shareholders was $121.9 million ($0.81 a share)  in the last quarter compared to loss of $12.5 million ($0.09 a share) in the previous quarter and income of $44.1 million ($0.34 a share) in the year-ago quarter.

Balance Sheet

Cash and short term investments totaled $2.09 billion at quarter-end, up $381.9 million during the quarter. The net debt balance was $1.12 billion, compared to net debt of $1.49 billion going into the quarter. Including long term liabilities, the debt to total capital ratio was 50.6%. Days sales outstanding (DSOs) went from 58 to 65. We note that nearly 49% of assets is goodwill (not a real asset).

In the last quarter, Expedia generated $1.10 billion of cash in operations and spent $167.6 million on capex, $400.4 million to pay off HomeAway convertible notes, $36.2 million on dividends and $187.0 million on share repurchases.


Expedia shares currently have a Zacks Rank #3 (Hold). Better-ranked stocks in the technology sector are Travelport TVPT and Silicon Motion Technology Corp. SIMO, which carry a Zacks Rank #1 (Strong Buy) or even Mercadolibre MELI, which has a Zacks Rank #2 (Buy).

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EXPEDIA INC (EXPE): Free Stock Analysis Report
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TRAVELPORT WWD (TVPT): Free Stock Analysis Report
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