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Global Terror Headwinds Make Expedia 'Incrementally More Cautious' On International Growth Outlook

Global Terror Headwinds Make Expedia 'Incrementally More Cautious' On International Growth Outlook - Expedia, Inc. NASDAQ:EXPE

Benchmark reiterated its Buy rating and $135 target price on Expedia Inc EXPE 2.2% shares despite mixed second-quarter results from the company, which is the largest online travel agent based on gross bookings.

The Booking Factor

The company's adjusted EPS of $0.83 beat Street estimate of $0.78 but the $2.2 billion revenue missed consensus expectations of $2.25 billion.

Gross bookings increased $3.8 billion or 25 percent, excluding eLong, to over $18.8 billion in the second quarter of 2016. Revenue increased 32 percent to over $2.1 billion.

Benchmark said the Bellevue, Washington-based company's gross bookings fell short of consensus by roughly $800 million, while room-night growth of 20 percent was well below the expectations of 31 percent.

"Global growth fears proved somewhat unfounded as international gross bookings came in roughly in-line, but management explicitly stated that they were 'incrementally more cautious' given the recent uptick in terror related headwinds," analyst Daniel Kurnos wrote in a note.

Positives From The Quarter, For The Future

On the positive side, Kurnos said, "Expedia may be benefiting from the pricing gains in the high-occupancy markets" of Spain and Ireland, which were mentioned by the company as two markets seeing an increase in customer traffic.

In addition, the analyst added that "the U.K. saw increased traffic inflows, with the pound declining relative to the dollar on the back of Brexit," although the analyst doesn't expect this to be a lasting tailwind.

Domestic gross bookings missed by about $630 million, with management calling out 500-700 bps of organic room night drop related to network integration issues with the Orbitz transaction, and the Easter timing shift into first quarter.

For 2016, the analyst maintained his revenue estimate of $9.1 billion, EPS view of $5.55 and adjusted EBITDA forecast of $1.64 billion as he expects a significant tradeoff of excess profit for enhanced revenue growth throughout 2016. The analyst also sees some of the early 2016 upside to flow through despite management's cautious tone.

Kurnos' Buy thesis on the stock stems from his expectation that Expedia will "continue to gain market share from merchant retailers and offline travel agents," while increasing penetration of emerging markets will boost international growth.

At the time of writing, shares of Expedia fell 2.76 percent to $115.98.

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