We believe Expedia’s (EXPE) market position shows no signs of faltering, supported by solid trends in the key metrics of bookings, take rate, property growth, and room nights. These reinforce our view that the company’s incremental cloud and marketing spending is justified and being done for offensive rather than defensive reasons. Although the spending is damping near-term profits, we see it as a strong use of capital, supporting Expedia’s network advantage and long-term growth.
Investors have an attractive opportunity to build a position in a competitively advantaged name, in our opinion. The current market price implies consistent booking share loss, elevated marketing costs, and lower gross margins, a scenario that seems unreasonable to us, given Expedia’s intact network effect and ongoing investments in international markets, the HomeAway brand, and cloud infrastructure.
Dan Wasiolek does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.