Expedia Demand Improving In Line With Our Expectations; Shares Significantly Undervalued

Expedia’s third-quarter reported bookings were 89% (98% adjusted for divestitures and currency) of 2019’s level versus 92% (101%) last quarter. While Expedia’s booking performance came directly in line with our forecast, it continued to trail demand levels at Booking Holdings, whose third-quarter reported bookings reached 127% of 2019’s level, down from the 138% mark it saw in its second quarter. In our view, Expedia is performing well in its core U.S. market, where sales were at 119% of 2019’s level in the quarter, stable from the 120% mark in the prior quarter. But we think Expedia is trailing Booking’s leading supply and demand network in international markets, as the former’s sales in overseas markets were just 80% in the quarter, up from 74% in the prior period. Overall, we think Booking’s sales can average a high-single-digit percentage in the back half of this decade versus a mid-single-digit level for Expedia. Still, we see Expedia’s network advantage (source of its narrow moat) lasting, evidenced by a powerful loyalty base (new member growth is 50% above 2019’s level), mobile app (usage up 40% versus 2019’s level), and direct traffic (two-thirds of total bookings).