Company Reports

Narrow-moat Expedia guided its 2024 sales growth lower to the mid-high-single digits from around 10% due to its Vrbo brand ramping slower than expected after its recent platform migration, which sent shares down 8% in May 2 after-market trading. While the new guidance is below FactSet consensus’ 9.4% expectation, it is in line with our 7.7% projection as we have expected benefits from past network investments to begin to surface later in 2024 and into 2025.

Expedia's migration to a unified platform during 2020-23, which shares data, supply and loyalty (OneKey) across its brands, versus having it in a siloed structure previously, stand to support its network advantage, the source of its narrow moat. We think worker flexibility will increase long-term travel demand. We developed this positive stance because higher-income occupations (like those in technology, finance, legal, and architecture) are in industries that are the most likely to support ongoing work from remote locations.

Narrow-moat Expedia shares traveled down 13% in Feb. 8 afterhours trading, driven by weaker fourth-quarter bookings, forward commentary of moderating demand, and a CEO transition announcement. We see this pullback as an opportunity for investors that might have missed the 60% runup in shares into the earnings release from early October (versus just a 13% return for the Morningstar US Consumer Cyclical Sector Index over the same period). In fact, despite the market’s reaction, we plan to lift our $178 fair value estimate by a mid-single-digit percentage, driven by higher margins, with our 2024 revenue prognosis already factoring in moderating growth.

Expedia's investments in a unified platform, which shares data, supply and loyalty (OneKey) across its brands, versus having it in a siloed structure previously, stand to support its network advantage, the source of its narrow moat. We think worker flexibility will increase long-term travel demand. We developed this positive stance because higher-income occupations (like those in technology, finance, legal, and architecture) are in industries that are the most likely to support ongoing work from remote locations.

Expedia shares traveled 10% higher in afterhours trading on strong third-quarter results, which we think supports our view that market concerns regarding sales and marketing expense are misguided. We see shares of this narrow-moat company as meaningfully undervalued and think that its forward EV/EBITDA multiple of 5 times can rerate to around 8 times, near its prepandemic marks, as Expedia investment headwinds turn to tailwinds in 2024. We don’t expect a material change to our $175 fair value estimate.

Expedia's investments in a unified platform, which shares data, supply and loyalty (OneKey) across its brands, versus having it in a siloed structure previously, stand to support its network advantage, the source of its narrow moat. We think worker flexibility will increase long-term travel demand. We developed this positive stance because higher-income occupations (like those in technology, finance, legal, and architecture) are in industries that are the most likely to support ongoing work from remote locations.

Expedia's investments in a unified technology platform and loyalty (OneKey) stand to support its network advantage, the source of its narrow moat. We think worker flexibility will increase long-term travel demand. We developed this positive stance because higher-income occupations (like those in technology, finance, legal, and architecture) are in industries that are the most likely to support ongoing work from remote locations.

In our view, the midteen percentage pullback in narrow-moat Expedia shares due to overzealous demand concerns presents an attractive opportunity for investors. The key for investors is that Expedia’s heavy lifting to simplify and enhance its technology, data, and loyalty capabilities is nearly complete, which we think will lead to improved marketing efficiency and booking growth beginning in 2024. We don’t plan to materially alter our $175 fair value estimate and expect management to continue to aggressively repurchase shares around these levels, which we see as an attractive use of capital.

Expedia's investments in a unified technology platform and loyalty stand to support its network advantage, the source of its narrow moat. We think worker flexibility will increase long-term travel demand. We developed this positive stance because higher-income occupations (like those in technology, finance, legal, and architecture) are in industries that are the most likely to support ongoing work from remote locations.

Expedia's investments in a unified technology platform, and loyalty stand to support its network advantage, the source of its narrow moat. We expect worker flexibility to increase long-term travel demand. We developed this positive stance because higher-income occupations (like those in technology, finance, legal, and architecture) are in industries that are the most likely to support ongoing work from remote locations.

Expedia’s shares traveled a mid-single-digit percentage point higher in after-hours trading after the company posted strong first-quarter bookings and showed early signs of leveraging its recent platform technology investments. We don’t plan to change our $175 per share fair value estimate materially and think shares should trade at an enterprise value around 10 times forward EBITDA, as in the prepandemic years, versus the current 6 times. We expect the market to move toward our valuation as the firm displays more evidence of cost and demand improvements in 2023-24 from its now nearly complete technology migration.

Expedia's investments in a unified technology platform, and loyalty stand to support its network advantage, the source of its narrow moat. Further, we expect worker flexibility to increase long-term travel demand. We developed this positive stance because higher-income occupations (like those in technology, finance, legal, and architecture) are in industries that are the most likely to support ongoing work from remote locations.

In our view, the takeaways from narrow-moat Expedia’s fourth quarter were that lodging bookings growth accelerated to 20% year-over-year growth in January versus a high-single-digit percent in the October-December period (excluding weather and currency), and that its investments in a unified technology stack and a lifetime value customer base are starting to yield marketing efficiencies. We don’t expect a material change to our $175 fair value estimate. We think shares should trade at an enterprise value around 10 times forward EBITDA, like in prepandemic years, versus the current 8 times, and we expect the market to move toward our valuation as the firm displays more evidence of cost and demand improvements in 2023-24 from its now nearly complete technology migration.

We expect COVID-19-related demand pressures to be short term, and Expedia's investments in loyalty, user experience, and alternative accommodations sourced from cost-cutting initiatives should support its network advantage, the source of its narrow moat. Further, we expect worker flexibility to increase long-term travel demand. We developed this positive stance because higher-income occupations (like those in technology, finance, legal, and architecture) are in industries that are the most likely to support ongoing work from remote locations.

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).

Despite enduring travel demand into the fall of 2022 and our view that it can continue into 2023, investor concerns around future trips and credit availability have grounded share price performance across the industry. As a result, we see meaningful opportunities to book investment stays in Sabre, Accor, Booking Holdings, and Norwegian, which trade at 64%, 42%, 44%, and 54% discounts to our $15, EUR 37.50, $2,900, and $28 fair value estimates, respectively.

We expect COVID-19-related demand pressures to be short term, and Expedia's investments in loyalty, user experience, and alternative accommodations sourced from cost-cutting initiatives should support its network advantage, the source of its narrow moat. Further, we expect worker flexibility to increase long-term travel demand. We developed this positive stance because higher-income occupations (like those in technology, finance, legal, and architecture) are in industries that are the most likely to support ongoing work from remote locations.

Narrow-moat Expedia’s second-quarter bookings reached 92% of 2019’s level, slightly ahead of our 89% forecast, and up from the 83% mark reported last quarter. Demand was driven by both the United States, where sales were 120% of 2019’s level (versus 112% last quarter), and international markets, where revenue achieved 74% of prepandemic marks (versus 52% three months prior). Global lodging bookings continue to be a leading segment of demand, reaching 108% of 2019’s level in the quarter. But like some other peers, Expedia noted some recent moderation in lodging demand, with July expected to be around 100% of prepandemic marks, compared with 105% in June, 109% in May, and 109% in April. As a result, we expect Expedia’s second-half bookings to remain around 90% of prepandemic levels, and plan to largely maintain our 2022 forecast for a 90% mark compared with 2019.

We expect COVID-19-related demand pressures to be short term, and Expedia's investments in loyalty, user experience, and alternative accommodations sourced from cost-cutting initiatives should support its network advantage, the source of its narrow moat. Further, we expect worker flexibility to increase long-term travel demand. We developed this positive stance because higher-income occupations (like those in technology, finance, legal, and architecture) are in industries that are the most likely to support ongoing work from remote locations.

Our long-held view that the desire to travel would prove resilient despite the pandemic was buttressed by narrow-moat Expedia’s first-quarter bookings recovering to 83% of 2019’s level versus 75% last quarter. The rebound was led by the U.S., as Expedia’s domestic sales reached 112% of the prepandemic mark (versus 105% in the prior quarter). In contrast, international revenue reached just 52% of the prepandemic level, near the prior three months’ 53% mark. From a product perspective, accommodation sales (72% of total revenue) recovered to 93% of 2019’s level, aided by year-over-year room rate growth of 20%, but room nights lagged at just 70% of the prepandemic level, near the 69% printed last quarter.