Expedia Earnings: Strong Bookings and Early Signs of Leveraging Past Investments; Shares Undervalued

Expedia’s EXPE 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.

Bookings grew 20% year over year to 100% of 2019′s level, up from 18% and 88%, respectively, in the prior quarter. Travel demand improvement was stoked by recovery in international markets and a shift to domestic urban from vacation markets with more in-office work. But, more importantly, Expedia appears to be starting to see the fruits of its investment in a unified technology, loyalty, and data stack. In this vein, its Hotels.com brand returned to booking growth (up 20%) since it has been fully integrated onto the core Expedia platform. This bodes well for the company’s vacation rental brand, Vrbo, which should complete its migration to the core platform later this year. Additionally, Expedia expects to leverage marketing later this year, as its unified platform, loyalty (a shared loyalty product is scheduled to launch this summer), and data allow for efficiencies. Also, with much of Expedia’s migration of its brands and loyalty to a unified technology platform complete, it’s now able to shift resources to improving the user experience and conversion. Expedia reiterated its low-double-digit sales and EBITDA growth guidance for 2023, and we plan to maintain our respective 11% and 14% forecasts.