Does Expedia Offer Enough Upside for Investors After Earnings?

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Expedia Inc. (NASDAQ: EXPE) traded higher after reporting $2.24 in adjusted earnings per share for the third quarter. Revenues were up handily to $2.58 billion. What stood out was that the 20% in annual gross booking gains was actually down 1.5% sequentially to $18.58 billion.

Expedia has been in a very similar situation as other online travel giants in that it has made a lot of acquisitions. The company’s booking nights were solid and were projected to be solid ahead, but higher advertising and marketing costs would weigh on margins this quarter.

24/7 Wall St. has tracked several key analyst price target changes made after earnings. Some targets remain very close to the current share price, which brings up the issue of whether there is enough implied reward for this stock versus company-specific and macroeconomic issues.

Price target changes were seen as follows:

  • Ascendiant Capital Markets raised its target price to $144 from $142.
  • Barclays raised its target price to $140 from $130.
  • Cowen raised its target price to $145 from $135.
  • Deutsche Bank lowered its target price to $137 from $138.
  • Goldman Sachs raised its target price to $108 from $98.
  • Jefferies raised its target price to $135 from $125.
  • JMP Securities raised its target price to $145 from $135.
  • Raymond James raised its target price to $135 from $132.
  • Stifel raised its target price to $116 from $99.

As JMP Securities was a tie for the top analyst target price, we wanted to see what the analyst had to say. The firm said that Expedia has among the best risk/rewards in its coverage universe. Several takeaways were noted:

First, while organic hotel room night growth came in at +11% Y/Y compared to guidance calling for accelerating growth in 2H16, management highlighted that organic room night growth accelerated each month in the quarter, including +14% Y/Y in September and that this strength continued into October. Second, HomeAway’s transition to its traveler service fee model is on track as transaction revenue grew 250% Y/Y and the company reiterated its goal of generating $350 million in EBITDA in 2018. Third, we were impressed to see Trivago revenue growth reaccelerate to +57% on strength across all geographies and expansion into certain Asian markets.

Ascendiant sees the travel industry as solid and rebounding, and the firm gave a positive risk-reward outlook for the long haul:

Management stated that Q3 was inline with its expectations with the large EBITDA improvement due to positive execution and integrations. It continues to reinvest any gains in its business but does expect better operating leverage in the second half of 2016. We acknowledge that Expedia’s near term results may be tempered from its investments (especially for Trivago and for integration and merger costs), but we believe these investments should contribute to strong long-term growth.

Expedia shares were up 4.1% at $131.64 on Friday’s close. The 52-week trading range is $88.40 to $140.51.

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