Expedia is an online travel company that includes Orbitz, Travelocity, Vrbo, Hotels.com and Classic Vacations as well as Expedia.com. Results, as expected, where severely impacted by the pandemic and have been steadily recovering which can accelerate into the US, European summer holiday season and by year end 2022 normalize to pre Covid19 levels.
The company generates revenue by acting as travel agent, a broker that gathers thousands of airlines, hotel, and other travel services for millions of customers. Its no longer a new or disruptor business model, it has become the norm.
Consensus estimates of 28 analyst provides a reasonable guide to base valuation on. Barring a resurgence of Covid19 in US/Europe the market expects earnings to surpass YE19 or pre covid levels by YE22. (See table and charts)
The 1Q22 results where modestly lower on still lingering covid19 shutdowns plus the Ukraine invasion. Management guided for improved bookings, revenue, and margin for 2Q22 forward and consensus forecast have not materially declined post 1Q22 results. And yet the stock was down 15% and dragged with it Booking and other travel stocks. My view is that the market is still far too short sighted and nervous. The stop start travel sector plus, inflation, oil, rate increases and recession chatter all add up and exaggerate perception, good and negative.
Valuation: Part of getting the call right is not only predicting operating results. Valuation, what a stock is worth in the future is the other half of the equation. Expedia, in the last 10yrs has traded at an average of 19x PE. This valuation increases or decrease with growth and market dynamics. The consensus is using 21x and I will use 18x to reach a YE22 price target of US$182 +22%. This may seem pale but on YE23 estimates the price target increases to US$215 +44%.
Given the strong pent-up demand, pricing power, no debt, high margin, and significant free cash flow (over US$3bn a year) Expedia seems a good risk reward equation.
Charts and tables: #1 chart shows consensus revenue, EBITDA and EPS from YE19 to YE23e. #2 chart shows the growth rate, based to 100 from YE2010 for revenue, EBITDA and EPS and high light the deep cut the pandemic impacted. #3 shows the long-term forward PE for Expedia and Booking. #4 is a summary financial and valuation table with historic and consensus estimates.
