Key Takeaways From Expedia’s Robust Q4 2015 Earnings Result

Expedia (NASDAQ:EXPE) released its Q4 2015 earnings on February 10th. Riding on both core organic growth and its host of acquisitions, the company, as predicted, delivered yet another quarter of robust performance. In Q4 2015 (excluding eLong), Expedia’s gross bookings grew by 40% year-over-year to around $15 billion and its revenues were higher by 29% to $1.7 billion. Out of this, the acquisitions added around 28 percentage points and 19 points to gross bookings growth and revenue growth, respectively. For the full year 2015, Expedia has completed around $6 billion worth of acquisitions. The main points in the earnings call was Expedia’s recent HomeAway acquisition and how it has made the OTA the second largest accommodation provider in the world with 1,508,000 listings across its platforms. Expedia’s eLong divestiture and the acquisition of Travelocity, Orbitz, Decolar, and finally, HomeAway, are all strategic decisions that are working really well for the company. However, the company might be more interested in international takeovers in 2016 and beyond. Finally, Expedia is gradually changing the economics of hotel listing on its websites by offering hotels a bidding option to choose for top slots on its pages. Though in the initial stages, this move might change the way OTAs do business with hotels in the long run. ^{[1] [2]}

For the full year 2015 (excluding eLong), Expedia’s gross bookings grew by 24% to around $60 billion and its revenues grew by 19% to reach ~$6.6 billion. Expedia had guided to around 35% to 40% EBITDA growth for the full year 2016.

We are in the process of updating our  price estimate of $125 for Expedia’s stock.

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HomeAway Acquisition Was The Main Focus Of The Earnings Call

Expedia’s December 2015 acquisition, HomeAway–the world’s largest vacation rental marketplace–seemed to be the hot topic of discussion in the Q4 2015 earnings conference call. The management stated that the vacation rental website had performed above expectations in Q4 2015. Now, the next plans for HomeAway seems to be an end to end platform enabling vacation rental and home sharing transactions. Expedia is chalking out ambitious expansion plans for HomeAway. Also, HomeAway’s business model is currently being transitioned from a traditional listing model to a full-fledged online transactional model. The management expects around $350 million in adjusted EBITDA from HomeAway in 2018. ^[2]

In June 2015, Kayak, Priceline’s travel search engine, entered into an agreement with HomeAway. The agreement allows Kayak to list HomeAway’s vacation rental properties on its website. Even though Expedia forged a partnership with HomeAway since late 2013, erstwhile, the company didn’t give any special importance to HomeAway’s vacation rental listings which were listed on the common Expedia.com web page along with its other listings.

The HomeAway acquisition currently gives Expedia one of the largest portfolio of accommodations on its platform. Recently, not only the regular OTAs, but metasearch engines such as Google and TripAdvisor, are also expanding their functionalities to offer services similar to OTAs. TripAdvisor’s Instant Booking has been a rising star in the OTA horizon, recently. Also, Airbnb is emerging as a significant threat. In a November 2015 interview with Skift, Expedia’s CEO Dara Khosrowshahi mentioned how Airbnb will directly challenge the market leaders in online hotel bookings in the future. Hence, Expedia’s strengthening of its accommodation platform and its metasearch functionalities through Trivago are steps to maintain its invincibility in the online travel space. It is noteworthy to mention that Trivago is currently delivering huge growth for Expedia. For 2015, Trivago’s standalone revenue stood at around €490 million, depicting around 60% year-over-year growth and its adjusted EBITDA reached a few million euros. ^[2] HomeAway is expected to become another significant growth driver for the company in the future.

(Source: Expedia Investor Presentation)

Expedia Might Change The Future Of Hotel Bookings

Expedia is about to cause a huge stir in the future of hotel booking by introducing its “Accelerator” program. Expedia’s market managers have recently started allowing hotels to bid against one another in order to achieve the top spots in Expedia’s hotel listing on brands such as Expedia.com and Hotels.com. On February 10th, Expedia’s CFO Mark Okerstrom had spoken about the program at length, in an interview with Skift. The program will transform the pages of search results into a marketplace where hotels, vying for the top listings, will compete against one another. Hotels are ready to pay for the top slots because the placement on the search result increases the chances for the hotels of being booked by travelers. The details of the Accelerator program was finalized in Q4 2015. Though it is still in the early stages and has been introduced to only a few markets so far, Expedia’s CEO Dara Khosrowshahi mentioned in the fourth quarter earnings call that the participating hotels have given a good response. This bidding model introduced by Expedia can set the norms for the online travel industry at large in the future. ^[3]

What Will Expedia Acquire Next?

After a year studded with acquisitions in 2015, we are curious to know about the company’s plans in 2016.

(Source: Expedia Investor Presentation)

The Travelocity and Orbitz acquisition consolidated the U.S. online travel industry for Expedia. Now with HomeAway, Expedia expanded its portfolio even further to vacation rentals. Hence, we can expect the company to look outside the U.S. now, and international acquisitions might be in the cards. Also, the company might look into corporate travel for takeover opportunities as right now, its competitive advantage lies in leisure travel. Finally, Expedia might be on the lookout for innovative companies such as Alice or Trivago, as its next acquisition target. ^[2]

1. Expedia Form 8-K, Feb 10, 2016 [↩]
2. Expedia’s (EXPE) CEO Dara Khosrowshahi on Q4 2015 Results – Earnings Call Transcript, Seeking Alpha, Feb 11, 2016 [↩] [↩] [↩] [↩]
3. Expedia Overturns Hotel Business Model With Introduction of Bidding for Listings, Skift, Feb 10, 2016 [↩]