What To Watch For In Expedia’s Q4 2016 Earnings

February 8th, 2017 by Trefis Team
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Expedia is slated to release its Q4 2016 earnings on February 9th. Starting off on a strong note in the first quarter of 2016, the company’s performance lagged in the second quarter due to the integration issues of its acquired entities, however, Expedia’s performance significantly improved in Q3 2016 post the completion of its acquisitions. The company, with its ~30% top line growth and over $71 billion annual transactions, aims to be the  world’s first $100 billion travel agency in the next couple of years. We expect Expedia to close the year 2016 on a significantly strong note. For the full year, the company had given a guidance of 35% to 45% of adjusted EBITDA growth, however, the profitability might be offset to some extent by its marketing spends and the lag between room bookings and the realization of payments. Also, the current problems in international and domestic travel might hinder its growth to some extent.

Expedia’s Current Growth Areas

  • Boosting Its Hotel Supplier Network

In order to grow the Expedia Affiliate Network, the company is offering better perks to hotel suppliers. Along with that, it is enhancing its PartnerCentral, the tool through which hoteliers can compare the pricing and space availability on Expedia’s sites versus other rival OTA websites.

  • Global Expansion
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One of Expedia’s key focus areas is to increase its geographic expansion, as currently only one-third of its bookings come from outside the U.S.,  while its closest rival, Priceline, enjoys around 90% of its revenues from its international markets. According to Expedia’s CEO, the company’s current priority is to expand in the Asia Pacific markets, such as Taiwan, China, and South Korea. It plans on doubling its investments in India where it estimates that there is a market for over one billion outbound travelers.

  • Digital And Mobile Focus

In order to expand its customer reach, Expedia is focusing on its social media reach and voice interaction. Recently, it announced voice activated searches on its platform through Amazon Alexa. Currently, 50% of Expedia’s traffic comes from mobile and hence the company is investing in more innovative features and better services through this medium.

 Looking Beyond Trivago’s IPO 

Expedia’s metasearch arm, Trivago (where it has ~62% stake), recently raised an initial public offering of $184 million in net proceeds and is currently listed on the NASDAQ with the ticker symbol, ‘TRVG.’ Though the money raised was much less than expected, Trivago seems to be focused on its long term growth. In an interview with CNBC in December last year, Trivago’s CEO, Rolf Schrömgens, expressed that the hotel search options on the online travel and metasearch sites might be lagging when it comes to customizing the customer’s requirement and matching it with a hotel that is ideal for her. This might mean that Trivago is thinking of developing functionalities along those lines. In case Trivago is able to develop such an enhanced functionality, it might offer the company a significant competitive advantage over other metasearch engines. Trivago is the primary driver to bolster Expedia’s revenues from the advertising and media segment and hence Trivago’s growth will imply a boost in Expedia’s performance as well. Trivago’s revenues grew by 49% year-on-year to ~$653 million for the first nine months of 2016. According to industry experts, Trivago’s adjusted EBITDA is expected to rise by 142% from around $64 million in 2016 to around $155 million by 2018.

HomeAway Expected To Grow Further Along With Its Booking Fee And Online Presence

So far, HomeAway, the second largest platform for alternate lodging in the world, is being touted as one of the most profitable acquisitions for Expedia. Along with the imposition of ~6% booking fee in 2016, the revenues from HomeAway are supposed to grow even higher in the future. Prior to its acquisition, HomeAway was delivering around $15 billion worth of annual offline transactions, currently, Expedia wants to take HomeAway’s business from offline to online and grow it even further.

Expedia’s Long Term Growth Plans

By 2020, Expedia aims to double its gross bookings through both organic and inorganic growth. The company’s main focus for growth is its core OTA segment. However, its other segments are also continuing to gain market share and witnessing profitability growth.

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