HomeAway Continues To Drive Expedia’s 3Q Earnings; Trivago Posts A Surprise

As expected, Expedia (NASDAQ: EXPE) delivered a strong third quarter performance backed by robust gross bookings from both HomeAway and Egencia. Further, the company’s efforts to reduce its operating expenses and favorable tax rate are likely to boost its adjusted earnings for the quarter. Expedia targets to double its gross bookings by the end of this year by leveraging its data-driven approach to marketing optimization, while continuing to aggressively drive its global expansion plans. We expect this to drive its value in the near term.

We have a price estimate of $136 per share for the company, which is higher than its market price. View our interactive dashboard – Expedia’s Outlook For 2018 – and modify the key drivers to visualize the impact on the company’s revenues and stock price.

Key Highlights of 3Q’18 Results

• Expedia’s gross bookings rose 11% compared to the same quarter of last year, causing its revenue to increase by 10% to $3.2 billion. The top-line growth was driven by 13% rise in lodging stayed room night growth. The company’s adjusted EBITDA rose 29% during the quarter backed by its efforts to optimize the direct marketing spend and balancing quality top-line growth with profitability.
• The company added 40,000 properties to its core global lodging platform in the third quarter, bringing the total property count to around 595,000 (excluding HomeAway), 46% higher compared to last year. It also integrated 100,000 additional HomeAway listings onto its platform, taking the total to 895,000 properties in its core portfolio.
• HomeAway continued to deliver solid results, with 24% growth in its gross bookings and 35% increase in its revenue. Further, HomeAway posted adjusted EBITDA of $209 million, 66% higher on a year-on-year basis.
• The gross bookings at Egencia rose by 14% in the quarter, while its revenue grew by 10% during the quarter.
• Surprisingly, Trivago delivered a strong quarter. The company executed well on its strategy of focusing on profitability, which enabled it to deliver significant improvements in its adjusted EBITDA.
• Year-to-date, Expedia has returned over $770 million to its shareholders, of which $630 million were in share repurchases. Further, the company had raised its dividend earlier this year for the seventh consecutive year, indicating its willingness to share its growth with its stakeholders.
• Moreover, Expedia recently acquired Pillow and ApartmentJet with the focus to deploy its capital strategically to enhance its shareholder returns. The deal will include the addition of unique software platforms which will lay the foundation for HomeAway and Expedia Group’s urban expansion efforts in the coming years.

Going Forward

• With HomeAway’s transition to an e-commerce business taking shape, longer booking windows and a high concentration of stayed room nights are likely to drive its top-line growth in the coming quarters. Despite the seasonality factor, HomeAway is expected to drive healthy top-line and bottom-line growth for Expedia.

• Egencia’s sales team continued to build a strong sales pipeline and leading product offering, which will enable it to maintain its leading share in the managed corporate travel market in the near term.

• Going forward, the Trivago team will continue to take a more-balanced approach to trade-offs between top-line growth and profitability, with more inclination towards the latter. Consequently, Trivago expects its adjusted EBITDA to improve in the second half of the year.

• Expedia now expects its consolidated adjusted EBITDA growth to be in the range of 10%-12% in 2018. Excluding the cloud business, this growth would be 2%-3% higher.