Higher Gross Bookings To Continue To Drive Expedia’s Q4 Results

Expedia (NASDAQ: EXPE) is scheduled to announce its fourth quarter results on Thursday, February 7. The company delivered a strong performance in the first three quarters of fiscal 2018, driven by robust gross bookings from both HomeAway and Egencia. In the first nine months of 2018, the company’s revenues grew 12% year-over-year (y-o-y) to $8.7 billion, driven by a 13% y-o-y growth in overall gross bookings as well as significant growth across night rooms booked and increased air ticket revenues. In addition, Expedia’s adjusted EBITDA grew 14% during this period, largely due to the company’s efforts to optimize its direct marketing spend. Going forward, we expect the company to continue this top-line growth momentum, though its hiring and automation costs could pressure its bottom line.

Expedia’s stock price has been fairly volatile and fluctuated between $102 and $137 since the beginning of 2018. We have maintained our price estimate for Expedia at $123, which is slightly below the current market price. We have created an interactive dashboard on What To Expect From Expedia’s Q4, which details our key forecasts and estimates for the company’s Q4 and full-year 2018 results. You can modify the interactive charts in this dashboard to gauge the impact that changes can have on the company’s earnings.

HomeAway’s transition to e-commerce, longer booking windows and a high concentration of stayed room nights are likely to drive Expedia’s top-line growth for Q4. In addition, Egencia’s sales team continue to build a strong sales pipeline and product offering, which should help it to maintain its leading share in the managed corporate travel market in the near term.

FY 2018 Outlook

Looking at full-year 2018, we expect Expedia to generate around $11.2 billion in revenues and adjusted earnings of around $360 million. Our revenue forecast represents year-on-year growth of nearly 12%. Of the total expected revenues in 2018, we forecast $8.6 billion in revenues for the core OTA business, nearly $1.3 billion for the HomeAway business, over $820 million for Trivago, and nearly $560 million for Egencia. We estimate a take rate of around 11% for 2018, which is similar to the figure for the past few years. This, combined with a gross booking forecast of $78.5 billion, should help generate OTA revenue of $8.6 billion in 2018. Further, Expedia now expects its consolidated adjusted EBITDA growth to be in the range of 10%-12% in 2018. This growth would be 2%-3% higher excluding the cloud business. To add to that, Expedia has also lowered its expectations for spending on the cloud to about $150 million in 2018 from its earlier forecast of below $170 million. That said, management also emphasized that the cloud expenses could exceed $250 million in 2019. In addition, the company aims to double its gross bookings by the end of 2018 by leveraging its data-driven approach to marketing optimization, while continuing to aggressively drive its global expansion plans. We expect this to drive the company’s value in the near term.

Expedia has managed to drive growth through a series of acquisitions. Recently, it acquired Pillow and ApartmentJet, with a focus to deploy its capital strategically to enhance shareholder returns. This is expected to add a unique software platform which will lay the foundation for HomeAway and Expedia Group’s urban expansion efforts in the coming years. The company is also aggressively investing to migrate to cloud computing systems to cut costs and improve marketing to better compete with rivals such as Booking Holdings (NASDAQ: BKNG).

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