Here’s Why We Revised Our Forecast For Expedia To $111
Expedia‘s (NASDAQ: EXPE) stock price has been quite volatile and fluctuated between $95 and $138 over the course of 2019. The stock was slightly down year-to-date largely due to its long-term growth concerns. Also, it continued to see headwinds from the travel industry, including aggressive competition from Google on its own hotel products in search results. We revised our forecast for the company 10% downward t0 $111. This was due to the surge of coronavirus outside China recently, which could raise fears about a downturn in demand for travel worldwide.
We have created an interactive dashboard that details the key components of Expedia’s valuation along with our forecast for full-year 2020, and estimates the fair value of Expedia’s stock to be $111 per share – 9% higher than the current market price. Our price estimate takes into account the most recent Q4 earnings as well as the company’s guidance for the current fiscal year.
We arrive at the stock price estimate for Expedia as:
- Down 23% This Year, What Lies Ahead For Expedia Stock Post Q2 Results?
- Down 11% This Year, Will Expedia Stock Recover Following Q1 Results?
- Expedia Stock is Up 75% Since 2023. Where Is It Headed Post Q4?
- What To Expect From Expedia’s Q3 After Stock Up 8% This Year?
- Can Expedia Stock Return To Pre-Inflation Shock Highs?
- Can Expedia’s Stock Rebound After Falling 50% Over The Last Year?
Stock Price = (Total Revenue x Net Income Margin / Shares Outstanding) x P/E Multiple
#1. Estimating Expedia’s Total Revenues:
Total Revenues have increased from $10.1 billion in 2017 to $12 billion in 2019, and could grow 2% to 12.3 Billion in 2020.
- Looking at full-year 2020 revenues, we forecast $9.7 billion in revenues for the core OTA business, nearly $1.4 billion for the Vrbo business, under $600 million for Trivago, and over $690 million for Egencia.
- We estimate a take rate of around 10.8% for 2020, which is slightly lower than 10.8% in 2019. This, combined with a gross booking forecast of $90.3 billion, should help generate OTA revenue of $9.7 billion in 2020.
- We believe that the coronavirus outbreak could lead to a drop in demand in the fiscal first half of 2020.
#2. Deriving Expedia’s Net Income:
Net Income grew from $378 million in 2017 to $566 million in 2019, and we expect it to be around $615 million in 2020. This growth will likely be led by stable margins.
#3. Determining Expedia’s EPS
EPS has grown from $2.42 in 2017 to $3.76 in 2019, and we estimate it to be $4.10 in 2020. EPS growth in 2020 can be attributed to higher Net Income and lower Shares Outstanding.
#4. Estimating Expedia’s Share Price:
Our Price Estimate of $111 For Expedia’s Stock is based on our Detailed Valuation Model and implies a 27.0x P/E Multiple on expected 2020 EPS of $4.10
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