Can Expedia’s Stock Rebound After Falling 50% Over The Last Year?

After a 50% decline over the last twelve months, at the current price of around $91 per share, we believe Expedia’s stock (NASDAQ: EXPE), a travel company providing everything from airline tickets, to hotel rooms, and car rentals – could see a rebound in the longer term. EXPE stock has declined from around $181 to $91 over the last twelve months, underperforming the broader indices, with the S&P falling about 9% over the same period. The company’s stock traded lower as anxiety over a potential recession and higher interest rates have swept over the entire travel sector. Despite these macro headwinds, the company saw strong travel demand in 2022. The online travel agency is in a better position than its pre-Covid level, with a higher EBITDA margin of 20.1% in 2022 as compared to 17.7% in 2019 and free cash flow 70% higher than 2019 (at $2.8 billion) – largely due to reduced spending. There are no longer any restrictions on travel outside of a few areas. It also won’t be long before Chinese travel increases, and Expedia will also offer travel to other locations such as Japan for the full year (as it was not fully opened in FY’22).

Expedia fell short of revenue and earnings estimates in its fourth-quarter earnings report. The company’s revenue increased 15% year-over-year (y-o-y) to $2.62 billion. Booked room nights rose 19% to $70.8 million, driving gross bookings up 17% to around $21 billion. On the bottom line, adjusted earnings per share rose 19% y-o-y to $1.26. However, EXPE’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $449 million, falling 6% y-o-y. Q4 results were negatively impacted by severe weather, but demand was otherwise strong. Revenue was up across lodging (+18%), air (+44%), and advertising/media (+15%). The lodging business growth was driven by a significant increase of 19% in room nights stayed and average daily rate growth of 3%.

We have revised Expedia’s valuation to $110 per share, based on a $9.40 expected adjusted EPS and an 11.8x P/E multiple for the fiscal year 2023 – almost 20% higher than the current market price. We forecast Expedia’s Revenues to be around $13 billion for the fiscal year 2023, up 11% y-o-y.

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