Expedia is still worth buying despite earnings miss (Ticker: EXPE)
While the 2Q miss and pared FY13 outlook are disappointing, the hit in traffic from TripAdvisor is transitory in nature and growth in this channel will improve over time. Gains in Expedia's traffic conversion rates are sustainable and should still deliver double-digit bookings growth going forward. Expedia Travel Preference Program (ETP) is a success to-date and its broadening rollout should add to growth as well. The stock has a very attractive risk/reward profile at 7.0x/5.9x FY13/FY14 coupled with authorization to repurchase 16.1M shares (~12% of s/o). The stock has the potential to reach $75 in the next 12 months.
2Q results were below analysts’ expectations with revenue of $1,205M (+16% Y/Y) vs. consensus estimate of $1,258M. EBITDA was $192M (-14.0%Y/Y) vs. consensus of $220M. Normalized EPS (NEPS) of $0.64 was below consensus' $0.81 on higher expenses; particularly G&A. Expedia.com and Trivago were the bright spots. Expedia.com (~50% of total revenues) continued to see benefits from higher conversion rates while Trivago revenues grew ~80% Y/Y. Expedia added 15K properties in 2Q for a total of 220K worldwide.
U.S. gross bookings were up 8%Y/Y vs. 7% last quarter and accounted for 58% of total bookings. U.S. revenue growth decelerated to 10.0%Y/Y vs. 15.5% last quarter and represented 54% of total revenues. International bookings grew 23% (Fx-neutral) vs. 30% growth last quarter and accounted for 42% of total gross bookings. International revenue grew 24% on a FX-neutral basis vs. 38% Y/Y last quarter and accounted for 46% of total revs.
Excluding ad revenues from the websites, revenue margin was 11.9%, up slightly vs. 11.3% in the year ago period, reflecting the revenue mix shift towards hotels and offsetting the lower air margins. EBITDA margin was down 550bps Y/Y to 15.9% largely driven by higher sales and marketing (up 630bps Y/Y) and higher technology and content (up 50bps Y/Y). G&A was down 50 bps Y/Y.
Expedia ended with $2,300M in cash and equivalents and $1,249M in net debt on its balance sheet. The company has authorization to repurchase 16.1M additional shares (>10% of shares outstanding). The board also approved a 15% increase in quarterly dividend to $0.15
I am long EXPE.
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