Expedia (EXPE) Down 37% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Expedia (NASDAQ:EXPE). Shares have lost about 37% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Expedia due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Expedia's Q4 Earnings Beat, Revenues Miss Estimates

Expedia Group reported fourth-quarter 2019 adjusted earnings of $1.24 per share, beating the Zacks Consensus Estimate by 5.1%. The figure remained flat on a year-over-year basis. However, the bottom line decreased 63.3% from the previous quarter.

Revenues improved 7.3% year over year to $2.75 billion, which was driven by strong performance of Expedia Partner Solutions and Hotels.com. Moreover, solid momentum across Core OTA, Vrbo and Egencia contributed to the results. Further, growing stayed nights and expanding lodging portfolio continued to drive revenues.

However, the top line lagged the Zacks Consensus Estimate of $2.76 billion and declined 22.8% on a sequential basis.

Unfavorable foreign exchange fluctuation remained an overhang during the reported quarter. Further, sluggishness in trivago remained a headwind.

Expedia witnessed gross bookings of $23.24 billion in the fourth quarter. The figure improved 6% year over year but declined 13.7% sequentially. Further, the figure was lower than the Zacks Consensus Estimate of $23.85 billion.

The company remains optimistic about its strong supply acquisition efforts, strategic investments and product innovation. These initiatives are anticipated to drive business in the days ahead.

Revenues by Segment

Core OTA segment revenues (79.3% of total revenues) improved 6% year over year to $2.2 billion. The segment witnessed gross bookings of $19.1 billion, reflecting year-over-year growth of 6%. Increasing stayed room nights number improved 11% during the reported quarter. Further, strengthening lodging business was a major positive. Strengthening advertising campaigns and deepening focus toward delivering enhanced trip experience were major positives.

Egencia revenues (5.8% of revenues) increased 3% on year-over-year basis to $159 million. Further, quarterly bookings came in $1.9 billion, up 3% from the prior-year quarter. Growing room night growth and strengthening momentum in the corporate travel space were tailwinds.

Vrbo (9.4% of revenues) generated $259 million revenues in the fourth quarter, advancing 13% from the year-ago quarter. This segment witnessed year-over-year growth of 4% in gross bookings, which came in at $2.3 billion. Vrbo’s growing online bookable listings remained a tailwind. Further, strengthening presence in North America by launching Vrbo in Mexico and Canada benefited the segment.

Corporate (1.2% of revenues) is a new segment comprising Bodybuilding.com, which was acquired in the Liberty Expedia Holdings, Inc. transaction in the beginning of third-quarter 2019. The segment generated $34 million of revenues during the reported quarter, up 41.7% sequentially.

Meanwhile, trivago revenues (6.2% of revenues) declined 10% year over year to $171 million.

Revenues by Business Model

Merchant model generated revenues of $1.5 billion (55.4% of revenues), up 9.2% year over year.

Agency division generated revenues of $721 million (26.2% of revenues), improving 3% from the prior-year quarter.

Advertising & Media yielded $243 million of revenues (9% of revenues), improving 4% from the year-ago quarter. This can primarily be attributed to strong performance of Expedia Group Media Solutions. However, currency headwinds and weak performance by trivago remained overhangs.

Moreover, Vrbo (9.4% of revenues) generated $259 million in the reported quarter, advancing 13% from the year-ago quarter.

Revenues by Geography

Expedia generated $1.6 billion revenues (57.3% of total revenues) from domestic regions, up 10% from the prior-year quarter. This can primarily be attributed to strong domestic room nights, which improved 10% from the year-ago quarter. This led to increase in gross bookings in these regions resulting in an improvement of 7% year over year.

Further, revenues generated by international regions were $1.2 billion (42.7% of revenues), up 4% on a year-over-year basis. Expedia witnessed solid growth of 11% in room nights in international regions during the reported quarter. Further, gross bookings advanced 4% from the prior-year quarter.

Revenues by Product Line

Lodging revenues (69.8% of total revenues) came in $1.9 billion, advancing 9% from the prior-year quarter. This can primarily be attributed to robust stayed room nights growth on account of strong momentum in Expedia Partner Solutions, Brand Expedia and Hotels.com.

Further, Expedia’s global lodging portfolio reached over 1.6 million properties as of Dec 31, 2019.

Air revenues were $191 million (6.9% of revenues), down 7.7% year over year. This was due to slowdown in revenue per ticket, which plunged 9% year over year.

Operating Details

Adjusted EBITDA was $478 million, which surged 1.5% year over year. Notably, Core OTA witnessed year-over-year growth of 5%. However, Egencia, Vrbo and trivago EBITDA were down 3%, 3% and 11% from the year-ago quarter, respectively.

Further, adjusted selling and marketing expenses were $1.25 billion, up 5.9% year over year. As a percentage of revenues, these expenses contracted 70 basis points (bps) year over year to 45.7%.

Additionally, general and administrative expenses were $182 million, which remained flat year over year. However, as a percentage of revenues, the figure expanded 50 bps from the year-ago quarter to 6.6%.

Operating margin came in 5.8% in the reported quarter, which expanded 210 bps from prior-year quarter.

Balance Sheet & Cash Flow

As of Dec 31, 2019, cash and cash equivalents were $3.3 billion, down from $3.8 billion as of Sep 30, 2019. Short-term investments totaled $526 million, decreased from $658 million in the previous quarter.

Further, Expedia generated $341 million of cash from operations during the reported quarter compared with $861 million of cash utilized in operations in the last quarter. Further, free cash flow was $45 million against ($1.15) billion in the previous quarter.

The company paid out quarterly dividend worth $50 million (34 cents per share) during the reported quarter.

Guidance

Expedia expects negative impact of around $30-$40 million on first-quarter 2020 adjusted EBITDA.

Additionally, Coronavirus impact is likely to weigh on the company’s earnings and revenues.

Nevertheless, the company is deepening focus toward improving operational efficiency.

For 2020, the company expects adjusted EBITDA to grow by double digits. Further, the company aims to achieve $300-500 million of run-rate cost savings across its businesses.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -32.1% due to these changes.

VGM Scores

At this time, Expedia has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Expedia has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.