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Expedia faces threat from tepid growth in 2025, Deutsche Bank says after downgrade

Published 11/08/2024, 05:26 PM
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Investing.com -- Expedia Inc (NASDAQ:EXPE)'s mixed Q3 results and guidance released Thursday point to ongoing tepid growth that will keep a lid on its earnings power in 2025, analysts at Deutsche Bank said in a Friday note. 

While Expedia's is likely to make a "modest improvement" in bookings and revenue growth and margin leverage in 2025, it likely be insufficient to ensure its multiple continue to move higher into 2025, the analysts said. 

Ongoing tepid growth in the company's B2C business, despite growing investments, meanwhile is also expected to weigh on "2025 earnings growth algorithm for the company" they added after downgrading Expedia to Hold from Buy.

Expedia's Q3 bookings and adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, marginally beat of expectations, but revenue came in slightly below as B2C revenue declined 140 basis points year-over-year in Q3.

Direct marketing as a percentage of gross bookings, meanwhile, "continued to de-lever as investments in Vrbo, HCOM, and international markets grew," the analysts said.

While the analysts Expedia to deliver expect modest improvement in bookings, revenue, and adjusted EBITDA growth, these estimates aren't without risk given "the muted underlying B2C bookings and revenue growth, tougher comparisons for Vrbo in the second half of 2025, and limited visibility on aggregate marketing leverage."

Looking out to the 4Q, Expedia reported mixed guidance with bookings and revenue slightly ahead, while adjusted EBITDA slightly missed consensus estimates.

But with Expedia shares now trading at "16x our 25 GAAP EPS, EXPE's discount relative to BKNG [Booking Holdings Inc (NASDAQ:BKNG) ] above its average range, and EXPE trading near the high end of its two-year trading range, we believe that the risk/reward is balanced," the analysts said as they lifted the target price on the stock to $192 from $150 a share.

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