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Expedia (EXPE) Up 23.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Expedia (EXPE - Free Report) . Shares have added about 23.5% in that time frame, outperforming the S&P 500.

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

Expedia Reports Loss in Q3

Expedia Group reported third-quarter 2020 adjusted loss of 22 cents per share, narrower than the Zacks Consensus Estimate of a loss of 92 cents. Notably, the bottom line improved from the prior-quarter’s reported loss of $4.09 per share. However, the loss came against the year-ago quarter’s earnings of $3.38 per share.

Revenues of $1.504 billion surpassed the Zacks Consensus Estimate of $1.368 billion. Further, the top line improved 165.7% sequentially but declined 58% from the prior-year quarter.

Year-over-year decline in the top line was attributed to coronavirus-led negative impacts on the worldwide travel activities.

Nevertheless, stabilizing travel trends throughout the reported quarter led to sequential improvement in the revenues.

Further, proper execution of the company’s cost-saving strategies remained a tailwind. Also, the company witnessed better performance of Vrbo in the third quarter, which was a positive.

Expedia’s gross bookings came in at $8.6 billion, which soared 218.1% from the previous quarter but plunged 68% year over year. Further, the figure missed the Zacks Consensus Estimate of $13.2 billion.

Notably, a spike in the number of COVID-19 cases during the September quarter was a major headwind.

Headwinds in the global travel industry due to coronavirus persist as major concerns for the company in the days ahead.

Nevertheless, moderations in the cancellation of bookings and a strengthening momentum across Vrbo remaintailwinds.

Notably, the company sold Bodybuilding.com in the second quarter. Hence, beginning the third quarter, Expedia disposed the Corporate segment from its operations.

Revenues by Segment

Retail: The company generated $1.25 billion revenues (82.8% of total revenues) from this segment, which tanked 52% year over year. Although the segment witnessed a year-over-year decline in the top line, growth at Vrbo slowed down the reduction rate.

B2B:This segment yielded revenues of $203 million (13.5% of total revenues), which fell 72% from the year-ago quarter. Weak recovery in the corporate travel trend remained a headwind.

trivago: Revenues from this segment totaled $70 million (4.6% of revenues), down 75% year over year.

Revenues by Business Model

Merchant model generated revenues of $1.03 billion (68.6% of revenues), down 48% year over year. Merchant gross bookings came in at $5.1 billion, down 59% from the prior-year quarter.

Agency division generated revenues of $329 million (21.9% of revenues), slumping 72% from the prior-year quarter. Agency gross bookings were $3.5 billion, down 76% year over year.

Advertising & Media and other generated $143 million of revenues (9.5% of the top line), plummeting 64% from the year-ago quarter. This can primarily be attributed to sluggishness in Expedia Group Media Solutions and trivago.

Revenues by Geography

Expedia generated $1.03 billion revenues (68.7% of total revenues) from domestic regions, down 48% from the prior-year quarter.

Further, revenues generated from international regions totalled $471 million (31.3% of revenues), down 70% on a year-over-year basis.

Revenues by Product Line

Lodging revenues, which accounted for 82% of total revenues, declined 52% from the prior-year quarter. Although the company witnessed a 14% rise in revenues per room night, stayed room nights declined 58%.

Air revenues accounted for 2% of revenues. The metric was down 87% year over year. Notably, air tickets soldand revenue per ticket plunged 74%and 48% year over year, respectively.

Operating Details

Adjusted EBITDA was $304 million in the reported quarter, down 67% from the prior-year quarter.

Further, adjusted selling and marketing expenses were $490 million, down 68% year over year. As a percentage of revenues, these expenses contracted to 33.8% from 44.2% in the year-ago quarter.

Additionally, general and administrative expenses were $124 million, down 36% year over year. As a percentage of revenues, the figure came in at 7.6%, which expanded 250 bps year over year.

Technology and content expenses were $197 million, down 27% from the year-ago quarter. The figure expanded 560 bps from the year-ago quarter to 13.6% in the reported quarter as a percentage of revenues.

The company reported third-quarter operating loss of $113 million against the operating income of $609 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Sep 30, 2020, cash and cash equivalents were $4.3 billion, down from $5.1 billion as of Jun 30, 2020. Short-term investments totaled $23 million, downfrom $422 million in the previous quarter.

Additionally, long-term debt was $8.2 billion at the end of the third quarter compared with $6.9 billion at the end of the second quarter.

Further, Expedia utilized $819 million of cash in operations during the reported quarter compared with$1.8 billion in the sequential quarter. Moreover, free cash flow was ($995) million in the third quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -44.15% due to these changes.

VGM Scores

Currently, Expedia has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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.


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