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Bear of the Day: Expedia Group, Inc. (EXPE)

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The coronavirus has devastated the global travel industry and Expedia (EXPE - Free Report) has certainly suffered. Yet EXPE stock has already surged all the way back to new 52-week highs, despite a somewhat cloudy outlook for travel and hospitality even amid the progress on the coronavirus vaccine front.

What’s the Story?

Expedia is one of the world's biggest travel platforms, operating under its namesake brand, as well as Hotles.com, Vrbo, Travelocity, and many others. The tech-focused travel booking company that helps consumers book hotels, rental cars, flights, and more competes against Booking Holdings (BKNG - Free Report) , Tripadvisor (TRIP - Free Report) , and newcomers.

Expedia’s top-line growth had already slowed down in 2019, long before the pandemic crushed global travel. EXPE’s revenue climbed around 8% last year, which marked its slowest growth in the last decade. Then the coronavirus upended things completely, with its sales down 15% in the first quarter, 82% in Q2, and 58% last quarter.

The company took on some debt to help boost its cash position, alongside much of the industry. EXPE also increased its commitment to additional cost-cutting measures such as job cuts, which were first reported back in February, before things shut down.

 

 

 

 

 

 

 

 

 

 

 

 

Bags Packed Too Soon?

Expedia has now outpaced the S&P 500 over the last year and has crushed it over the past six months, up 75% vs. 22%. Clearly, investors have started to look ahead in anticipation of increased travel demand. In fact, the stock has soared over 50% since the end of October, driven by vaccine positivity.

This includes a 15% surge in the past month that helped Expedia stock hit new 52-week records of over $147 per share in the first week of January. Airbnb’s (ABNB - Free Report) stellar IPO in December further highlighted how eager investors were to play the potential travel bounce back. Even though EXPE has about 8% more room to climb before it touches its 2017 highs, it might still have come a bit too far too fast.

Zacks estimates call for EXPE’s fourth quarter revenue to fall 58% to match the third quarter’s downturn. Meanwhile, it’s projected to swing from adjusted earnings of +$1.24 a share in the year-ago period to a loss of -$1.74 a share.

Peeking ahead, Expedia is expected to post an adjusted loss of -$1.46 per share in the first quarter of FY21 on 33% lower revenue. This looks even worse when you consider that these first quarter estimates come up against an easier to compare Q1 FY20 that included the start of the lockdowns.

 

 

 

 

 

 

 

 

Bottom Line

The nearby chart shows that Expedia’s earnings outlook has slipped recently to help it earn a Zacks Rank #5 (Strong Sell) right now. The stock also rocks “D” grades for Value and Momentum and an “F” for Growth in our Style Scores system. Plus, Expedia is part of an Internet Commerce space that sits in the bottom 15% of our over 250 Zacks industries.

Expedia’s longer-term FY21 outlook does look better. Still, investors who already missed out on the big ride during the past six months might want to hold off considering the near-term uncertainty that continues to surround the travel industry.

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