It has been about a month since the last earnings report for Expedia Group, Inc. (EXPE - Free Report) . Shares have added about 10% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is EXPE due for a pullback? 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 drivers.
Expedia Group reported first-quarter 2018 adjusted loss of 46 cents per share as against earnings of 84 cents in the last reported quarter. However, the loss was lower than the Zacks Consensus Estimate of a loss of 60 cents. Notably, the company had reported a loss of 15 cents in the year-ago quarter.
However, revenues in the quarter under review increased 8.6% sequentially and 15% on a year-over-year basis to $2.5 billion beating the Zacks Consensus Estimate of $2.46 billion. Robust performance of HomeAway, Core OTA, Brand Expedia, Hotels.com, Expedia Partner Solutions and Egencia, which accelerated the company’s gross bookings and stayed room nights numbers during the quarter led to the upside.
Expedia recorded gross bookings of $27.2 billion in the first quarter, up 15.2% year over year and 37.3% sequentially. The figure came ahead of the Zacks Consensus Estimate of $26.6 billion.
Revenues by Segment
Core OTA segment revenues (76.8% of total revenues) increased 13% year over year and 3.2% on a sequential basis to $1.92 billion. The segment witnessed 11% year-over-year growth in gross bookings which came at $21.1 billion.
Moreover, trivago revenues (12.8% of revenues) grew 12% year over year and 48.3% sequentially to $319 million. This was attributed to its share in rest of world (ROW) region which grew 20% from the year-ago quarter.
Egencia revenues (6% of revenues) increased 23% on year-over-year basis and 10.2% sequentially to $151 million. This was driven by strong performance in quarterly bookings which exceeded $2 billion for the first time. Additionally, the segment acquired new clients and client base grew 20% from the year-ago quarter.
HomeAway (9.4% of revenues) generated $234 million in the quarter, which increased 26% from the year-ago quarter and 21.2% sequentially. HomeAway witnessed 46% year-over-year growth in gross bookings, which came in at $3.9 billion in the quarter. Also, the segment experienced 36% growth in the stayed room nights on a year-over-year basis.
Revenues by Business Model
Merchant model generated revenues of $1.3 billion (52% of revenues), which were up 13% year over year and 8.4% sequentially.
Agency division generated revenues of $658 million (26.3% of revenues), which grew 15% from the prior-year quarter and 4.6% sequentially.
Advertising & Media yielded $282 million of revenues (11.3% of revenues), which increased 10% from the year-ago quarter and 31.8% sequentially. This was driven by 14% growth in Media Solutions business.
Moreover, HomeAway (9.4% of revenues) generated $234 million in the quarter, which increased 26% from the year-ago quarter and 21.2% sequentially.
Revenues by Geography
Expedia generated $1.35 billion (54% of total revenues) from domestic regions, which went up 8% from the prior-year quarter and 7.1% sequentially. Revenues generated by international regions were $1.15 billion (46% of revenues), up 23% on a year-over-year basis and 8.5% from the previous quarter.
Revenues by Product Line
Lodging revenues (64.4% of total revenues) came in $1.61 billion, rose 15% from the prior-year quarter and inched up 0.6% sequentially. This was attributed to 16% year-over-year growth in stayed room nights for Brand Expedia, Hotels.com, Expedia Partner Solutions and Egencia. Further, Expedia added 50,000 new properties to its global lodging portfolio, which exhibited 74% year-over-year growth.
Air revenues were $242 million (9.6% of reveneus), which were up 11% year over year and 37.5% on a sequential basis. This was driven by 1% increase in air tickets sold and 10% growth in revenues per ticket.
Adjusted EBITDA plunged 40.3% year over year and 69.1% on a sequential basis to $124 million. Notably, Trivago and Home Away EBITDA decreased 28% and 21% year over year, respectively. However, Core OTA EBITDA increased 7% from the year-ago quarter whereas Egencia EBITDA came in line.
Expedia incurred operating loss of $165 million in the reported quarter, compared to $73 million loss in the year-ago quarter. This came on the back of accelerated growth in cost of revenues.
Moreover, selling and marketing expenses grew 19% year over year, primarily due to increased marketing expenditure on Trivago and HomeAway. Further, growing head counts in Egencia and HomeAway, continuous investment on cloud migration and inorganic impact from acquisitions also increased operating expense.
Balance Sheet & Cash Flow
As of Mar 31, 2018, cash and cash equivalents were $3.42 billion compared to $2.84 billion as of Dec 31, 2017. Short-term investments totaled $1.03 billion, which increased from $468 million in the last reported quarter.
Further, Expedia generated nearly $1.48 billion of free cash flow in the first quarter. The company paid quarterly dividend worth $46 million (30 cents per share) at the end of the first quarter.
Also, Expedia repurchased nearly 2.5 million shares for a total of $268 million year-to-date as of Apr 24, 2018.
The Zacks Consensus Estimate for Expedia’s total revenues for the second quarter is currently pegged at $2.9 billion and that for earnings is projected at 84 cents.
However, the company expects Trivago to continue to weigh on revenues and earnings in the second quarter.
Expedia reiterates its guidance for adjusted EBITDA growth of 6-11% and 10-15% for 2018. Further, it expects Trivago EBITDA contraction between 200 basis point (bps) and 400 bps. Subscription revenues are expected to decrease in the mid-20% range.
The company expects to narrow the gap between revenue per room-night and average daily rates in 2018. It also expects to expand its global lodging portfolio by adding more than 180,000 in 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been seven revisions higher for the current quarter compared to six lower.
At this time, EXPE has an average Growth Score of C, however its Momentum is doing a bit better with a B. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for momentum and to a lesser degree growth.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise EXPE has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.