Expedia Earnings: Technology Investments Start to Yield Positive Financial Returns; Shares Cheap

Expedia’s shares rose around 10% in Aug. 8 after-hours trading after its second-quarter report highlighted that past technology investments have yielded positive results. However, like its peers, Expedia noted softening demand in July, which we think may delay the near-term financial improvement that we have modeled. Amid this ominous demand environment, we plan to reduce our 2024 and 2025 sales growth estimates to around 6% in both years versus 7%-8% prior. Further, while we still expect 2024’s EBITDA margin to be near 2023’s 20.9%, we expect to lower our 2025 estimate to about 20.6% from 21.2% to account for incremental marketing behind its vrbo brand and international markets, which we see as prudent and supportive of its network edge (source of its narrow moat). As a result, we expect to lower our $185 fair value estimate to roughly $180 per share. Trading at just 6 times forward enterprise value/EBITDA versus about 9 times prepandemic, we see shares as attractive. However, we think concerns surrounding weak consumer spending could provide a tough backdrop for shares in the near term.