Expedia (EXPE) Soars 20% on Strong Top and Bottom Line Growth
PUBLISHED ON: Jul 31, 2012
Travel agency Expedia (EXPE: Charts, News) impressed investors last Friday, after the Bellevue, Washington-based company's second quarter earnings beat analyst forecasts on both the top and bottom lines. Expedia's second quarter earnings per share rose 24% from the prior year quarter to 89 cents per share, or $125 million.
Its revenue grew 14% to $1.04 billion. Analysts had been expecting the company to earn 72 cents per share on revenue of $988.7 million. The company attributed its strong gains to increased volume of domestic and international bookings, as well as strong hotel revenue growth. Daily Chart
Shares of Expedia soared 20% after the earnings announcement and lifted its industry peers, such as Priceline (PCLN
), Orbitz Worldwide (OWW
) and Expedia's spin-off TripAdvisor (TRIP
). Shares of its Chinese subsidiary, Elong (ELONG
), also gained 2% on the news. Shares of Expedia have rallied 89% since the beginning of the year, but still trade with a fairly modest trailing P/E of 21.7. CEO Dara Khosrowshahi noted that hotel room bookings were a source of strong growth during the second quarter. Expedia's hotel segment posted 16% revenue growth, along with a 22% increase in nights booked from the prior year quarter. These factors offset a 1% decline in the average daily price of hotel rooms. This decline was attributed to a higher mix of hotel brands, which increased its lower-end offerings and lowered the prices of its higher-end ones. This was especially noticeable in Asia, where contracting hotel operating margins were offset by higher booking volume. Expedia's acquisition of VIA Travel in April also helped boost its bookings revenue. Increased hotel bookings helped offset thin margins from airline bookings, which are impacted by rising fuel costs. Expedia current generates 58% of its revenue from the United States and 42% from international markets. Its domestic business grew 22.4% from the previous quarter and 14% from the prior year quarter. Its international business grew 35.1% from the previous quarter and 13.1% from the previous year. Softness in Southern Europe was offset by strong gains throughout Asia. Revenue from leisure customers and corporate customers rose 26.2% and 43.4%, respectively. This was a respective increase of 11.3% and 61.7% from the prior year quarter. These two segments account for 93% of the company's revenue. The aforementioned spin-off of TripAdvisor has decreased the company's dependence on corporate customers, who are now serviced by its smaller Egencia website. Expedia has been attempting to increase Egencia's weight through acquisitions. Despite its small footprint, Egencia has posted double-digit year-over-year sales growth for eleven consecutive quarters. Not all analysts were convinced by Expedia's strong performance. Pacific Crest analyst Chad Bartley noted, "Expedia is still facing some headwinds to its business, including unfavorable mix shifts in hotels and a challenging air environment." However, Bartley added a positive note, stating that Expedia "remains the best-positioned online travel agency" due to the cheap fundamentals of the stock and long-term growth potential. Raymond James analyst Aaron Kessler indicated that Europe would still weigh on investor sentiment, stating, "Management indicated southern Europe was incrementally weaker in the second-quarter versus last quarter, with noticeable declines in Europe to U.S. consumer travel, though growth overall remains relatively healthy." Susquehanna Financial Group analyst Herman Leung stated, "There is still room for further profit expansion, especially as we look out to 2013." Leung has a target price of $60 on the stock, indicating a 10% upside from current levels. Shares of Expedia trade at 16 times forward earnings with a 5-year PEG ratio of 1.6. The company also announced that it will raise its quarterly dividend 44% to 13 cents per share. Other News About EXPE Expedia Soars After Solid Q2
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