Expedia Stock Looks Like a Market-Beater

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Expedia (EXPE) stock popped Friday on strong third-quarter results, driven in no small part by the acquisition of Travelocity last year, and that makes EXPE stock worth a closer look.

expedia stock expeEXPE is the world’s largest online travel company by bookings, dwarfing that of its closest competitor, Priceline (PCLN). However, PCLN is growing at a much faster clip than EXPE, and that has Priceline stock outperforming Expedia stock by a massive margin over the past five years.

Indeed, over the last half-decade, PCLN stock is up nearly 600%, while Expedia stock has a gain of 80%. Not only does that trail PCLN, but EXPE also lags the broader market over that time.

This year, however, Expedia stock is catching up thanks to rebooted growth and surprisingly strong results and guidance. Expedia stock is up 21% so far in 2014, while PCLN gained 3%.

Results like those EXPE printed in the third quarter are the reason for that outperformance. After all, EXPE overcame fears of a slowdown in international travel because of the Ebola outbreak to post better-than-expected top- and bottom-line results.

For the most recent quarter, EXPE said earnings rose to of $257.1 million, or $1.94 a share, beating Wall Street estimates by a whopping 20 cents. Revenue climbed 22% to $1.71 billion. The Street was looking for revenue of $1.68 billion.

Hotel Bookings Make or Break Expedia Stock

Continued strength in hotel bookings has been the key to EXPE results and most of the upside in Expedia stock. And the key to those bookings have been brands under the EXPE umbrella like Hotels.com and Travelocity.

Hotel bookings account for almost three-quarters of total revenue, so the Street always focuses on that metric. Happily for anyone holding Expedia stock, hotel bookings rose 24% year-over-year, while gross bookings, which includes air tickets, rose 29% to $13.47 billion. Both those figures beat estimates.

Indeed, business has been strong enough that some analysts are worried EXPE will be hampered by its own success. As Credit Suisse analysts — who rate shares at neutral — said in a note to clients:

“We were encouraged to see the strong room night growth, which in part puts to rest some uncertainty that tough comps from platform enhancements will have a negative impact.”

Furthermore, Ebola fears and geopolitical crises didn’t slam international travel as feared. EXPE said U.S. revenue rose 20% and international revenue increased 25%. That’s critical because the international business accounts for almost half of all Expedia’s sales.

The biggest headwind for EXPE is competition. There’s little barrier to entry for an online travel website, and that brings in new players even as EXPE is fighting off PCLN and other established sites. Indeed, EXPE must have spooked some investors when it said pricing pressure from competitors was a blemish on the quarter.

That said, Expedia stock looks reasonably valued. It’s not a screaming bargain, but EXPE has forward price-to-earnings ratio of 18, and a long-term growth forecast of 18. Ordinarily, a stock’s P/E fetches a premium to its growth rate.

If Expedia can maintain its margins and market share against the competition, it stands to benefit from a slow resurgence in travel. Expedia stock probably won’t go on a tear, but it should certainly outperform the broader market.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/expedia-stock-looks-like-market-beater/.

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