Travel site conglomerate Expedia Group (NASDAQ:EXPE) probably lost 75% of its revenue for the current quarter. But you wouldn’t guess that looking at the EXPE stock chart.
Entering trade June 11, shares are down 24% for the year at about $83 each. The market cap of $12.3 billion is about one normal year’s revenue.
But that’s not nearly so bad as the companies it serves. Airlines like Delta Air Lines (NYSE:DAL) are down 45%. Hotel chains like Marriott International (NYSE:MAR) are down by roughly one third. Cruise lines and casinos have also been hammered.
Running a web site doesn’t carry the cost structure of an airline or hotel, but Expedia wasn’t blowing up the track before the pandemic. Top-line growth had been slowing for years, and the normal dividend of 34 cents yielded just 1.6% at its current price.
Expedia bulls are running on hope.
Why, Expedia Why?
Even if you assume a quick return to normal travel patterns, Expedia’s market cap is 22 times 2019 earnings of $556 million.
These are not normal times, however. Expedia’s first quarter, which included the first month of the COVID-19 lockdown, showed revenue of $2.21 billion and a loss of $1.3 billion, $9.24 per share. The second quarter is expected to be even worse, with revenue falling to $725 million.
Expedia’s performance has been trailing that of rival Booking.com (NASDASQ:BKNG) for years. Online travel is a mature industry, which is one reason former CEO Dara Khosrowshahi jumped to Uber Technologies (NASDAQ:UBER) in 2017.
In addition to Booking, Expedia also faces competition from Alphabet (NASDAQ:GOOGL), whose Google has begun taking reservations directly off search results. The rising threat of Google is one reason Peter Kern replaced Mark Okerstrom as CEO last fall. While Kern supports current antitrust moves against Google, he also admits the company is missing “some of the basic blocking and tackling things.”
Blaming the Other Guys
To hear Kern and chairman Barry Diller tell it, the company was a mess under Khosrowshahi, wasn’t fixed by Okerstrom, and now requires a complete overhaul. Okerstrom and his CFO, Alan Pickerill, were let go late last year. Khosrowshahi remains a director but has been selling down his stake in the company.
Expedia sites like Hotwire, Hotels.com and Trivago compete with one another rather than working together. It’s a remnant of an earlier time when the space was consolidating, and Expedia feared the antitrust police.
That’s starting to change. Vrbo, a home rental site Expedia bought in 2015, which competes with privately held AirBnB, is being added to Expedia’s ad network. Pillow and ApartmentJet, bought in 2018, are being folded into Vrbo as Kern and Diller start to simplify operations.
Expedia is also sharing data about travel search trends, another form of branding. It reported in April that people are starting to dream about domestic travel again. This helps boost stocks in travel-related companies even before travel picks back up.
The Bottom Line on EXPE Stock
Expedia was already in turnaround mode when the pandemic hit. The bull case for buying the stock is that a return to normal travel patterns, combined with rationalizing operations, will turn losses into profits quickly.
But that’s not assured. Behind the scenes, Expedia is a welter of separate computer platforms, all bought at different times with different purposes.
What the company needs, and doesn’t have, according to the corporate web site, is a strong Chief Technology Officer. It needs someone at the top with experience in both the transaction processing back-end and the web front-end of travel. Expedia needs to transform from a fleet of small craft into an ocean liner. That can’t be fixed with marketing alone, and I wouldn’t buy the stock until it is fixed.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.