Expedia Inc (NASDAQ:EXPE) stock is down about 12% since the start of the year on fears of a slowing global economy. Investors have shunned EXPE stock, assuming that falling oil prices signify a possible global recession, which will cause people to cut back on travelling. But the fall in Expedia may represent an opportunity for investors to take a look at the company. At least one analyst believes there’s a catalyst that could send EXPE stock surging.
On March 10, 2016, Piper Jaffray’s Michael Olson upgraded the rating on EXPE stock from “Neutral” to “Overweight,” while raising the price target from $130.00 to $140.00. With the price of EXPE stock at $105.69 at the open of Thursday’s session, that implies a surge in the stock of about 33%.
Olson believes that Expedia’s acquisition of HomeAway, Inc is expected to drive earnings upside “even after significant reinvestment of growth into OpEx (operating expenditures.” (Source: “Piper Jaffray Upgrades Expedia To Overweight, Raises Target To $140,” Benzinga, March 10, 2016.)
Olson also added that he believes that aside from the acquisition, Expedia is performing well and organic growth is expected to be in the mid-teens.
Expedia has been on a bit of a shopping spree lately. The company purchased online travel agency Travelocity last year for $280 million. (Source: “Expedia is buying Travelocity for $280 million,” Fortune, January 23, 2015; http://fortune.com/2015/01/23/expedia-is-buying-travelocity-for-280-million/.) The two sites had already been partnering since 2013, when they signed a marketing agreement allowing Travelocity to use Expedia’s resources and customer service program in return for Expedia powering the technology platforms for Travelocity’s web sites in the U.S. and Canada.
A few weeks later, Expedia also purchased rival Orbitz Worldwide, which owned Orbitz.com and Cheaptickets.com, for about $1.38 billion. (Source: “Why Expedia’s HomeAway Purchase Could Have a Huge Effect on Travelers,” Fortune, November 5, 2015.)
Now, with the $3.9-billion acquisition of HomeAway, Expedia cements its position as an online travel superpower.
HomeAway is an Airbnb competitor, so there are obvious synergies between Expedia and HomeAway. Expedia’s CEO, Dara Khosrowshahi is cheering the deal as a win for both the company and consumers: “This acquisition will allow us to deliver best-in-class experiences to an even wider set of travelers all over the world.” (Source: Ibid.)
With the merger, Expedia could give HomeAway the resources to better compete with Airbnb, which is now valued at about $24.0 billion, so the potential in the deal is huge for Expedia. (Source: Ibid.)
The Bottom Line on EXPE Stock
Expedia’s acquisition of HomeAway is going to eventually have a huge effect on the company’s top line, which was $6.7 billion in 2015. HomeAway charges a guest fee to an average of six percent of bookings through the company’s web site, and Jaffray’s Olson believes the fee will bring in revenue of $1.0 billion by 2018. (Source: “Piper Jaffray Upgrades Expedia To Overweight, Raises Target To $140,” Benzinga, March 10, 2016.) With that kind of future growth on top of already solid organic growth, investors may want to take a look at EXPE stock.