Expedia Inc (NASDAQ:EXPE) is one of the largest travel companies worldwide. It has brands and assets in almost every major category in the travel industry, making it the dominant player. Will the company continue to accelerate its growth and keep Expedia stock shareholders happy?
Some investors are skeptical because of the challenges affecting the travel industry in some parts of the world, such as the Brexit, economic slowdowns, political unrests, and terrorism. Expedia Inc has been profitable, and EXPE stock gained 314% over the past five years. The company should continue to flourish, given its leading position in the travel industry.
Despite the unfavorable global events, Expedia remained robust just like the tourism and travel industry, which is expected to grow by 3.1% this year, which is higher than the 2.3% global economic growth forecast. (Source: “Global Tourism Resilient to Terrorism, Brexit and Further Macroeconomic Challenges,” World Travel & Tourism Council, August 22, 2016). The positive outlook for the industry means Expedia stock may have a bright future ahead.
Expedia expected to grow double-digits
During the second quarter, Expedia Inc reported earnings of $0.83 per share and revenue of $2.2 billion, which is an increase of seven percent and 32% year-over-year, respectively. Its gross bookings increased by 25% to $3.8 billion, and its global lodging portfolio expanded by 25,000 properties, or 20%, bring the total number of hotel properties available on Expedia web sites to more than 307,000. (Source: “Expedia, Inc. Reports Second Quarter 2016 Results,” Expedia Inc, July 28, 2016)
Wall Street analysts expected Expedia stock to achieve average earnings of $2.48 per share on $2.56 billion in revenue in the third quarter. The company is scheduled to release its 3Q financial results on October 27.
Analysts projected that the EXPE stock would achieve a 19.8% growth rate in the third quarter and 94.8% in the following quarter. Its annual growth rate over the next five years is estimated to be around 28.4%. These projections are possible, given the company’s leading and strong competitive position in the travel industry.
Expedia CFO Mark Okerstrom stated during a recent industry conference hosted by Goldman Sachs Group Inc (NYSE:GS) that the company is “going right after the entire travel industry and that Expedia “has long legs for growth for a very long time.”
EXPE Stock Has Growth Boosters
Last year, Expedia spent nearly $6.0 billion to acquire Travelocity, Orbitz Worldwide, Inc. (NYSE:OWW), and HomeAway, which serve as additional growth drivers for the company over the long term.
Travelocity was struggling with a flat-to-declining top line before Expedia acquired it in the first quarter of 2015. After the acquisition, Expedia unplugged Travelocity’s business from its existing infrastructure and integrated its brand. Since then, Travelocity’s revenue increased double-digits, and it has the highest earnings before interest, taxes, depreciation, and amortization (EBITDA) margins in the industry, which is good news for EXPE stock investors.
Expedia bought Orbitz in the third quarter of 2015. The company has already completed the largest part of the Orbitz integration and has generated $54.0 million in adjusted EBITDA, which represented a margin of approximately 28% in the second quarter.
The company expected to achieve more than $75.0 million of run-rate synergies from the Orbitz acquisition, which should start to materialize in the second half of this year.
HomeAway became part of Expedia in the fourth quarter of 2015, and it is doing very well. Its second-quarter revenue increased 36% to $172 billion year-over-year on a stand-alone basis. Expedia is targeting to increase HomeAway’s adjusted EBITDA from around $120.0 million last year to $350.0 million in 2018. The company is confident that it would achieve its target and help boost the EXPE stock performance.
Expedia is currently focusing on building the online bookable muscles of HomeAway. Its overall online bookable listings or properties are now growing by 20% to more than one million, which should bring more transactions and revenue for the company.
The Bottom Line for EXPE stock
Expedia will surely get significant benefits from the potential synergies of Travelocity, Orbitz, and HomeAway. These three companies would strengthen the competitive advantage of Expedia Inc. in the travel industry further, thus generating more profits and revenues in the years ahead. As a result, EXPE stock would surge and provide good returns to shareholders.
Over the past 52 weeks, EXPE stock traded between $88.40 and $140.51 per share. The stock dropped more than 12% year-to-date, primarily due to investors’ concerns related to adverse events, particularly the terrorist attacks in Europe. The United States issued a wide-ranging travel alert for the region this summer.
As mentioned earlier, the global tourism and travel industry is still booming. Expedia Inc. is competitive, and it can handle speed bumps along the way. These reasons should encourage investors to be bullish on Expedia stock. In fact, 10 analysts issued a “strong buy” rating on the stock, with a consensus price target of $133.67 per share, which is an upside of $24.58 from its trading price of $109.09 per share on August 30, 2016.