Expedia Analyst Stays Positive On Strength Of Long-Term Story

Expedia Inc EXPE shares are sharply lower Friday in reaction to its quarterly results released after the market close Thursday.

Commenting on the results, UBS said, despite the short-term headwinds as the company invests for growth, it is constructive on the long-term opportunity. The firm maintains its Buy rating on the shares of the company but lowered its price target for the shares from $170 to $154.

At time of writing, shares of Expedia were slumping 18.18 percent to $120.57.

Analyst Eric Sheridan said Expedia's newly promoted management team used the third-quarter results to clarify concerning a series of near-term headwinds to hotel room nights and revenues, a robust growth profile for HomeAway, which comes at the expense of margins, and a long-term vision for the company's place in the travel industry on the back of investments planned, most over the next four to six quarters.

"We believe this collective narrative will see a wholesale reduction in forward operating estimates in a manner that likely sets up Expedia for another wave of 'show me' with investors (not unlike ones in prior years) based on a much better risk/reward if execution comes thru on key initiatives (hotel inventory growth, HomeAway, marketing RoI, capital allocation)," the analyst said (see his track record here).UBS noted that Expedia's third-quarter gross bookings grew 11 percent year over year to $22.20 billion, which includes a negative impact from natural disasters and forex. Core bookings were slightly lighter, relative to expectations, the firm said.

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Overall, the firm noted that revenues came in at $2.97 billion, trailing its estimate of $3.02 billion and the Street forecast of $2.98 billion. HomeAway accounted for $305 million of the total revenues, up 45 percent on a standalone basis, the firm added. The firm also said adjusted EBITDA trailed expectations.

On lodging room nights, the firm noted 16 percent growth, below its forecast for 22 percent growth. Room nights stayed from global growth brands such as Expedia, Hotels.com, EAN and Egencia were up 18 percent compared to 36 percent for HomeAway, the firm added.

Delving on the positives and negatives out of the results, the firm said it sees the growth in HomeAway property nights, the total property count and Egencia bookings as positive. Meanwhile, the firm views the light room-night growth, lower than expected adjusted EBITDA and the management commentary on more aggressive investment spending as negatives.