Piper Jaffray Upgrades Expedia To Overweight, Raises Target To $140

Piper Jaffray’s Michael J. Olson upgraded the rating on Expedia Inc EXPE from Neutral to Overweight, while raising the price target from $130 to $140.

EBITDA Upside

The company’s acquisition of HomeAway, although not free of risk, is expected to drive EBITDA upside “even after significant reinvestment of growth into OpEx,” Olson mentioned.

The analyst also stated that core Expedia was performing well and was expected to drive sustainable organic EBITDA growth in the mid-teens.

“We believe Expedia's guidance for $350M of EBITDA from HomeAway in '18 is overly conservative as it assumes that ~70%+ of new revenue growth will be continuously absorbed by increases in OpEx,” Oslon pointed out.

Forward Expectations

Although the company’s strategy of reinvesting any EBITDA upside could cap HomeAway’s outperformance, the analyst believes that reinvestments in marketing were likely to at least yield shareholder-neutral free cash flow in future.

Olson also pointed out that with HomeAway implementing a guest booking fee to an average 6 percent of bookings, the fee is expected to generate revenue of $1 billion in 2018 alone.

According to the Piper Jaffray report, “Expedia is prudently managing EBITDA growth and reinvesting in marketing channels to expand via international channels and domestically by taking share from smaller OTAs and hotel websites.”

Bookings are expected to grow at a CAGR of 18 percent through 2018, along with OTA/Egencia EBITDA growth of 19 percent.