Investing in Expedia: Analysts Weigh in on Value and Risks Amid Revenue Shortfalls and Marketing Spend Shifts

Credit Suisse analyst Stephen Ju maintained Expedia Group Inc EXPE with an Outperform and raised the price target from $172 to $174.

EXPE reported 2Q23 results with revenue and adjusted EBITDA of $3.4 billion and $747 million vs. Ju's $3.4 billion and $632 million and consensus of $3.4 billion and $684 million. 

Ju's FY23 and FY24 adjusted EBITDA estimates are now at $2.63 billion and $2.64 billion vs. the prior $2.55 billion and $2.75 billion.

Results were mixed with a revenue shortfall due to lower gross bookings, offset by strength in B2B. Adjusted EBITDA exceeded Ju's and Street's forecasts, primarily driven by higher gross profits and lower operating expenses. 

The company highlighted that travel trends remained consistent from 1Q. The most significant development was the One Key launch in July, and Expedia's ongoing tech stack/Vrbo migration is on track for completion by 4Q23

The re-rating reflected the potential for faster product innovation and bookings growth, marketing leverage, and ensuing operating margin improvement and incremental gross booking and FCF dollars from Vrbo. 

JMP Securities analyst Nicholas Jones maintained a Hold rating on Expedia.

Expedia reported total gross bookings below expectations and revenue roughly aligned with consensus. At the same time, adjusted EBITDA came in better than expected and benefited from a timing shift in marketing spend from 2Q to 3Q to better align with the launch of One Key. One Key's 3Q launch and the completion of Vrbo's tech migration in 4Q will likely drive sequential acceleration in growth to both the top and bottom lines in 4Q.

Jones sees limited upside to numbers and stock price over the next twelve months but expects EXPE's accelerated repurchase program to help limit the downside. 

Benchmark analyst Daniel L. Kurnos maintained a Buy rating with a price target of $160. A cut of planned spend probably triggered the selloff.

The delay in a portion of marketing spend to generate higher returns in the back half of the year post One Key beginning to roll out, resulting in an over $1 billion gross booking (GB) miss, with 3Q gross booking color also looking weaker than the consensus forecast.

Kurnos suspect this led to two immediate reactions from the naysayers: 1) Expedia is once again losing flight share and 2) now the year is entirely back-end loaded, creating even more risk to the full-year guide. 

The analyst sees growth poised to accelerate into 2024, margins set for incremental expansion, and wins in the B2B arena with Mastercard Inc MA and Walmart Inc WMT. 

Until management's thesis is proven wrong, he continues to believe shares of Expedia represent one of the most intriguing value offerings across his entire universe. 

Mizuho analyst James Lee maintained a Neutral rating and a $110 price target. EBITDA beat expectations from shifting marketing spending to 2H23 to align with launching One-Key, the new unified loyalty program. 

As a result, gross bookings and room-nights-booked were below expectations. However, management reaffirmed FY23's guidance of double-digit revenue growth with expanding margins. 

Post One-Key launch, Lee believes execution is vital as the tech-stack upgrade is primarily done, but management took a conservative view and expected it would take time to ramp. Given their comments, Lee lowered his FY25- EBITDA by 3% to $3.3 billion.

Susquehanna analyst Shyam Patil maintained a Neutral rating with a price target of $105.

EXPE reported a mixed 2Q, with revenue and bookings growth decelerating slightly more than expected, driven by softness in B2C, though profitability was solid. 

The company expects development to improve in the second half of the year, which should be bolstered by continued strong demand for travel. Patil remained constructive on the long-term EXPE online hotels and alternative accommodations penetration story.

Price Action: EXPE shares traded higher by 4.03% at $102.65 on the last check Friday.