2023-03-29 18:37:24 ET
Summary
- Expedia Group has continued to see respectable revenue growth.
- However, a drop in earnings in the last quarter gave investors pause.
- Should we see evidence of revenue growth peaking going forward, then the stock could see little upside in the short to medium term.
Investment Thesis: Expedia Group (EXPE) may see little growth in the short to medium-term if revenue growth starts to plateau going forward.
In a previous article back in January, I made the argument that Expedia Group was trading at an attractive P/E ratio along with demonstrating significant growth in revenues and earnings - with the recent selloff in the stock seeming overdone for these reasons.
We have seen that while Expedia saw a slight recovery in the month of January - the stock has consolidated since then and still remains well below levels seen in the previous year.
The purpose of this article is to assess whether my prior case for bullish upside still holds - particularly taking the most recent quarterly results into consideration.
Performance
When looking at Q4 2022 results for Expedia Group, we can see that while revenue is up by 15% as compared to the same period last year - diluted earnings per share is down by 35% over the same period.
With that being said, we can see that diluted earnings per share is still up strongly on a full-year basis:
We can see that revenue has exceeded gross bookings over the period, which is an encouraging sign. This indicates that customers are following through with bookings made on the whole, without a high degree of cancellations. In other words, Expedia Group is accordingly capturing the revenue from the growth in gross bookings.
Over the past year, we also see that while the Retail segment accounts for the majority of EBITDA - growth across the B2B segment has far outpaced that of the former.
This could be an indication that while demand by business travelers and other corporate customers is seeing a strong rebound post-COVID - inflationary pressures may be placing downward demand on the retail side - evidenced by a 15% drop in earnings from Q4 2021 to Q4 2022.
From a balance sheet standpoint, we can see that while the long-term debt to total assets ratio is still up significantly from 2019 - the ratio as of December 2022 is only up marginally from that of September.
Metric | Sep 2019 | Sep 2022 | Dec 2022 |
Long-term debt (excluding current maturities) | 4,170 | 6,237 | 6,240 |
Total assets | 21,381 | 21,879 | 21,561 |
Long-term debt to total assets ratio (%) | 19.50% | 28.51% | 28.94% |
Source: Figures sourced from Expedia Group Q3 2019, Q3 2022 and Q4 2022 Earnings Releases. Figures provided in USD millions except the long-term debt to total assets ratio. Long-term debt to total assets ratio calculated by author.
In this regard, the main concern for Expedia Group at this time is whether revenue growth can continue to rise sufficiently to bolster earnings once again as we head towards the summer months.
Risks and Looking Forward
Going forward, the main risk for Expedia Group is that booking demand could start to see a peak in 2023 after the post-COVID recovery, particularly across the Retail segment where customers are likely to be more price-sensitive.
Additionally, while the sharp rebound in growth that we have seen across the B2B segment is encouraging - growth across this segment can be expected to plateau at some point.
In this regard, I take the view that investors will be paying close attention to upcoming earnings quarters in the summer months to see whether revenue and bookings have the scope to grow significantly further than levels seen for the months of Summer 2022. Should we see signs that growth is starting to plateau, then this could be expected to place downward pressure on earnings and in turn on the stock price.
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Additionally, we can see that while the EV to EBITDA ratio is lower than that of last year - EBITDA per share has also declined significantly. As such, my prior assertion that the stock is likely to be undervalued at this price may be less likely to hold given the recent drop in earnings.
Conclusion
To conclude, Expedia Group has continued to see growth in revenues. However, a disappointing last quarter in terms of earnings gave investors pause. Should we fail to see a meaningful rebound in earnings going forward, then the stock could see little growth in the short to medium-term in my view.
For further details see:
Expedia: Why I Take A More Cautious View Than Previously