Expedia: Time To Travel With Barry Diller

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Expedia Group is the dominant firm in the industry with brands including Expedia, Hotels, VRBO, Orbitz, Travelocity, CheapTickets, HotWire, and Trivago. I’d bet dollars to dimes that you have used at least one of Expedia’s services.

Expedia’s revenue and earnings have trended in one direction — higher — since its 2005 IPO. Revenue grew at a 16.9% annual average through 2019. Earnings per share grew at a 7.6% average annual rate. 

It was all good until March 2020, and then it wasn’t. When the books were closed for 2020, Expedia recorded $5.2 billion in annual revenue, less than half the prior year. The loss per share totaled $19.00. The dividend was suspended. Capital was raised; management instead tapped the debt markets for the $3.2 billion, thus avoiding diluting the owners’ positions.

Expedia has been rebuilding over the past 12 months. The company has yet to reach pre-COVID-19 status, but it’s getting there. What’s more, the rebuilding is progressing faster than analysts have expected.

With further vaccine rollouts and easing of travel restrictions, Expedia should benefit from a release of pent-up demand. Demand would likely accelerate in 2022, even with a likely uneven recovery. The share price has recovered with the business prospects. Expedia shares traded as high as $188 back in March. They’ve drifted lower since, as enthusiasm has waned on the threat of a new COVID-19 variant.

It’s best not to wait. Once certainty returns, stock prices will have already adjusted to higher level. Let’s get in while the getting in is still good. I see certainty returning within the next 12 months. My $210 price target reflects its return. I base this on a 2.8 price-to-revenue multiple on my 2022 estimate of $12 billion. The valuation is still a discount versus the peers.

In addition, Expedia has quality management in spades. Barry Diller is Expedia’s chairman and senior executive. He has assembled a quality, innovative management team at Expedia. I would expect nothing less, given his experience.

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