After a challenging year, Expedia Group is showing signs of recovery that could make it an appealing choice for investors, with added momentum from recent speculation that Uber Technologies is exploring a potential acquisition of the online travel giant.
With travel demand stabilizing post-pandemic and strategic shifts under new leadership, the company’s potential is starting to look much brighter.
The company has endured a rollercoaster year, with its stock tumbling after the departure of CEO Peter Kern and disappointing quarterly results earlier in the year.
Kern, who had successfully guided the company through the pandemic, left amid growing investor impatience.
His successor, Ariane Gorin, is now leading a turnaround, focusing on boosting market share for Expedia’s core brands—Expedia, Hotels.com, and VRBO.
In a report by Barrons, senior analyst Naveen Jayasundaram at ClearBridge Investments said,
“Expedia is a business in the midst of a turnaround. There are early signs of progress.”
Uber’s interest fuels optimism for Expedia’s future
Reports from the Financial Times suggest that Uber has explored a potential acquisition of Expedia, which has drawn further attention to the stock’s potential.
Expedia shares jumped 7.6% in after-hours trading after the report came out.
Uber’s CEO, Dara Khosrowshahi, previously led Expedia and remains on its board.
An acquisition could create synergies between Uber’s global transportation network and Expedia’s travel booking services, offering a more comprehensive travel solution for customers.
While no formal deal has been confirmed, Uber’s interest speaks volumes about the value proposition that Expedia represents.
Investors see this as a sign that the company’s assets and operational platform are increasingly attractive to major players in the travel and tech industries.
Travel demand stabilizes as Expedia eyes market growth
Despite fluctuations in the travel market post-pandemic, global travel demand remains robust.
Domestic and international air traffic has returned to 2019 levels, and cruise bookings are set to exceed pre-pandemic figures by nearly five million travelers in 2024.
Expedia, as one of the largest online travel agencies in the world, stands to benefit from this sustained demand.
Expedia’s market dynamics have also shifted as consumer preferences evolve.
Today’s travelers, especially new users unfamiliar with traditional booking platforms, are more likely to rely on online travel agents (OTAs) like Expedia for hotel and airfare deals.
Christopher Conway, senior portfolio manager at GYL Financial Synergies said in the report,
“The more fragmented the industry is, the harder it’s going to be for [competitors], even Google.”
While some bears argue that hotels may resist paying commissions to OTAs in the same way airlines have, the hotel industry remains fragmented, with many properties owned by smaller operators.
This limits the potential for a large-scale rebellion against platforms like Expedia and Booking Holdings, which together control roughly 42% of global travel bookings, according to travel industry firm Skift.
Source: Barron’s
Expedia’s valuation: Undervalued and ready for growth
Expedia’s stock is trading at attractive valuations, making it an appealing option for value-focused investors.
The stock is priced at just 11 times forward earnings, a significant discount compared to its main competitor Booking Holdings, which trades at 22 times forward earnings.
Dan Ahrens, managing director at AdvisorShares, refers to Expedia as a “blue-chip travel stock” that’s simply too cheap at current levels.
Jay Aston Jr., a portfolio manager at Neuberger Berman, echoes this sentiment, noting that “Booking does a good job, but Expedia has a pretty fantastic platform.”
He also highlights that Expedia’s unified platform, streamlined during the pandemic, is now generating significant cash flow.
The company posted $1.3 billion in free cash flow in the most recent quarter, a 42% increase from the previous year.
Aston adds,
A more unified platform will allow Expedia to generate significantly more meaningful cash flow, and there’s a lot more operating leverage to come.
Earnings growth and a bright future under new leadership
Expedia’s financial outlook appears strong, with analysts predicting a 21.5% increase in earnings per share this year, rising to $11.78, and an additional 20% growth in 2025 to $14.18.
Revenue is expected to grow by approximately 7% in both years, driven in part by the company’s home rental service, VRBO, which rebounded in the second quarter thanks to the launch of the One Key loyalty program.
Additionally, Expedia’s business-to-business (B2B) division, which allows other travel companies to tap into Expedia’s inventory, has also been a growth driver.
This part of the business, combined with other strategic initiatives, positions Expedia for continued success.
The company will report its third-quarter results on November 7, giving investors another opportunity to assess the effectiveness of its new leadership and strategy.
Randy Hare, director of equity research at Huntington National Bank, believes Expedia is well-positioned for growth, saying,
Expedia is probably interesting here, relative to Booking, since the valuation is more attractive—we like that. Their estimates seem doable…we could see decent growth and upward movement.
With analysts continuing to revise their earnings estimates upwards, and the company poised for further growth under the leadership of CEO Ariane Gorin, Expedia may just be the travel stock investors need to keep on their radar.
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