The name ‘Expedia’ (a leading full-service online travel brand with localised websites in over 40 countries covering 27 languages offering a wide selection of travel products and services) needs no further introduction – most of us should have used the website at some point in time before to make our hotel reservations when planning for our vacations.

Apart from its namesake website, do you know that the following brand names (some of them you should be familiar as well) are also under the NASDAQ-listed company?

  • Hotels.com – Founded in 1991 as ‘Hotel Reservations Network’, it joined the Expedia Group in 2001
  • Trivago – Incorporated in 2005 in Düsseldorf, Germany, Trivago has established 55 localised platforms connected to over 3.5 million hotels and alternative accommodations in over 190 countries as at 30 September 2019
  • CarRentals.com – Provides customers with value-priced one-way or round trip car rentals at thousands of on- and off-airport locations worldwide
  • Vrbo – Founded in 1995, the site pairs homeowners with families and friends looking for a place to stay; it joined the Expedia Group in 2015
  • Egencia – With a global presence in more than 60 countries across North America, Europe, and Asia Pacific, it offers travel products and services to businesses and their corporate travellers
  • Hotwire – The website offers a travel booking service that matches flexible, value-oriented travellers with suppliers who have excess seats, rooms, and cars they offer at lower rates than retail
  • Wotif Group – A leading Australian online travel company comprising of Wotif.com, LastMinute.com.au, and Travel.com.au in Australia, as well as Wotif.co.nz. and LastMinute.co.nz in New Zealand
  • Orbitz – The Orbitz portfolio of brands includes Orbitz, CheapTickets, as well as ebookers, all of them allowing consumers to search and book a broad range of hotels, flights, car rentals, cruises, vacation packages, and destination activities

Now that you have a better understanding about the company’s businesses, along with other brand names under it, in the rest of today’s post, I will be sharing with you the good (4 points to note), as well as the bad (3 points to note) about the company, which I hope will be able to help you to make a more informed investment decision:

The Good

1. An Improving Total Revenue and Net Profit Growth

Between FY2016 and FY2019 (the company have a financial year end every 31 December), its total revenue and net profit have grew at a compound annual growth rate (CAGR) of 8.3% and 19.0% respectively.

Both its total revenue and net profit have also recorded year-on-year (y-o-y) improvements every single year over the past 4 years I have looked at:

FY2016FY2017FY2018FY2019
Total Revenue
(USD’mil)
$8,774m$10,060m$11,223m$12,067m
Net Profit
(USD’mil)
$282m$378m$406m$565m

Expedia Group Inc.'s Total Revenue and Net Profit between FY2016 and FY2019

2. Consistent Gross Profit Margin, along with a Gradual Net Profit Margin Growth

As you can see from the table below, Expedia Group Inc. have kept its gross profit margin at a steady rate of around 80+% over the last 4 years (between FY2016 and FY2019), and at the same time, its net profit margin have also improved over the same time period (the only exception was in FY2018, where it dipped slightly compared to the year before):

FY2016FY2017FY2018FY2019
Gross Profit
Margin (%)
81.8%82.5%82.5%82.1%
Net Profit
Margin (%)
3.2%3.8%3.6%4.7%

Expedia Group Inc.'s Gross and Net Profit Margins between FY2016 and FY2019

3. Steady Improvements in its Return on Equity

Another plus to highlight is the company’s ability to improve on its return on equity (in layman terms, it is a measurement of the amount of profits the company is able to make for every dollar of shareholders’ money it uses in its businesses) every single year over the past 4 years I have looked at, as follows:

FY2016FY2017FY2018FY2019
Return on
Equity (%)
6.8%8.4%9.9%14.2%

Expedia Group Inc.'s Return on Equity between FY2016 and FY2019

4. Increase in its Dividend Payouts to Shareholders

Expedia Group Inc. pays out a dividend to its shareholders on a quarterly basis – one thing to note if you are a Singaporean investing in a US-listed company is that all dividends received are subjected to a 30.0% withholding tax (meaning the dividends you receive will be 30.0% lesser than what was declared by the company.)

Over the last 4 years (between FY2016 and FY2019), the company have increased its payout from 90.0 cents/share in FY2016 to 126.0 cents/share in FY2019 – a CAGR of 8.8%:

FY2016FY2017FY2018FY2019
Dividend Per
Share (USD’cents)
90.0
cents
102.0
cents
118.0
cents
126.0
cents
Dividend Payout
Ratio (%)
49.5%42.1%44.5%33.4%

In terms of its payout ratio over the years, I note that it has been paying out no more than 50.0% of its earnings as dividends to shareholders, while retaining the other half for its businesses.

The Bad

1. Company Remaining in a Net Debt Position

In all the 4 years I have looked at (between FY2016 and FY2019), the company have been in a net debt position, with its total borrowings on a rise over the same time period.

However, its cash and cash equivalents have gone up as well and as such, even though the company is in a net debt position, but it has improved over the years:

FY2016FY2017FY2018FY2019
Cash & Cash
Equivalents
at the End
of Period
(USD’mil)
$1,818m$2,917m$2,705m$4,097m
Total
Borrowings
(USD’mil)
$3,159m$4,249m$3,717m$4,938m
Net Cash/
Debt
(USD’mil)
-$1,341m-$1,332m-$1,012m-$841m

2. Current Ratio Below 1.0

For those of you who do not know what current ratio is, in layman terms, it measures a company’s ability to fulfil its short-term debt obligations, and a ratio above 1.0 implies it is able to do as such.

However, over the past 4 years, the company’s current ratio have been under 1.0:

FY2016FY2017FY2018FY2019
Current
Ratio
0.60.70.60.7

3. Company Entrenched in a Net Loss Position as at 9M FY2020

The travel industry is one of the worst hit industries as a result of the ongoing Covid-19 pandemic all around the world, where travelling between countries has came to a standstill the year 2020 (as many countries close their immigration borders to foreigners in an effort to stem the further spread of the pandemic.)

As such, it came as no surprise that for the first 9 months of FY2020 (ended 30 September 2020), Expedia Group Inc. is entrenched in a net loss position.

The following table is the company’s total revenue and net profit recorded for the first 9 months of FY2020 compared against the same time period last year (i.e. 9M FY2019 ended 30 September 2019):

9M FY20199M FY2020% Variation
Total Revenue
(USD’mil)
$9,320m$4,279m-54.1%
Net Profit
(USD’mil)
$489m-$2,279mN.M.

Is the Current Share Price of Expedia Group Inc. Considered ‘Cheap’ or ‘Expensive’?

At the time of writing, the share price of Expedia Group Inc. was trading at US$144.17.

Looking at the mean target price on the ShareInvestor WebPro platform at the time of writing, it was at US$123.93, which means that the current share price is trading at a 14.0% premium:

Consensus Estimate of the Share Price of Expedia Group Inc. on the ShareInvestor WebPro Platform
Consensus Estimate of the Share Price of Expedia Group Inc. on the ShareInvestor WebPro Platform

As such, you can say that the current share price of Expedia Group Inc. is considered to be ‘expensive’ at the moment.

In Conclusion

With vaccines currently available, and many countries having already placed orders for them and slowly inoculating their population, I am of the view that while there is optimism with regard to the resumption of travelling activities, but it is likely to be a slow one. I personally foresee leisure travelling will only return to pre-Covid levels from late-2022 or early-2023 (or even later, depending on the speed where countries around the world receive the vaccines and inoculate their population, and the extent to which the pandemic can be successfully brought under control from there.)

As such, my opinion as far as Expedia Group Inc.’s financial results for the year ahead (i.e. 2021) is likely to be weak, and y-o-y improvements may only come in the following year (i.e. in 2022.)

With that, I have come to the end of my share on the NASDAQ-listed Expedia Group Inc. Before I end, a disclaimer that everything you have just read above is purely for educational purposes only and that they do not represent any buy or sell recommendations for the company’s shares. Please do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am not a shareholder of Expedia Group Inc.

 

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