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Expedia's SWOT analysis: travel giant's stock navigates shifting tides

Published 13/11/2024, 13:06
EXPE
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Expedia (NASDAQ:EXPE) Group, Inc. (NASDAQ:EXPE) has demonstrated resilience in a dynamic travel market, posting solid third-quarter results for 2024 that exceeded analyst expectations. The online travel leader reported gross bookings of $27.5 billion, surpassing consensus estimates of $26.7 billion, while adjusted EBITDA of $1.25 billion came in above projections of $1.23 billion. These results, coupled with an improved outlook for the remainder of the year, have sparked renewed interest in the company's stock among investors and analysts alike.

Business Segment Performance Shows Mixed Results

Expedia's performance across its various business segments has been mixed, with its B2B operations emerging as a particular bright spot. The B2B segment has shown strong growth, outpacing industry averages and demonstrating potential for reduced cyclicality due to new partnerships. This success has helped offset challenges in some of the company's B2C brands.

Within the B2C portfolio, results have been varied. The core Expedia brand has performed well, while Hotels.com continues to face headwinds. Notably, Vrbo, Expedia's vacation rental platform, has shown signs of a turnaround after several quarters of decline. In the third quarter of 2024, Vrbo posted positive growth, alleviating some concerns about its long-term prospects.

The company's loyalty program, One Key, has also shown promise, with membership growing 7% year-over-year. This growth in loyal customers could prove crucial for Expedia's future performance, potentially leading to increased repeat bookings and lower customer acquisition costs.

Financial Performance and Strategic Initiatives

Expedia's financial performance in the third quarter of 2024 was generally strong, with the company slightly raising its fourth-quarter guidance for bookings and EBITDA. Management updated the full-year 2024 gross booking value (GBV) growth guidance to 5% year-over-year, up from the previous 4% projection. Additionally, the adjusted EBITDA margin for 2024 is now expected to be slightly up compared to 2023, an improvement from earlier forecasts of flat performance.

The company has been actively engaged in share repurchases, buying back approximately $470 million worth of shares in the third quarter of 2024. This ongoing buyback program may provide some support to the stock price and signals management's confidence in the company's valuation.

Expedia continues to invest in strategic initiatives aimed at driving long-term growth. The company's multi-year technology platform migration is beginning to yield results, with management reporting improved customer experiences and higher conversion rates. These technological improvements could be key to Expedia's efforts to reclaim market share, particularly in the competitive U.S. market.

Marketing investments have also been a focus, with increased spend directed towards Vrbo and international markets. While these investments may pressure margins in the short term, they are viewed as necessary for sustaining growth and competitive positioning in the long run.

Industry Trends and Competitive Landscape

The travel industry has shown resilience in 2024, with demand remaining robust despite macroeconomic uncertainties. Expedia has benefited from this environment, though it faces intense competition from rivals such as Booking Holdings (NASDAQ:BKNG) and Airbnb.

Market share dynamics remain a concern, particularly in the U.S. where Expedia has experienced some losses. However, the company's strong B2B performance and the recovery of Vrbo provide potential avenues for growth that could help offset these challenges.

Analysts note that Expedia's valuation multiples are lower than those of its peers, reflecting both the challenges it faces and the potential upside if its turnaround initiatives prove successful. The company trades at approximately 6-7x EV/2026E EBITDA, a significant discount to the broader comparison group.

Bear Case

Can Vrbo sustain its growth recovery?

While Vrbo's return to positive growth in the third quarter of 2024 is encouraging, questions remain about the sustainability of this recovery. The platform has faced significant challenges in recent years, including erosion in its market position and difficulties stemming from platform migration and marketing pullbacks. Analysts caution that more evidence of sustained growth is needed before concluding that Vrbo's troubles are behind it.

Additionally, the vacation rental market remains highly competitive, with Airbnb maintaining a dominant position. Expedia will need to continue investing in Vrbo's technology and marketing to ensure it can compete effectively and maintain its growth trajectory.

Will increased marketing spend pressure profitability?

Expedia's decision to ramp up marketing investments, particularly for Vrbo and in international markets, could put pressure on the company's profitability in the near term. Some analysts project flat EBITDA margin changes for fiscal year 2025, below consensus estimates of a 0.5% year-over-year increase.

The company's ability to balance these investments with margin expansion will be crucial. If these marketing efforts fail to drive sufficient growth or market share gains, Expedia may struggle to meet investor expectations for profitability improvement.

Bull Case

How much can the B2B segment drive future growth?

Expedia's B2B segment has emerged as a standout performer, showing healthy growth and the potential for reduced cyclicality due to new partnerships. This segment could be a key driver of future growth for the company, potentially outpacing normalized leisure travel growth rates.

The B2B business model offers several advantages, including lower customer acquisition costs and the potential for more stable revenue streams. If Expedia can continue to expand its B2B partnerships and leverage its technology platform to serve these clients effectively, it could significantly boost the company's overall growth and profitability.

Will tech improvements lead to meaningful market share gains?

Expedia's ongoing technology platform migration has begun to show positive results, with management reporting improved customer experiences and higher conversion rates. These improvements could be instrumental in helping the company reclaim lost market share, particularly in the crucial U.S. market.

If Expedia can successfully leverage its enhanced technology stack to provide a superior user experience, it may be able to attract and retain more customers. This could lead to increased booking volumes and potentially higher take rates, driving both top-line growth and margin expansion over time.

SWOT Analysis

Strengths:

  • Strong performance in B2B segment
  • Recovery of Vrbo platform
  • Ongoing technology improvements enhancing user experience
  • Robust share repurchase program

Weaknesses:

  • Mixed performance across B2C brands
  • Market share losses in U.S. market
  • Lower EBITDA margins compared to peers
  • Ongoing CFO transition

Opportunities:

  • Potential for international expansion
  • Growth in loyalty program membership
  • Leveraging improved technology for market share gains
  • Expansion of B2B partnerships

Threats:

  • Intense competition in online travel market
  • Potential economic slowdown affecting travel demand
  • Regulatory challenges in various markets
  • Cybersecurity and data privacy risks

Analysts Targets

  • Cantor Fitzgerald: Neutral rating, price target of $170 (November 8th, 2024)
  • JMP Securities: Market Perform rating, no specific price target (November 8th, 2024)
  • Barclays (LON:BARC): Equal Weight rating, price target of $153 (November 8th, 2024)
  • Jefferies: Hold rating, price target of $145 (September 4th, 2024)
  • RBC Capital Markets: Sector Perform rating, price target of $140 (August 9th, 2024)

This analysis is based on information available up to November 13, 2024, and reflects the most recent analyst reports and company announcements as of that date.

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