A month has gone by since the last earnings report for Expedia (EXPE). Shares have added about 18.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Expedia due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Expedia Reports Loss in Q2
Expedia Group reported second-quarter 2020 adjusted loss of $4.09 per share, wider than the Zacks Consensus Estimate of a loss of $3.40 per share. Notably, the company had reported a loss of $1.83 per share in the prior quarter. Further, it compares unfavourably with the year-ago quarter’s earnings of $1.77 per share.
Revenues of $566 million missed the Zacks Consensus Estimate of $577 million. Further, the top line declined 82% year over year and 74.4% sequentially.
The worsening travel trends owing to the coronavirus pandemic that has been wreaking havoc on global travel industry since its onset impacted Expedia’s second-quarter results negatively.
More-than-expected cancellation rate hurt the company’s gross bookings during the reported quarter.Expedia witnessed gross bookings of $2.7 billion, which decreased 90% year over year and 84.8% sequentially. Further, the figure missed the Zacks Consensus Estimate of $4.6 billion.
We note that bookings were cancelled the most in April.
Headwinds related to coronavirus remain major concerns for the company in the days ahead.
Nevertheless, Expedia has started witnessing moderation in the cancellation of bookings. In the month of May and June booking of the company reflected signs of improvement. Further, improving performance of Vrbo remains a major positive.
Notably, the company sold Bodybuilding.com in the second quarter. Further, it shutdown Pillow and ApartmentJet, which were part of Vrbo.
Revenues by Segment
Retail: The company generated $463 million revenues (81.8% of total revenues) from this segment, which declined 80% year over year. Notably, the segment comprises Expedia.com, Hotels.com, Vrbo, Orbitz, Travelocity, Wotif Group, ebookers, CheapTickets, Hotwire.com, CarRentals.com, CruiseShip Centers, Classic Vacations and SilverRail Technologies, providing travel and advertising services worldwide.
B2B: This segment yielded revenues of $68 million (12% of total revenues), which fell 90% from the year-ago quarter. Notably, the segment includes Expedia Partner Solutions and Egencia.
Corporate: The company generated $20 million revenues from this segment (3.5% of total revenues). The segment generates revenues from Bodybuilding.com, which was acquired in the Liberty Expedia Holdings, Inc. transaction in third-quarter 2019. Notably, the top-line is down 48.7% sequentially.
trivago: Revenues from this segment totaled $18 million (3.2% of revenues), down 93% year over year.
Revenues by Business Model
Merchant model generated revenues of $368 million (65% of revenues), down 79% year over year. Merchant gross bookings came in $1.3 billion, down 89% from the prior-year quarter.
Agency division generated revenues of $105 million (18.6% of revenues), declining 90% from the prior-year quarter. Agency gross booking were $1.4 billion, down 92% year over year.
Advertising & Media and other generated $93 million in revenues (16.4% of revenues), declining 73% from the year-ago quarter. This can primarily be attributed to sluggishness in Expedia Group Media Solutions and trivago.
Revenues by Geography
Expedia generated $463 million revenues (81.8% of total revenues) from domestic regions, down 75% from the prior-year quarter.
Further, revenues generated from international regions totalled $103 million (18.2% of revenues), down 92% on a year-over-year basis.
Revenues by Product Line
Lodging revenues, which accounted for 86% of total revenues, declined 78% from the prior-year quarter. Although the company witnessed a 15% rise in revenues per room night, weak stayed room nights declined 81%.
Air revenues accounted for 12% of revenues. Notably, air tickets sold plunged 85% year over year.
Operating Details
Adjusted EBITDA was ($753) million in the reported quarter against $183 million in the prior-year quarter.
Further, adjusted selling and marketing expenses were $275 million, down 82% year over year. As a percentage of revenues, these expenses contracted 100 basis points (bps) year over year to 49.7%.
Additionally, general and administrative expenses were $124 million, down 27% year over year. As a percentage of revenues, the figure came in 22.4%, which expanded significantly from the year-ago quarter figure of 5.7%.
Technology and content expenses were $224 million, down 16% from the year-ago quarter. The figure expanded from 8.9% in the year-ago quarter to 40.8% in the reported quarter as a percentage of revenues.
The company reported second-quarter operating loss of $849 million against operating income of $265 million in the year-ago quarter.
Balance Sheet & Cash Flow
As of Jun 30, 2020, cash and cash equivalents were $5.1 billion, up from $3.9 billion as of Mar 31, 2020. Short-term investments totaled $422 million, up from $194 million in the previous quarter.
Additionally, long-term debt was $6.9 billion at the end of the second quarter compared with $4.2 billion at the end of the first quarter.
Further, Expedia utilized $1.8 billion of cash in operations during the reported quarter compared with $784 million in the last quarter. Further, free cash flow was ($2.1) billion in the second quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -120.8% due to these changes.
VGM Scores
At this time, Expedia has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It’s no surprise Expedia has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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