Traveling is an important part of human’s life. Organization of travelling schedule is also a tough task. Therefore, if the organizing part becomes hassle free then travelling becomes more pleasurable. Expedia Inc. (EXPE, Financial) is one of the largest travel companies in the world. The company provides exclusive travel solutions to its valued customers. Expedia’s portfolio of travel brands featuring supply portfolio, including more than 260,000 hotels in 200 countries, 400 airlines, packages, rental cars, cruises, as well as destination services and activities.
Its portfolio of brands includes Expedia.com, a service online travel agency with sites in over 31 countries; Hotels.com, a hotel-only booking service with more than 85 sites globally; Hotwire.com, a discount travel provider with sites in 12 countries; CarRentals.com, the premier car rental booking company on the web; Expedia Affiliate Network, which powers travel for travel and non-travel brands; luxury travel specialist, Classic Vacations; destination services and concierge services provider Expedia Local Expert.
The company delivers consumers value in leisure and business travel, drives incremental demand and direct bookings to travel suppliers, and provides advertisers the opportunity to reach a highly valuable audience of in-market consumers through Expedia Media Solutions.
Performance check: Impressive figures posted
On Oct. 30, 2014, this Bellevue, Washington-based company reported revenue of $1.71 billion for the third quarter, up 14.6% sequentially and 22.2% year over year. Leisure customers and Corporate customers (Egencia) are the main contributors to its strong earnings. The two segments' revenue grew 16.1% and -5.8%, respectively. Expedia also generates its revenue through merchant business (direct sales), agency model, and Advertising and Media. These three channels’ growth from the year-ago quarter were 44.5%, 13.7%, and 29.4%, respectively. The company’s domestic business grew 12.5% and international business grew 16.7% for the quarter. Expedia’s two main product lines Hotel and Air grew 21% each from the year-ago quarter.
Cash, cash equivalents, restricted cash and short-term investments totaled $2.7 billion at September 30, 2014. For the nine months ended September 30, 2014, net cash provided by operating activities was $1.6 billion and free cash flow totaled $1.3 billion. Compared to the prior year period, free cash flow increased $587 million for the nine months ended September 30, 2014. Long-term debt totaled $1.75 billion at September 30, 2014 consisting of $497 million, net of discount, in 4.5% senior notes due 2024, $749 million, net of discount, in 5.95% senior notes due 2020 and $500 million in 7.456% senior notes due 2018. During the third quarter of 2014, the company has repurchased 1.5 million shares of common stock for an aggregate purchase price of $130 million, excluding transaction costs (an average of $84.63 per share). A chart has been provided below to show the company’s financial summary and operating metrics.
Positive outlook
Expedia is increasing its investment in the international segment as growth in this segment is slowing down. On Jan. 23, 2015, Expedia has announced the acquisition of Travelocity (one of the most recognized travel brands in North America, offering thousands of travel destinations to more than 20 million travelers per month) from Sabre Corporation (SABR, Financial) for $280 million in cash. The acquisition follows the 2013 strategic marketing agreement between Expedia and Travelocity under which Expedia has powered the technology platforms for Travelocity's U.S. and Canadian websites along with providing Travelocity access to Expedia’s supply and customer service program.
On Jan. 13, 2015, Expedia announced the release of two new products capitalizing on the investment of its Real Time Data Platform: Real Time Feedback and Sell Tonight; powerful new tools for hoteliers and travelers alike.
On Dec. 10, 2014, Expedia partnered with Best Western International, Inc. (the world’s largest hotel chain) to distribute Best Western branded hotels on Expedia Inc. sites.
Further, on Nov. 13, 2014, expedia completed the acquisition of Wotif Group (which operates online travel brands in the Asia-Pacific region, including, Wotif.com, lastminute.com.au, travel.com.au, Asia Web Direct, LateStays.com, GoDo.com.au and Arnold Travel Technology) for total cash consideration of A$703 million or A$3.30 per share (equivalent to $612 million or $2.87 per share based on November 13, 2014 exchange rates).
Why Expedia?
Expedia has strong financial results which are shown below.
Expedia is the global leader in ~$1.1 trillion market with strong offline-to-online trends. It has significant growth opportunities across geographies. The company’s diversifying revenue mix reduces risk and positions the business for growth. Expedia is the global leader and has significant headroom for further growth. It is rapidly expanding in fragmented hotel segment of the travel industry and has completed significant technology investments that fortify the business.
On a concluding note
Overall the travel market is healthy and Expedia has significant acceleration in the advertising and media business which is shown below.
Source: Company website
Further, the company has a powerful free cash flow generation and a solid track record of disciplined capital allocation. Expedia has a solid stock price performance with a notable return on equity. Its valuation levels are also reasonable and profit margins are also expanding. I feel bullish that Expedia will continue its trend and won’t let its valued investors as well as customers down in the long run.
