Expedia Group Inc. shares rallied 9% Friday, after the online travel operator crushed earnings estimates for the second-quarter, and won some hard-earned praise from analysts.
Expedia EXPE, +8.12% posted net income of $1 million, or a penny a share, in the quarter, compared with $57 million, or 36 cents a share, in the year-ago period. Adjusted for one-time items, Expedia earned $1.38 a share in the quarter, and excluding Trivago, which it spun off in late 2016, earned $1.45 a share, well ahead of the FactSet consensus of 89 cents a share.
Revenue rose 11% to $2.88 billion, from $2.58 billion a year ago, matching the FactSet consensus. Room nights grew 12% and total gross bookings were up 13%.
On the company’s earnings call with analysts, Chief Financial Officer Alan Pickerill said the company is raising its full-year adjusted EBITDA growth outlook to 7% to 12%, according to a FactSet transcript.
“Note that while we are pleased with our results to this point, we still have a lot of work to do with more than 100% of our dollar growth in adjusted EBITDA ahead of us in the second half of the year,” Pickerill told analysts. “We have strong operational momentum and believe we are well positioned to continue delivering healthy top-line and profit growth in the near-term, while investing in key initiatives to drive sustained growth over the long-term.”
Expedia is “back in the groove,” said Jefferies analysts, who rate the stock a buy.
“Even with the +9% move post print, we still believe Expedia shares have more than 20% upside to our $170 price target and represent one of the only deep value names in Internet,” they gushed in a note.
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Raymond James upgraded the stock to outperform, the equal of buy, from market perform, and set a stock price target of $157, equal to 14.5% above its current trading level.
Analysts cited four reasons for the upgrade.
First, “the worst of the investment cycle appears over and 15%+ annual EBITDA growth is achievable again,” they wrote in a note.
Expedia has been spending heavily in an online advertising war with rivals that include Booking Holdings Inc. BKNG, -0.03% (the former Priceline) and TripAdvisor Inc. TRIP, -4.25% The company has also invested in hotel supply, customer support and cloud technology to better compete in the online travel space.
In the second quarter, total costs came to $2.635 billion, up 10% from the year-earlier period and equal to 91.5% of revenue. Selling and marketing costs climbed 7% to $1.541 billion and spending on technology and content rose 17% to $400 million.
Raymond James said these investments should translate to hotel share gains.
HomeAway is “further along with the instant booking shift, which further benefits room night growth; and share gains and double digit EBITDA growth are historically factors that drive EXPE share price outperformance,” they wrote.
Susquehanna analysts reiterated their buy rating on the stock and raised their stock price target to $180 from $170. They cited as positives early signs of acceleration in focus markets, ones where Expedia has aggressively added properties that are starting to see an increase in room nights growth.
“While still early, we view this as an indication that management’s strategy to expand property selection in order to accelerate growth is starting to work,” they wrote.
Ad spend is becoming more efficient and cloud is helping, they added. “Core OTA (online travel agency) is benefiting from a data-driven approach to marketing optimization by leveraging capabilities gained from the cloud migration,” they wrote. “HomeAway is also refining its performance ad spending for efficacy while driving strong growth. “
JPMorgan analysts took a more subdued approach, reiterating their neutral rating on the stock.
We continue to think Epedia is making the right investments, but we remain neutral as we look for signs of acceleration in they back half,” they wrote in a note.
Stifel analyst Scott Devitt was also muted, reiterating his hold rating on the stock but raising his price target to $136 from $122.
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“Expedia remains in an investment cycle as the company pursues multiple initiatives / higher-growth opportunities including the cloud transition, HomeAway, and international,” said Devitt. “We view risk / reward in Expedia shares as balanced at current levels.”
Booking shares were up 1% Friday, while TripAdvisor shares slid 3.2%.
Expedia shares are now up 14% in 2018, while the S&P 500 SPX, -0.42% has gained 5.9% and the Dow Jones Industrial Average DJIA, -0.13% has gained 3.4%.
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