Expedia Inc.EXPE reported first-quarter 2017 (including stock-based compensation) loss of 15 cents per share which was narrower than the Zacks Consensus Estimate of a loss of 30 cents. However, the company posted non-GAAP earnings of a nickel, down 44.4% from the year-ago quarter and 95.7% from the previous quarter,
Revenues were up 15% year over year and 4.6% sequentially to $2.19 billion, ahead of the Zacks Consensus Estimate of $2.14 billion. Gross bookings increased 14.1% year over year and 35.7% sequentially to $23.61 billion.
Shares declined almost 2% in after-hour trading. On a year-to-date basis, the stock has underperformed the Zacks Electronic Commerce industry. The company has returned 18.8% compared with the industry's gain of 26.1%.
Revenue by Segment
Core OTA segment revenues were up 10.4% year over year and flat on a sequential basis to $1.70 billion. Management noted that OTA lodging supply portfolio now is at about 385,000 properties, which is an increase of 36% on a year-over-year basis.
Expedia, Inc. Price, Consensus and EPS Surprise
We note that trivago revenues surged 56.3% sequentially and 62.5% from the year-ago quarter to $286 million. Per Expedia "growth was strong across all regions with the highest rate of growth in APAC along with solid growth in Europe and North America."
Egencia increased 6% on a sequential basis and 11.8% on a year-over-year basis. The company plans to ramp up the segment's sales organization to accelerate organic bookings and revenue growth.
HomeAway jumped 30.3% from the year-ago quarter and 11.4% sequentially to $185 million. The year-over-year growth was driven by property night growth and increased revenue per property night. HomeAway property nights grew 39% year-over-year on a booked basis.
Core OTA, trivago, Egencia and HomeAway contributed 77.6%, 13.1%, 5.6% and 8.4% of gross revenue (before inter-company eliminations), respectively.
Revenue by Channel
Around 53.7% of total revenue was generated through the merchant business (direct sales), another 26.1% came through the agency model (where Expedia operates as an agent of the supplier). Roughly 11.7% came from Advertising & Media with Home Away accounting for the remaining 8.4%.
Merchant, Agency, Advertising & Media and Home Away were up 0.7%, 0.5%, 35.3% and 11.4%, respectively on a sequential basis. On a year-over-year basis, Merchant, Agency, Advertising & Media and Home Away grew 9.2%, 10.4%, 47.7% and 30.3%, respectively.
Revenue by Geography
Around 57% of Expedia's quarterly revenues were generated domestically, with the remaining 43% coming from international sources. The domestic business climbed 4.2% sequentially and 12% from a year ago. The international business grew 5.3% sequentially and 19.1% from the year-ago quarter.
Revenue by Product Line
Lodging revenue (64% of total revenue), which includes hotel and HomeAway revenue, increased 12% in the quarter based on a 12% increase in room nights stayed driven by growth in Brand Expedia, Hotels.com, EAN and HomeAway.
Air revenue increased 4% driven by an 8% increase in air tickets sold, partially offset by a 4% decrease in revenue per ticket.
The year-over-year growth advertising & media revenue reflected continued growth in trivago and Expedia Media Solutions. All other revenues increased 15% reflecting growth in travel insurance and car rental products.
Adjusted gross margin expanded 140 basis points (bps) on a sequential basis and 220 bps on year-over-year basis to 81.9%.
Adjusted EBITDA plunged 52.9% sequentially but increased 17.5% year over year to $208 million. We note that trivago and Egencia EBITDA increased 50% and 28.6%, respectively on a sequential basis. However, core OTA and Home Away declined 42.5% and 85.7%, respectively.
On a year-over-year basis Core OTA, trivago and Egencia EBITDA were up 4.8%, 162.5% and 80%, respectively. Home Away EBITDA declined 64.7% in the reported quarter.
Operating expense as percentage of revenues was 72.5% as compared with 79.6% in the previous quarter and 70.9% in the year-ago quarter. The sequential decline was due to lower adjusted technology & content (down 580 bps) and general & Administrative (down 320 bps) expenses. The year-over-year growth was due to higher selling & marketing (S&M) expense (up 320 bps).
Total cloud spending was $16 million, up from $6 million from the year-ago quarter.
As of Mar 31, cash and short-term investments totaled $2.50 billion up from $1.89 billion as of Dec 31. The net debt balance was $667.7 million, compared with net debt of $1.29 billion in the previous quarter.
Expedia repurchased nearly 450,000 shares for a total of $54 million.
Expedia continues to expect adjusted EBITDA growth of 10-15% for 2017. The company estimates total cloud costs to be $110 million. Excluding cloud expenses, growth is estimated to be 14-19%.
Management projects depreciation expense to grow in the mid-20% range with the pace of growth decelerating from the first quarter through the end of the year.
Expedia expects total selling and marketing cost to grow faster than revenue for the remainder of the year. The company anticipates technology and content expenses to grow faster in the second quarter and accelerate further in second-half 2017.
Expedia's plan to ramp-up sales organization in the Egencia business will impact margin in the near term. Management expects Home Away's revenue growth to peak in the third quarter, which will also boost EBITDA growth.
Moreover, Expedia now expects capital expenditure excluding cost related to its headquarter project to decline on a year-over-year basis.
Zacks Rank & Key Picks
Currently, Expedia carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector are MercadoLibre MELI , EVINE Live Inc. EVLV and Wayfair W . While MercadoLibre and EVINE sport a Zacks Rank #1 (Strong Buy), Wayfair carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
MercadoLibre, Wayfair and EVINE are set to report earnings on May 4, 9 and 24, respectively.
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