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Expedia (EXPE) Q4 Earnings Miss, Revenues Beat Estimates

Expedia Inc.EXPE reported fourth-quarter 2016 adjusted earnings of 97 cents per share, which missed the Zacks Consensus Estimate of $1.11. However, earnings were up 73.2% from the year-ago quarter.

Over the last year, the stock has underperformed the Zacks Electronic Commerce industry. It has gained 30.63% compared with the industry's gain of 59.42%.

Revenues were down 18.9% sequentially but up 23.3% year over year to $2.09 billion, ahead of the Zacks Consensus Estimate of $2.07 billion. Gross bookings decreased 13.4% sequentially but increased 7.7% year over year to $16.1 billion.

At the call, management sounded upbeat about the company's refocus on operational formula, expansion of supply portfolio, optimization of marketing channels globally, and growth of repeat user base.

The company has been making a large number of acquisitions and integration of these companies into its core platforms is complete. Management noted that room night improved throughout the quarter and is expected to remain healthy in the first quarter.

Revenues by Segment

Core OTA segment revenues were down 18.6% sequentially but up 12.6% year over year to $1.7 billion.

Trivago revenues decreased 33.7% sequentially but were up 66.4% from the year-ago quarter to $183 million.

Egencia was up 3.6% on a sequential basis and 8.4% on a year-over-year basis to $116 million. HomeAway was down 21% sequentially but up a massive 730% year over year to $166 million.

Core OTA, trivago, Egencia and HomeAway contributed 81%, 8%, 5% and 6% of gross revenues (before inter-company eliminations), respectively.

Revenue by Channel

Around 56% of total revenue was generated through the merchant business (direct sales), another 27% came through the agency model (where Expedia operates as an agent of the supplier), roughly 9% came from Advertising & Media and HomeAway accounted for the remaining 8%.

The four channels were down 16.8%, 21.6%, 21.2% and 21%, respectively on a sequential basis. On a year-over-year basis, Merchant, Agency and Advertising & Media grew 12.1%, 14.6% and 36.7%, 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 dropped 17.4% sequentially but increased 22.6% from a year ago. The international business decreased 21% sequentially but increased 23.9% from the year-ago quarter.

Revenue by Product Line

Hotel and Air, the two main product lines advanced 13% and 6%, respectively from the year-ago quarter. The increase in Hotel revenues came from a 15% increase in room nights stayed driven by growth in Brand Expedia, Hotels.com, and EAN. This was partially offset by a 2% reduction in revenue per room night.

Orbitz reduced 1 percentage points of room night growth, which was 16% in the quarter. Average daily rate ("ADR") was flat year over year.

The increase in Air revenues was attributable to a 6% increase in ticket volumes. Not including Orbitz, air tickets sold increased 13%.

In the last quarter, international room night growth of 18% trumped the domestic room night growth of 11%.

Other revenues grew 18% year over year driven by growth in travel insurance and car rental products.

Operating Details

Adjusted gross margin decreased 150 (bps) on a sequential basis but increased 220 bps on year-over-year basis to 12.21%.

Adjusted EBITDA decreased 51% sequentially but increased 57.9% year over year to $280 million.

Operating expense as a percentage of revenues was 70.1% compared with 64.8% in the previous quarter and 72.2% in the year-ago quarter.

Selling & Marketing (S&M) expense as a percentage of sales decreased 42 bps sequentially and 18 bps from the year-ago quarter. Technology & content improved 379 bps from the previous quarter and 73 bps from the year-ago quarter as the company continued to strengthen its technology staff bench coupled with its cloud migration initiative.

General & Administrative expense increased 190 bps quarter over quarter but decreased 264 bps on a year-over-year basis in the reported quarter.

As a result, operating margin decreased 689 bps on a sequential basis but increased 432 bps on year-over-year basis to 12.21%.

Balance Sheet

As of Dec 31, cash and short term investments totaled $1.89 billion, slightly down from $1.91 billion as of Sep 30. Net debt balance was $1.27 billion compared with net debt of $1.29 billion in the previous quarter.

Expedia, Inc. Price, Consensus and EPS Surprise

Expedia, Inc. Price, Consensus and EPS Surprise | Expedia, Inc. Quote

Outlook

Expedia expects revenue and profitability to be negatively impacted by the shift of Easter into the second quarter this year. The company expects pressure on margin early this year due to investments in selling & marketing ahead of the travel season.

In 2017, the company expects additional spending to be largely offset by lower infrastructure CapEx requirements.

Nevertheless, Expedia believes that the aggressive level of investment will help the division to achieve its target of $350 million of adjusted EBITDA at HomeAway in 2018. In terms of technology & content expense, Expedia expects spending to grow slightly faster than revenues.

Expedia stated that expenditure on cloud will be about $110 million in 2017 as the company continues to transfersignificant portions of products and capabilities to the cloud.

For full-year 2017, on a consolidated basis Expedia anticipate adjusted EBITDA growth of 10% to 15%.

Zacks Rank &Stocks to Consider

Currently, Expedia has a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the broader technology sector include NVIDIA Corp. NVDA , Intersil Corp. ISIL and CACI International Inc. CACI , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

For the current year, the estimates for NVIDIA increased by 0.36% while the same for Intersil and CACI International went up 1.47% and 1.44%, respectively in the past 60 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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