Expedia (NASDAQ: EXPE), a travel company providing everything from airline tickets, hotel rooms, car rentals, to cruises, is scheduled to announce its fiscal fourth-quarter results on Thursday, February 11. We expect Expedia’s revenues to likely come in-line while earnings to miss consensus estimates. The travel sector has been the worst hit during the pandemic. While Expedia saw demand rebound in Q3, its numbers were still far below 2019 levels. In fact, air travel and vacation trends likely won’t fully recover until the Covid-19 threat has passed. That said, we believe that the travel company will likely continue to show sequentially improving sales and profit trends in the upcoming Q4, but it might be a year or longer before it begins to show operating trends similar to the pre-pandemic levels.
Our forecast indicates that Expedia’s valuation is over $135 per share, which is 6% lower than the current market price of around $144. Look at our interactive dashboard analysis on Expedia Pre-Earnings: What To Expect in Q4? for more details.
(1) Revenues expected to be in-line with the consensus estimates
Trefis estimates Expedia’s Q4 2020 revenues to be around $1.1 Bil, in-line with the consensus estimate. In the first nine months of 2020, Expedia’s revenues declined a major 54% year-over-year (y-o-y). Particularly in Q3, the company’s revenue grew nearly 166% sequentially from only $566 million in Q2 2020 to $1.5 billion in Q3 2020. But the revenues were still down 58% from year-ago quarter levels in Q3.
(2) EPS likely to marginally miss consensus estimates
Expedia’s Q4 2020 earnings per share is expected to come in at a loss of $1.99 as per Trefis analysis, marginally lower than the consensus estimate of -$1.97. The travel company will likely continue posting losses well into next year, as travel demand could continue to struggle in the next few months. In 2020, Expedia plans to cut $700 million to $750 million in fixed costs relative to 2019, along with some $200 million in variable cost cuts based on 2019 revenue, resulting in a possible earnings growth from 2022 onward. It should also be noted that Expedia had to take on lots of additional debt to get through the current cash-burning period – making its total debt load stand at more than $8 billion. Additionally, with the Covid-19 cases surging, it looks like Expedia will be a more heavily indebted company when all this is over.
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For the full-year, we expect Expedia revenues to decline 55% y-o-y to $5.5 billion.
(3) Stock price estimate 6% lower than the current market price
Going by our Expedia’s Valuation, with a revenue per share estimate of around $36.24 and P/S multiple of around 3.7x in fiscal 2020, this translates into a price of over $135, which is 6% lower than the current market price of around 144.
While Expedia stock could trade lower post Q4 earnings, 2020 has created many pricing discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Amazon vs Etsy. Another example is Apple vs Microsoft.