The travel industry came to a grinding halt in late March as COVID-19 decimated global tourism. The results of this were clear in Expedia’s (EXPE) Q2 report. The online travel agency’s underperformance can’t be described as anything other than a big miss.
Expedia generated revenue of $566 million, an 82% year-over-year decline, with the figure also missing the consensus estimate by a massive $105.66 million. Non-GAAP EPS came in at -$4.09, $0.84 below the forecast. Quarterly bookings dropped 90% year-over-year to $2.7 billion, far below the Street’s $5.39 billion estimate, as cancellations took their toll. Accordingly, a sell-off ensued in the following session.
However, BTIG analyst Jake Fuller thinks that despite the big miss and attendant share decline, investors should take the opportunity to pull the trigger on EXPE shares. The 5-star analyst upgraded Expedia from Neutral to Buy and has a $100 price target in mind. There’s possible upside of 21% from current levels. (To watch Fuller’s track record, click here)
Believing the selloff was unwarranted, Fuller argues Expedia’s current valuation is “compelling”. Although there’s no doubt the recovery will be “choppy,” the analyst highlights Expedia’s cost cutting measures, “with annualized savings reaching ~$400 million in Q2.” This demonstrates it’s on the right path to achieve the $500 million-plus target, in Fuller’s opinion.
As for that massive bookings miss? While certainly painful, Fuller believes it is a one-off and that focus should lie elsewhere.
“So we all missed the cancellation headwind,” Fuller said, “But it really has no impact on the recovery trajectory and go-forward outlook. We already knew that new bookings (ex-cancellations) went from -85% in April to -45% in June, and we now know that July was about the same despite the surge in U.S. case count. With EXPE indicating that cancellations have normalized, we shouldn’t be blindsided by the same sort of new bookings-to-net bookings delta in 2H. The point is that a COVID-19- related spike in cancellations early in lockdown gave us a messy Q2, but is not really relevant to the recovery trajectory and forward estimates.”
Following the earnings results, with cost cuts “tracking ahead,” Fuller raised his EBITDA estimate for 2022 from $2.4 billion to $2.5 billion.
So, that’s BTIG’s outlook for Expedia, let’s see what the rest of the Street has in mind. EXPE’s Moderate Buy consensus rating is based on 11 Buys, 14 Holds and 1 Sell. With an average price target of $94.26, the analysts expect shares to appreciate by 14% over the next 12 months. (See Expedia stock-price forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis and to consider your own personal circumstances before making any investment.
