Expedia Group (NASDAQ: EXPE) is an online travel agency (OTA) catering to consumers and small/medium-sized enterprises. The company’s main sources of revenue are charges on fare aggregation of hotels and modes of transport.
The company is another major victim of the coronavirus pandemic that has devastated the entire travel and entertainment sectors. The stock is currently trading 42% down YTD, after being down as much as 58% from where it rebounded after fresh capital infusions of $3.2 billion were announced (CNBC).
In April, the company was in the news due to the appointment of new chief executives after previous management was ousted owing to underperformance. The company was already facing heat from investors due to underperformance when compared to peers such as Airbnb and Booking Holdings and announced last month that it would cut 3000 jobs this year.
The company’s stock had been underperforming the broad market since mid-2017 as it’s market capitalization fell nearly 30% till the beginning of this year. In the same period, the company’s chief rival, Booking.com( NASDAQ: BKNG), grew its market capitalization by nearly 25%.
It should also be noted that over the past decade, Booking.com was able to grow it’s size nearly 10 times while Expedia’s growth was only 5x over the same time period, mainly owing to Booking.com having a much lower P/E of 18 compared to Expedia’s 28 and Bookng.com having an EPS growth rate of 20% compared to Expedia’s 5.7%. The Expedia group P/E has shrunk from a mammoth 47x in 2017 to 28x in 2018 followed by 18x post coronavirus.(Trefis Stats)
Investors are also skeptical of the stock due to uncertainty of what the travel sector might look like after the lockdowns and travel bans are lifted. It would be safe to assume that the general public would be uncomfortable traveling in close quarters to other passengers and post-travel quarantine requirements might deter people from traveling.
This could result in travel providers operating at lower capacities by leaving seats between passengers, which would in turn result in lower volume and hence lower commissions for OTAs such as Expedia. Another concern for investors is that a big reduction in business travel due to new work from home practices could cause a further loss of revenue for the company. The market is also worried that a looming recession would result in less disposable income for consumers and would result in a long painful recovery for the sector.
The company’s earnings are expected after market today and analysts expect a Q1 loss of -$1.39 followed by a Q2 loss of -$2.12 per share (Nasdaq). Over the year, analysts expect the company to bring in 20%-30% less revenue accompanied by a 30% drop in income margins to 3.1%. (Forbes)
These numbers are modeled assuming a sharp recovery after Q2, which looks unlikely as a vaccine is at least 12-18 months away.