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Expedia Inc. (EXPE)

Recommendation: Buy

Jie Cheng & Yuanying Ma

The 360 Huntington Fund

Sector: Consumer Discretionary Industry (GICS): Internet & Catalog Retail

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Disclosure Statement• We have no positions in any stocks mentioned,

and no plans to initiate any positions within the next 72 hours.

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Business Description & Market Profile• Market Profile

– Market cap: $16.35 B– Revenues: 54% Domestic, 46% International

• Business Description– Expedia, Inc. is one of the world's leading travel services

companies. The company provides wholesale travel to offline retail travel agents. It offers online trip-planning tools that allow users to book airline tickets, hotel reservations, car rentals, cruises, and vacation packages.

– It operates a strong brand portfolio with global reach, targeting a broad range of travelers, travel suppliers and advertisers.

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Industry Analysis• The Travel Agencies industry is growing once

again, as traditional brick-and-mortar travel agents reinvent themselves to remain relevant in an industry now dominated by online bookings. The rise of online travel websites has completely revolutionized the industry.

• In the coming years, continual improvement in the broader economy will boost the industry's prospects as travel rates lift. Growth in per capita income, rising consumer sentiment and declining unemployment will lead to growth in domestic and international travel.

SWOT AnalysisStrength Weakness

• Broad range of online travel and hospitality service offerings

• Strong portfolio of travel brands• Product innovation• New channel penetration

• Heavy reliance on intermediaries• Investment in technological

developments and adaption to industry trends

• Financial difficulties due to acquisitions

Opportunity Threat• Relatively low percentage of

total travel sales transacted online, particularly international markets

• Counter dependence on Us and global expansion on marketplace

• Brand effect and ability to increase traveler transactions and attract repeat customers

• Compete with both established and emerging online and traditional sellers of travel-related services

• Proprietary loyalty program from travel suppliers and additional international operation risks

• Changes in search engine algorithms and dynamics or other traffic-generating arrangements

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Catalysts• Continuous Acquisition to build brand goodwill:

HomeAway: sales rose 11% to $375.6 million and compete against Home-rental Business, like Airbnb.

• Expedia Traveler Preference(ETF) program: When to pay: At the time of booking or staying?

• Strategic partnership with SilverRail Technology company in expanding global rail business

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Catalysts• Growth Initiative in Europe:

Trivago: German metasearch company, grew revenue 92% in 2014, and compete with Kayak from Priceline, Tripadvisor; Successful test of ExpressBook

• Techonology The shift of Travelocity-branded sites to Expedia platform; Create new mobile websites or apps

• Diversification/M&A Australia: Wotif; Latin America: Decolar; Asia: Joint Adventure with AisaAir; Europe: Trivago, Venere

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ComparablesExpedia TripAdvisor Priceline

125.92 84.37 1300.4852W Range 76.34-140.51 62.24-94.00 990.691-1476.515Market Cap 16.35 B 12.17 B 64.74BBeta 1.23 1.92 1.19

Current Current CurrentROA 7.7 13.17 19.08ROE 38.97 19.15 28.96ROIC 9.15 17.39 23.04Gross Margin 79.54 96.13 89.84Operating Margin 8.98 27.29 36.41

Debt to Equity 71.19 30.04 44.94

P/E 44.41 55.39 26.78P/B 6.7 9.17 7.65PEG 2.29 3.02 1.29Dividend Yield 0.67 / /

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Valuation• Total Gross Booking of $15.4 B (21% increase),

Online Travel Booking Industry Size($463.9B) increases at an annual rate of 14%

Room night growth increased 36% last year• Agency model grows at a faster rate to 27% of

its total sales in 2014• Mobile’s share as a percentage of online travel

bookings is expected to expand to 18% from about 14% in 2015

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Price Graph

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Target Price

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Risks• Market risks

– Potential loss from adverse changes in interest rates, foreign exchange rates and market prices.

• Industry risks– Travel expenditures are sensitive to personal and business-

related discretionary spending levels and tend to decline or grow more slowly during economic downturns

– Unfavorable changes in existing laws and promulgation of new regulations

• Company specific risks– Increasing costs of maintaining and enhancing brand

awareness– Significant long-term indebtedness

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Q&A

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Supplements

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Supplements

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Factors adversely impact Expedia:

  •  Air fare increases;  •  Continued air carrier consolidation;

  •  Reduced access to discount airfares;

  •  Travel-related strikes or labor unrest, bankruptcies or liquidations;

  •  Incidents of actual or threatened terrorism;

  •  Periods of political instability or geopolitical conflict in which travelers become concerned about safety issues;

  •  Natural disasters or events such as severe weather conditions, volcanic eruptions, hurricanes or earthquakes;

  •  Travel-related accidents or the grounding of aircraft due to safety concerns; and

  •  Health-related risks, such as the Ebola, H1N1, SARs and avian flu outbreaks.

Other factors that could negatively affect our business include:

          

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• % Held by Insiders: 4.98%• Top Holders: Liberty Media Corp

Vanguard Group

Capital Group Company

Blackrock

JP Morgan

State Street

TIAA-CREF

American Century Company

Boston Partners

Bank of New York Mellon Corp

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