Orbitz Worldwide - Fair Value Unknown

May.12.13 | About: Orbitz Worldwide, (OWW)

OWW is in the online travel industry and competes with Priceline and Expedia. The stock is up 123% year to date. While some may argue that it is a turnaround story and make a bullish case, I happen to be extremely skeptical. The company has revised its own estimates of revenues or EBITDA downwards three times and yet failed to meet those estimates. The street was expecting a downward revised EPS of -0.06 while the company posted an EPS of -0.11 on an equivalent measure. There were only a couple of analysts even present on the conference call. This company is pulling earnings and assets out of nowhere and Wall Street is either ignoring the bad news or simply speculating on the stock. This is unsustainable and is likely to end badly for investors who bought the stock on a false promise of growth and profits. At best, it is a highly speculative trade.

The company hasn't turned an annual profit since 2006. It uses EBITDA and Adjusted EBITDA (Non GAAP) as the most accurate measure for its operations, so that lost/unrealized revenues as well accumulated expenses can be papered away.

In the last 5 years, the company revenues have wandered between 870 million and 770 million with no real trend. And the net income has wandered from -300 million to well -300 million.

But the real numbers are the Accounts Receivables and Accounts Payable. The AR (Q1,2013) is very high at 49% for the quarterly revenues. Sure the business cycles can be longer than quarters, but it still seems quite high. Meanwhile OWW has only 1% of AR as allowance for doubtful accounts. This is extremely aggressive for any company.

The AP has always been over 2 times the actual operating expenses and in the most recent quarter it hit 3 times the expenses. Of particular interest is the "Accrued Merchant Payable" which is twice the actual operating expenses. I fail to understand who these merchants are who are willing to supply goods/services to OWW with no chance of any payment in full.

With long term debt of over $430 million, the only long term assets OWW has to generate cash and pay it back is "goodwill" at $345 million and Deferred Tax Assets of $152 million. Good luck creditors. The financials do not appear sustainable in the long run making it difficult to value the stock. And If earnings are the key to creating value, then shareholders should not expect any significant stock appreciation. Sure, OWW can offset their profits in the coming quarters by the deferred tax assets and generate some cash in the short term by reducing taxes, but the company will not be able to sustain its operations, unless they are able to continue to get financing from their trade partners.

Just when it was about to post a loss of 11 cents per share, it succeeded in offsetting it by "Valuation allowance of deferred tax assets". It is very hard to be optimistic about the company and the stock.

Source: OWW quarterly financial statements, annual reports and Yahoo Finance.

March 31, 2011 June 30, 2011 September 30, 2011 December 31, 2011 March 31, 2012 June 30, 2012 September 30, 2012 December 31, 2012 March 31, 2013
AR 65,020 72,183 62,481 62,377 79,198 80,008 84,542 75,789 99,244
Revenues $ 184,923 $ 201,826 $ 202,924 $ 177,146 $ 189,779 $ 200,977 $ 198,303 $ 189,737 $ 202,860
AR/Revenues 0.351605803 0.357649659 0.307903452 0.352121978 0.417316984 0.398095304 0.426327388 0.399442386 0.489224095
Total Current Liabilities 529048 531489 475068 453763 572912 538787 507484 473424 655826
Op Expenses 185555 181989 180064 214500 185835 186105 173393 495388 205670
CL/ OP Expenses 2.851165423 2.920445741 2.638328594 2.115445221 3.08290688 2.895069987 2.926784818 0.955663036 3.188729518
Accrued Merchant Payable 316,419 311,419 268,845 238,694 348,555 310,638 296,026 268,589 417,521
Accrued Merchant payable/Operating Expenses 1.705257201 1.711196831 1.49305247 1.112792541 1.875615465 1.66915451 1.707254618 0.54217906 2.030052998
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Disclosure: I am short OWW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.