- Expedia continues to defy the odds and demonstrate that it is one of the best travel sites on the market.
- Although competition will continue to be fierce, there are still plenty of growth opportunities for this company.
- As sites like Yahoo, Google and Facebook continue to evolve, online travel will eventually be on their radar. And Expedia is in the perfect spot to be acquired.
It seems fitting to say that shares of online travel company Expedia (NASDAQ:EXPE) have come a long way. Since reaching the low of 2009, the stock has surged well over 900% to Tuesday's close of $70.51. This level of success has caused investors to wonder about an exit strategy. While Expedia operates in a highly competitive environment, which includes rivals like Priceline.com (NASDAQ:PCLN) and Orbitz Worldwide (NYSE:OWW), the company has held its own. And if first-quarter results were any indication, Expedia has no plans on going anywhere undesirable.
First-quarter revenue rose 19% to $1.20 billion, beating analysts' estimates of $1.18 billion. Management said the strong was primarily driven by strong demand in hotel revenue, which surged 12% year-over-year. This is even with the 10% decline in daily room rates, which management said was due to expanding its hotel offerings and its shift toward hotels in Asia-Pacific.
These promotions and discounts were offset by strong growth in advertising and media, which grew 116%, helped by the contributions of Trivago, which Expedia took a stake in last year. So if you're keeping score at home, that's 4% growth that was not organic this quarter. Still, it all matters on the bottom line. All told, Airfare revenue jumped 28% as Expedia sold 30% more tickets.
The company posted a 15% increase in domestic revenue, while international revenue increased 23% (23% excluding foreign exchange). Interestingly, however, international revenue, which arrived to $559 million, now accounts for 47% of worldwide revenue, up 2% year-over-year. This supports my belief that the company's marketing has begun to pay dividends.
What's more, this continues Expedia's solid revenue performances, which now makes five consecutive quarters of double-digit year-over-year revenue growth. Even more impressive, during that span, revenue has grown by an average of 18%. In terms of profits, Expedia has delivered in that area, as well.
The company posted a first-quarter loss of $14.3 million, narrowing its loss from a year ago, helped by the higher revenue. This amounted to 11 cents per share, beating estimate by 4 cents. Last year, Expedia posted a loss of $104.2 million, or 77 cents per share. Excluding items such as depreciation and stock-based compensation costs, Expedia earned 16 cents per share, beating estimates by 2 cents.
Remarkably, the company was able to post a solid profit beat, even as expenses increased 20%, mostly related to marketing costs. But as noted, Expedia, which runs its own brand website and others such as Hotels.com and Hotwire, has seen strong revenue figures. This tells me that the company is getting a solid return on these marketing investments.
I don't know if the company could have enjoyed a 29% surge in gross bookings without spending some money. Domestic gross bookings increased 35%, and international gross bookings increased 21% (22% excluding foreign exchange). And even if I wanted to raise an eyebrow at the 20% increase in expenses, I would have to do it in the context that it didn't impact revenue margin in a meaningful way. By "meaningful", I'm referring to 1.5-point or 2-point declines in margins. But with revenue margin maintaining its high single-digit level, I was impressed.
From my vantage point, Expedia continues to defy the odds and demonstrate that it is one of the best travel sites on the market. Although competition will continue to be fierce, there are still plenty of growth opportunities for this company. So margins compression is a worthwhile concern. To the extent that is justifies selling this stock, I don't believe it does.
As sites like Yahoo (NASDAQ:YHOO), Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB) continue to evolve, online travel will eventually be on their radar. And Expedia is in the perfect spot to be acquired. With shares still trading 14% from their 52-week high of $81.78, I would definitely hop onboard here and ride this company to $80 by the end of the year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: The article has been written by Wall Street Playbook's consumer sector analyst. Wall Street Playbook is not receiving compensation for it (other than from Seeking Alpha). Wall Street Playbook has no business relationship with any company whose stock is mentioned in this article.