On Friday, September 21st, analysts at Deutsche Bank (DB) upgraded shares of Expedia, Inc. (EXPE). The firm raised its rating on the stock from a Hold to a Buy and set a $51.00/share price target. As a result of the upgrade, shares of EXPE reacted quite nicely, trading up 5.18% since the opening of trading on Friday. That said I wanted to examine the company a bit further and take a look at how it compares (and outpaces) to some of its industry-based competitors in terms of Profit Margin and Operating Margin. The three companies within the Online Travel sector I chose to compare with Expedia, Inc. are: Orbitz Worldwide, Inc. (OWW), Kayak Software Group (KYAK), Inc., and Priceline.com, Inc. (PCLN).
Overview: Expedia, Inc.
Expedia, Inc., together with its subsidiaries, operates as an online travel company in the United States and internationally. It provides travel products and services to leisure and corporate travelers, offline retail travel agents, and travel service providers through a portfolio of brands, including Expedia.com, hotels.com, Hotwire.com, Expedia Affiliate Network, Classic Vacations, Expedia Local Expert, Expedia Cruise Ship Centers, Egencia, eLong, Inc., and Venere Net SpA. The company's travel offerings consist of airline tickets, hotel rooms, car rentals, destination services, cruises, and package travel provided by various commercial airlines, lodging properties, car rental companies, destination service providers, cruise lines, and other travel product and service companies on a stand-alone and package basis. It also facilitates the booking of hotel rooms, airline seats, car rentals, and destination services from its travel suppliers; and acts as an agent in the transaction, passing reservations booked by its travelers to the relevant travel provider. The company was founded in 1996 and is headquartered in Bellevue, Washington.
Profit Margin Comparison: Online Travel Providers
As a whole, and in my opinion, the Online Travel sector has one of the widest ranges of profit margins when compared to some of the other industries I've written articles on. That said the average profit margin of the four companies featured is a pretty mediocre 10.08%. The good thing about those numbers is the fact Expedia is a very strong #2 within the space as the company's profit margins over the last 12 months have been a very solid 10.42%. Who was #1 within in the sector? Priceline.com was the leading competitor within the sector as the company demonstrated a profit margin of 25.58%. It should be noted that both Kayak and Orbitz trailed the group with profit margins of 9.15% and -4.83% respectively.
Operating Margin Comparison: Online Travel Providers
As was the case with Profit Margins, and in my opinion, the Online Travel sector also has some of the widest ranging operating margins I've seen since I began writing comparative articles a while back. That said the average operating margin of the four companies featured is a pretty mediocre 17.85%. The good thing about those numbers is the fact that, Expedia is a very strong #3 within the space as the company's operating margins over the last 12 months have been a very solid 14.22%. Who was #1 within in the sector? Priceline.com was the leading competitor within the sector as the company demonstrated a profit margin of 33.76%. It should be noted that Orbitz trailed the group with an operating margin of 6.71%.
Should potential investors jump at the chance to establish a position in Expedia, especially after the Deutsche Bank upgrade? From comparative standpoint with regard to the company's margin relative to some of the biggest names in the online travel sector, I think the number present a solid opportunity however I'd remain cautious as Priceline dominates the space in terms of both Profit and Operating margin.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.