Expedia - Strong Bookings Send Shares To New Highs

| About: Expedia, Inc. (EXPE)

Shares of Expedia (EXPE) traded with gains of over 15% in after hours trading. The online travel company reported a strong set of third quarter results on Thursday after the close.

Third Quarter Results

Expedia reported third quarter revenues of $1.20 billion, up 17% on the year. Growth was driven by a 27% increase in the number of room nights booked via the company's websites. The number of air tickets sold rose 11%. Gross bookings rose 19% to $9.05 billion.

Net income fell 18.1% on the year to $171.5 million. Net income per diluted share fell from $1.50 per share last year to $1.21 over the past quarter. Last year's earnings received a boost of $38.6 million related to discontinued operations. Adjusted earnings per share rose to $1.32 per share, beating analysts expectations of $1.26 per share.

So far this year, Expedia repurchased 10.7 million shares for a total consideration of $397 million. Third quarter repurchase activity slowed down to 1.1 million shares.

Segmental Information

Growth of Expedia was solid, but driven by the international activities. US gross bookings rose 13% to $5.22 billion, while international revenues rose 27% to $3.84 billion.

Expedia had a very strong mobile performance. Some 20% of total bookings were booked through mobile devices, and the hotels.com app has been downloaded over 10 million times. In total, Expedia boosted its bookable properties by some 14% to 160,000.


Expedia ended its third quarter with $2.4 billion in cash, equivalents, restricted cash and short term investments. The company operates with $1.2 billion in long term debt, for a net cash position of $1.2 billion.

For the first nine months of 2012, Expedia generated revenues of $3.06 billion. The company net earned $273.5 million, or $1.96 per diluted share. Full year revenues could come in around $4.2 billion. Net income could come in around $350 million, or $2.50 per diluted share.

Factoring in a 15% increase in after hours trading, the market values the firm at roughly $8 billion. Excluding the net cash position of $1.2 billion, the operating assets are valued around $6.8 billion. This values operating assets at 1.6 times annual revenues and 19 times annual earnings.

The company currently pays a quarterly dividend of $0.13 per share, for an annual dividend yield of 1.0%.

Investment Thesis

Year to date, shares of Expedia have roughly doubled. Shares started the year at $30 per share and jumped up to $40 on the back of strong first quarter results accompanied by a strong outlook. Shareholders reacted favorably to second quarter earnings as well, sending shares to highs of $60. Shares fell back to $51 in recent weeks, but rose to $59 in after hours trading.

The company has shown strong growth in recent years. Between 2009 and 2012, annual revenues rose from $2.7 billion, to an expected $4.2 billion this year. Net income rose from $300 million, to an estimated $350 million this year.

Expedia's strong results come as a surprise to the market. Notably the international activities performed very strong, despite ongoing weakness in Europe. International revenue growth was more than double the growth rate in the US, despite currency headwinds. International revenues now make up 45% of Expedia's quarterly revenues. The strong international performance is promising for Priceline.com (PCLN) which generates some 60% of revenues abroad. Shares of the larger competitor, rose 5% in after hours trading.

At the release of the first quarter results, I already looked at the prospects for Expedia. At the time I argued that the company traded at a fair valuation at 11 times earnings, given the healthy growth and strong financial position. Shares have risen another 50% from that point in time. I congratulate all investors who stepped in around that time, but remain on the sidelines around $60 per share.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.