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Expedia's Total Yield Of 13.3% Will Propel Its Stock Value Higher

Mar. 05, 2020 7:57 AM ETExpedia Group, Inc. (EXPE)18 Comments
Mark Hake profile picture
Mark Hake


  • Expedia is on an accelerated buyback program, buying up to 29 million of its shares, or 20.7% or so of its total 140 million outstanding.
  • I estimate the company's value is at least $115.22, an upside of 22%. On the upside, it could be worth as much $130.52, or 38%, higher.
  • All of this is fueled by its huge free cash flow. The company's recent restructuring, losing 3,000 workers, will help towards the growth in free cash flow.
  • This an update of my previous article three months arguing that the stock is severely undervalued.
  • This idea was discussed in more depth with members of my private investing community, Total Yield Value Guide. Get started today »

Expedia's Massive Buybacks Will Help Push Up the Stock

I argued in my article on December 3, 2019, that Expedia (NASDAQ:EXPE) stock is very undervalued. The company had just fired its CEO and CFO and announced a new 20 million share buyback program. I believe that EXPE stock is now worth between $115.22 and $134.50 per share, or an upside of 22.4-38.4%. This article updates my previous analysis.

This was on top of the 9 million share buyback program. Keep in mind that this is one of the few stocks that actually targets the number of shares to be repurchased. As a result, we can monitor the buybacks carefully.

Buybacks Galore

At the end of Q3 2019, there were 145.5 million shares outstanding. On balance sheet date of 12/31/19, there were 142.999 million shares outstanding. On the filing date of 2/13/20, there were 139.989 million shares outstanding.

(Source: Hake calculations)

So, in the space of fewer than 3 months, Expedia has bought back 5.5 million shares, or 3.8% of its shares outstanding.

The company is well on its way to completing the buyback program. In fact, at this rate of roughly 5.5-6 million shares over 3 months, the 29 million shares program could be completed in around 4 more quarters.

You can see in the chart I put together below that Expedia has been accelerating its buybacks in the past year.

(Source: Hake, using Seeking Alpha data)

This shows that the company has bought back almost 8% of its shares in the past three years. But most of that was in the past year.

In fact, you can see this in the chart below:

(Source: Hake, using Seeking Alpha data)

Free Cash Flow Abounds

And why shouldn't it do so? EXPE generates sufficient free cash flow to pay for these buybacks. You

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This article was written by

Mark Hake profile picture
Mark R. Hake, CFA, has been a consultant to various companies, including hedge funds, software, and technology companies. Prior to that, Mr. Hake was President of Hake Investment Research and Hake Capital Management. He has been featured in Barron’s, CNBC, Bloomberg, and other news organizations as a contrarian investor and deep value specialist.

Analyst’s Disclosure: I/we 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (18)

Chris Lau profile picture
$EXPE is a travel stock exception that our DIY value investors are looking at. Markets acting like COVID-19 is forever. It is and isn't. It isn't going to permanently end travel.

Buy. But at the right price and margin of safety of 50-75%.
bluescorpion0 profile picture
Look at how they treat the customer. That's your sign if good or bad.
Chris Lau profile picture
@scorpion.north bad experience? i avoid companies who don't treat their customers right.
bluescorpion0 profile picture
Sometimes you can and sometimes you can't If it's a monopoly like a bank or Telecom. But yeah I agree. IF you can switch.
I commented on this on March 5th (below). I'm not picking on this particular author, but the analysis exemplifies why many of the articles on Seeking Alpha are not helpful. It's because most go through some sort of mechanistic modeling based on earnings or cash flow (at lease this was based on cash flow, which is superior to earnings) and apply some sort of historic valuation metric. This article was written on March 5th, and the potential negative impact of COVID-19 on the economy was well known. As in noted in my comment on March 5th, the author wrote "Yes, the coronavirus will lower the company's FCF. But will the dampening effect of the epidemic really last the whole year? I doubt it." So the author uses a point in time analysis, and like a magician, simply waive coronavirus away. I assume most SA readers have some background in finance and can do valuation math on their own. Even if there were no coronavirus, there is no mention of Google and the vendor direct models which are pressuring the OTA industry. It would be more helpful to me, as a user of Seeking Alpha, it the authors were to move away from Finance 101 valuation models and provide some real insight into how they think businesses will do in the future through a whole range of risks and opportunities, existing and potential competitors, paradigm changes, etc. I know this takes a lot more creative thinking but to churn out a valuation article on EXPE and to wave away a lurking threat to the entire business (and to many other businesses) just makes no sense.
bluescorpion0 profile picture
I've changed my view this weekend dealing with booking cancelation due to travel ban due to coronavirus.

I now believe Expedia is superior to booking, especially at this price.


Booking uses agency model and Expedia uses merchant model.

While the pros have been discussed for agency model , the cons have not.
And we see the big con , literally that agency model pulls on the customer.

Being just a middle man for hosts from many countries when a disaster hits and you have to cancel, booking takes no responsibility for the host or taking the reservation! For example they can do nothing If a host refuses to refund your credit card . All they can do is kick them off the platform.
Booking won't fight for the customer as they wash their hands of the transaction like a middle man Pontius Pilate!

Merchant model on the other hand makes Expedia your advocate and partner. Airbnb is also like this.

So when tough times hit or a problem arises who is better for the customer? I say Expedia.
Check you data. For Expedia, about half its hotel bookings are under the agency model and about half are under the merchant model. Look at actual bookings data, not revenue data, because under merchant model, revenue data will obviously be higher. As a consumer, I have no idea whether a room I book is through a merchant model or an agency model. It's possible Expedia will treat me better if I book under a merchant model because they "own" the room for the transaction, not the hotel. However, is there any empirical data that backs that up? From an investor perspective, in the current scenario, EXPE is losing a lot under the merchant model. They've bought a lot of room nights that they can't resell.
bluescorpion0 profile picture
it's about half of this target. but I still won't touch it. kinda subpar
Getting exciting...
Jay van Santen profile picture
The problem is that the innovation that was novel and experimental and the foundation for a major player in the travel industry over 20 years ago, is now much less novel, much less costly, and much more affordable for the various travel services to build.

Hotel chains in particular offer competitive services now -- which was unrealistic to invest in 20 years ago -- and often consumers can find alternatives through their loyalty program with a particular chain.

Expedia's greatest competitor is not Bookings, its the hotel chains, airlines, etc., themselves which they market to the consumer.

It isn't going to get better.
BuddhaLove profile picture
Bought in around 91
OK, let me get this straight, a 'growth' stock is a buy because
it is laying off people and spending most of its cash flow on buybacks ?
Nope, I don't buy it.
The transportation industry will be the place to be when the dust clears out, but the key ? is when that will occur?
Ouch! Jumped into CCL too soon. Dividend is OK, so I have that.
You state... "Yes, the coronavirus will lower the company's FCF. But will the dampening effect of the epidemic really last the whole year? I doubt it."

First, how do you know how long and deep the impact of coronavirus will be, particularly on the travel industry?

Second, you have no position in EXPE. I might take you more seriously if you did.

As someone who actually has shares in EXPE and RCL, there will at some point be an opportunity to buy more RCL, but I'd first want to know (1) when the COVID -19 is fully contained and (2) how quickly cruise ship bookings recover. I have no illusions about buying any travel-related stock at the bottom, but I'd rather be buying it one the way up than on the way down.
Especially agree on your second point...
Stockbrokers profile picture
Outdated info.
In a perfect world this information would be great, but unfortunately the future is changing very quickly with many unknown and known factors contributing to it! Invest wisely at this moment in time! Good luck everyone.
Don't invest. short all of the travel industry until this is over then pickup the pieces after it turns around.

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