Wall Street Overly Pessimistic on Expedia (EXPE)

Includes: AAL, EXPE, MAR
by: Douglas McIntyre

Expedia (Nasdaq: EXPE) had pretty good year last year. Revenue came in at over $2.1 billion, up from $1.84 billion the year before. Net income rose to $229 million from $163 million in 2004. The year end cash balance was $297 million. The company is the largest player in the online travel market and has presences in Europe and Asia. Expedia also have a footprint in corporate travel business.

Expedia has a significant relationship with Microsoft (MSFT) to provide travel services of MSN visitors.

So, how does a company that bills itself as the No.1 brand in the online travel market, with 25 million travelers per month as customers, get knocked to the bottom of its trading range? The primary argument is that the company will have to spend heavily to keep its lead over Priceline and other online travel services. Forbes has gone so far as to say that due to this problem, the shares of Expedia will be "range-bound" this year. After a disappointing fourth quarter, the sentiment at Forbes seems to be shared by the great majority of the institutions that cover the stock.

With the travel industry experiencing heavy traffic volume, the majority may be wrong on this one. AMR (AMR) is trading at the high end of its 52 week price range. So is Starwood Hotels & Resorts (HOT). Ditto, Marriott (MAR). Sometimes this means the online travel people do not have as much prime inventory because the airlines and hotels keep it to themselves, but a rising tide does lift all ships. Increased demand for travel is going to help and not hurt Expedia. It is likely to continue to get its very large share of bookings.

So, there's something wrong with this picture. The Street has become too pessimistic about Expedia. The fact that the company is investing in expanding its lead may weigh short-term, but the uptick in travel and Expedia's commanding market leadership make it the "most likely to succeed" in this category.

EXPE Price Performance

Douglas A. McIntyre is former Editor-in-Chief and Publisher of Financial World Magazine. He was also the president of Switchboard.com when it was the 10th most visited site in the world, according to MediaMetrix. He has been chief executive officer of FutureSource, LLC and On2 Technologies, Inc.