Credit Suisse, Morgan Stanley Review Expedia Earnings

reported better-than-expected bookings and room night growth for 1Q, on the back of aggressive pricing. Credit Suisse analysts maintained a Neutral rating for the company, while reducing the price target from $105 to $104. In the report Credit Suisse noted, "EXPE reported in-line 1Q15 adj. EBITDA of $101.8mm vs consensus $99.4mm and CS $134.2mm. The divergence from CS estimates was due to an under modeling of sales and marketing expense attributable to the acquisitions of Travelocity and Wotif." The company maintained EBITDA growth guidance at 10-15 percent y/y ex-eLong. Although Expedia gained share of hotel room nights, particularly in its international segment, FX headwinds and aggressive pricing weighed on revenue margin. "Wotif and Travelocity served as tailwinds to 1Q15 bookings and room night growth, but we have decreased our near term estimates as we contemplate the full impact of the acquisitions on the P&L (on the OpEx side)," the analysts wrote. The EPS estimates for 2015 and 2016 have been reduced from $3.89 to $3.24 and from $5.49 to $5.44, respectively. "We remain on the sidelines and maintain our Neutral rating based primarily on valuation and await further clarity around the consummation of the Orbitz transaction. And we remain concerned around potential competitive pressure from Booking's US entry, which has yet to exert a meaningful impact," the Credit Suisse report added. In another report Morgan Stanley analysts maintained an Underweight rating on the company, saying that its better-than-expected room night growth "more than offset lower take rates and higher ad spending." Expedia reported strong room night growth, accelerating to 33 percent y/y, with 29 percent y/y organic growth. This performance was driven by both domestic and international growth in room nights, which came in at 23 percent and 41 percent, respectively. Expedia net take rates continued to be under pressure. "This is in-line with our core thesis that rising competition among the OTAs is driving them to roll-out more discounting, couponing, and loyalty programming...and also reduce their hotel take rates to drive more supply growth," the analysts explained. "Ad spending is also on the rise as total sales & marketing (including EXPE's spending on Trivago) rose to 69% of core OTA revenue (in-line with our estimates and up 500bp YoY)," the report by Morgan Stanley stated, while adding that these factors indicate OTA industry economics are "under pressure."