Morgan Stanley Upgrades Expedia, Cites Faster Volumes And Share Gains Offset Spending

In a report published Friday, Morgan Stanley analyst Brian Nowak upgraded shares of

to Equal Weight from Underweight with a price target raised to $92 from a previous $75 as volume and share gains accelerated which offset higher advertising spending. Nowak noted that it was a "surprise" that Expedia's global room night growth accelerated to 32 percent organically across all of its major brands. The acceleration came at a time when the company increased its advertising spend as total sales and marketing (including spend on Trivago) rose 500 basis points year over years a percentage of core OTA (online travel agency) revenue. "Expedia's ad spending, couponing, loyalty programs, lower net commissions and efforts to grow supply are driving faster unit growth, as Expedia's global room nights grew 1,370 basis points faster than our

first quarter estimated growth," Nowak wrote. "Even if Priceline grows 1,300 basis points faster than we expect, this would still be the first time Expedia has ever outpaced Priceline in the nine year history of our models." Nowak continued that Expedia is taking a larger share of the competitive leisure room night market, even against stiff competition such as Priceline. As such, the analyst noted, Priceline will find growth more difficult and may actually result in more competitive long-term pricing within the online travel agency space. Shares of Expedia surged to new 52-week highs of $102.69 on Friday and were trading higher by more than eight percent on the day.