Expedia's Q3 'Solid'; Cantor Lifts Target From $140 To $150

• Expedia Inc EXPE shares have climbed 19 percent in the last three months, from a low of $106.87 on July 29.
• Cantor Fitzgerald’s Naved Khan maintained a Buy rating on the company, while raising the price target from $140 to $150.
• Strong organic room night growth, expanding property selection, upward revision in FY15 outlook and higher-than-expected synergies from the Orbitz acquisition are the positives, Khan said.

Expedia reported robust 3Q results, with revenue of $1,938M, in-line with Street expectations. While revenue was up 13 percent y/y, it had grown 26 percent on organic FX-neutral.

The company’s EBITDA came in at $469M, marginally ahead of the consensus estimates, despite a $17M hit from the Orbitz acquisition. Normalized EPS was reported at $2.07, better than the consensus expectation of $2.04.

Analyst Naved Khan mentioned that the Buy rating and upward revision in price target reflected:

1. Strong organic room night growth, fueled by further improvements in conversion rates. Expedia is now growing at a faster rate than the overall market and gaining market share
2. Expanding property selection
3. Upward revision in the company’s FY15 guidance: Expedia raised its EBITDA growth guidance for FY15 from 10-15 percent to 12-15 percent y/y.
4. Higher synergies from the Orbitz acquisition than management had originally estimated: “While the integration of Orbitz is expected to take ~9 months, mgt. now expects "meaningful upside" to its original estimate of $75M in synergies (post integration, annualized),” Khan commented.

There was continued acceleration in room night growth, which rose by 100bps q/q to 36 percent. This was driven by strength across all major brands. International room night growth remained at 50 percent y/y, while US room night growth accelerated to 25 percent y/y in 3Q.

“We note that room nights grew 28% Y/Y on an organic basis, relatively consistent with 27% in 2Q,” Khan wrote. He added that Expedia witnessed weak revenue per room night, which declined 15 percent y/y, mostly due to an FX impact.