UBS Has A Couple Reservations About Buying Expedia Shares

Expedia Inc EXPE reported mixed results for Q2. UBS’s Eric J. Sheridan maintained a Buy rating on the company, while reducing the price target from $145 to $142. He commented on the positives and negatives Expedia exhibited in its second quarter.

2Q Negatives

Analyst Eric Sheridan mentioned the concerns in the quarter as:

1. Higher-than-anticipated deceleration in organic hotel room night growth, from 24 percent to 12 percent. The lackluster growth was partly on account of execution issues related to the Orbitz integration
2. Expedia suggested that there could be only a modest recovery in hotel room night growth in 2H16, while also indicating a lower-than-expected EBITDA contribution from its organic business in the back half
3. Continued y/y decline in revenue per room night

2Q Positives

Sheridan enumerated the positives in the quarter as:

1. Significant Q2 EBITDA beat, on the back of margin upside in Core OTA, trivago and HomeAway
2. Expedia indicated it could explore the feasibility of a trivago IPO by yearend
3. The company reiterated its adj. EBITDA guidance for FY16, and gave positive commentary on HomeAway and Orbitz synergies
4. Capital outlay for new headquarters could be closer to only 50 percent of the earlier estimate
5. Expedia announced a dividend hike from $0.24 to $0.26

The analyst reduced the revenue, adj. EBITDA and adj. EPS estimates for Q3 from $2.56b to $2.55b, from $681mm to $645mm and from $2.67 to $2.52, respectively. The revenue, adj. EBITDA and adj. EPS estimates for FY 2016 have been lowered from $8.82b to $8.70b, from $1.62b to $1.60b and from $4.96 to $4.90, respectively.

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