Cantor: Expedia Still A Buy, Now Worth $120/Share

In a report published Wednesday, Cantor Fitzgerald analysts maintained a Buy rating on Expedia, Inc. (NASDAQ: EXPE), while raising the price target from $110 to $120, following the announcement by the company of its intention to divest its ownership in eLong, Inc. (NASDAQ: LONG) for $671 million.

"Besides the accretion to EBITDA and the boost to cash position, the transaction allows EXPE to exit an asset that had under-performed recently relative to peers and opens the door to the possibility of forming partnerships with other local Chinese players, in our view," the analysts said.

The analysts believe that eLong has adversely impacted Expedia's results in the recent quarters, leading to a $33 million hit to Expedia's EBITDA for 1Q15 alone. The management expects continuing losses from its ownership in eLong for the remainder of 2015. The analysts expect the eLong transaction to be accretive to Expedia's EBITDA, while also helping boost its balance sheet liquidity.

"While Expedia loses a direct play on China travel, eLong's divestiture still makes strategic sense. Following the sale of its equity stake in eLong, Expedia no longer has a direct play on the fast growing online travel market in China. That said, we note that the Chinese travel market has been facing cut-throat competition among the OTAs, pressuring both revenue growth and profitability at eLong," the analysts added.

eLong had been a drag on Expedia's reported results in recent quarters, resulting in a $33M hit to EBITDA in 1Q:15 alone and with expectations of continuing losses through the remainder of 2015 by management. eLong transaction accretive to EXPE's EBITDA; boosts balance sheet liquidity.

The divestiture is expected to open doors for the company to seek strategic partnerships with a larger, faster-growing player.

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