Expedia's Room Night Growth Wasn't As Bad As You might Think

Cantor Fitzgerald says Expedia Inc EXPE’s third quarter performance shows signs of progress in room nights despite missing expectations.

“While reported room nights growth lagged expectations, monthly data points to an improving trend in the metric throughout 3Q, with gains continuing into Oct,” analyst Naved Khan wrote in a note.

Khan maintained his Buy rating and $175 price target on expected sustained improvement in room nights, HomeAway's progress in its transition to a transaction-based model and planned IPO of Trivago.

Expedia reported Normalized EPS (NEPS) of $2.41 versus consensus $2.47 and revenue grew 33 percent to $2.58 billion, higher than FactSet’s consensus estimate of $2.543 billion.

HomeAway delivered revenue growth of 61 percent year-over-year (pro forma), driven by robust 250 percent plus growth in booked transaction revenues. Meanwhile, Trivago’s revenue rose 57 percent and the planned IPO could help unlock incremental value for Expedia shareholder.

“With Trivago on track to generate $1.1B in revenue in 2017 by our estimate, we believe the business could be valued at $3-4B on a stand-alone basis,” Khan highlighted.

Expedia’s. updated outlook calls for EBITDA growth approaching mid-point of prior guidance for 35-45 percent, with continued risk for potential downside (consensus was at 39.7 percent).

Khan raised his FY 2016 estimates to $8.742 billion in revenues, $1.612 billion in EBITDA and $4.49 in NEPS, from $8.763 billion, $1.630 billion and $4.93, previously.