A Possible Explanation For Expedia's Selloff

Expedia Inc EXPE shares, which reclaimed the $120 level in mid-October after trading below it for much of this year, have seen a selloff in recent sessions.

The stock began running up ahead of its third quarter earnings release on October 27 and rallied over 4 percent on the results. It's largely been range-bound between $120 and $130 until December 9.

Since closing at $124.06 on December 9, the stock has lost a little more than 6 percent. The company is set to spin-off Trivago in an IPO this week. Does this have to do anything with the pullback?

Benzinga contacted Benchmark Internet analyst Daniel Kurnos, who covers the stock, regarding possible reasons for the mini selloff.

Kurnos told Benzinga it’ tough to see Trivago getting the $40-per-share value Kayak is commanding on the open market, but anything close to it would be an upside for Expedia at this point. Kurnos also believes the shares may be seeing profit- taking, in line with the names that have done well this year in a newly risk-on environment, as it’s had a good run lately.

In a third quarter earnings preview released in October, Kurnos suggested the Trivago IPO remains a bit of a wild card. Valuation remains fairly subjective, although the easiest comparison is Priceline Group Inc's PCLN acquisition of Kayak in 2012 for about 100 times his EV/EBITDA, the analyst added.

According to Kurnos, the valuation implies Trivago is worth about $4.2 billion based on his 2017 forecast, slightly below the oft-quoted $5 billion price tag. The analyst said then the IPO could ostensibly generate anywhere from $250 million to more than $2 billion in incremental EV, or $1.60-$13 per share.

Kurnos is of the view Expedia will continue to trade margin expansion for market share, making the balance of growth vs. leverage uncertain.