Analyst Breaks Down United's Contract Dispute With Expedia

Online travel agency Expedia Group Inc EXPE's distribution deal with United Continental Holdings Inc UAL will end at the end of September, but the financial impact to Expedia will likely be "modest."

The Analyst

Guggenheim Partners' Jake Fuller maintains a Buy rating on Expedia with an unchanged $162 price target.

The Thesis

United gave Expedia notice in February it plans on suspending ticket sales for flights departing after the existing contract ends on Sept. 30, Fuller said in a research report. It's not yet clear if United will "walk away" from Expedia's platform or if it is "playing hardball" to renegotiate better terms.

United accounts for around 15 percent of the domestic air market, so Fuller says it might be reasonable to assume United accounts for 15 percent of Expedia's U.S. ticket volume which is estimated at 56.6 million tickets in 2018. The math behind the assumption translates to Expedia selling 8.5 million United flight tickets, or $2.8 billion of bookings.

Expedia's take is likely $10.56 in revenue per ticket sold, or $90 million in revenue. The analyst says this translates to 0.8 percent of Expedia's total global revenue, which is "modest."

Headlines could prove to be a "sentiment drag" on Expedia if the contract expires without renewal. However, the financial exposure is modest and the online travel agency managed to resolve disputes fairly quickly.

Price Action

Expedia's stock closed Wednesday at $124.16 per share.

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