Expedia's (NASDAQ:EXPE) Posts Q3 Sales In Line With Estimates But Stock Drops On Weak Earnings

Kayode Omotosho 2022/11/03 4:11 pm EDT

Online travel agency Expedia (NASDAQ: EXPE) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 22.1% year on year to $3.61 billion. Expedia made a GAAP profit of $476 million, improving on its profit of $378 million, in the same quarter last year.

Is now the time to buy Expedia? Access our full analysis of the earnings results here, it's free.

Expedia (EXPE) Q3 FY2022 Highlights:

  • Revenue: $3.61 billion vs analyst estimates of $3.59 billion (small beat)
  • EPS (non-GAAP): $3.94 vs analyst expectations of $4.13 (4.6% miss)
  • Free cash flow was negative $1.16 billion, down from positive free cash flow of $1.46 billion in previous quarter
  • Gross Margin (GAAP): 87.4%, up from 85% same quarter last year
  • Stayed Room Nights: 93.2 million, up 15.4 million year on year

"The third quarter marked another period of robust travel demand despite the uncertain macroeconomic environment. We delivered strong financial performance with record quarterly revenue and adjusted EBITDA, which exceeded $1 billion for the first time. These results reflect our emphasis on driving topline growth while improving margins," said Peter Kern, Vice Chairman and CEO, Expedia Group.

Originally founded as a part of Microsoft, Expedia (NASDAQ: EXPE) is one of the world’s leading online travel agencies.

Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission paying sellers, generating flywheel scale effects which feed back into further customer acquisition. Because of the enormous number of flights, hotels, and accommodations available, travel is a natural fit for marketplaces that aggregate suppliers, simplifying the shopping process for consumers. Phocuswright estimated that the annual global travel market will reach $1.4 trillion of bookings in 2022 and online travel platforms today make up over 50% of the industry’s bookings, a percentage that has been rising for 20 years, and will likely continue in the years ahead. Covid lockdowns in 2020 halted global travel for months on end, and may have fundamentally reduced the market for business travel, a long term threat for the profitability of online travel platforms.

Sales Growth

Expedia's revenue growth over the last three years has been very strong, averaging 34.4% annually.

Expedia Total Revenue

This quarter, Expedia reported a decent 22.1% year on year revenue growth, roughly in line with what analysts expected.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 12.7% over the next twelve months.

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Usage Growth

As an online travel company, Expedia generates revenue growth by a combination of increasing the number of stays (or experiences) booked, as well as the level of commission charged on those bookings.

Over the last two years the number of Expedia's nights booked, a key usage metric for the company, grew 56.2% annually to 93.2 million users. This is among the fastest growth of any consumer internet company, indicating that users are excited about the offering.

Expedia Stayed Room Nights

In Q3 the company added 15.4 million nights booked, translating to a 19.7% growth year on year.

Key Takeaways from Expedia's Q3 Results

With a market capitalization of $14.2 billion, more than $4.63 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

It was great to see that Expedia’s user base is growing. That feature of these results really stood out as a positive. On the other hand revenue was just in line and earnings missed expectations. Overall, this quarter's results seemed mixed. The market was likely expecting more and the company is down 6.15% on the results and currently trades at $82.23 per share.

Should you invest in Expedia right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.