Expedia Earnings: Gaining Altitude

Expedia delivered impressive financial performance for the second quarter of 2014. There are solid reasons to believe the company will continue gaining altitude in the years ahead.

Aug 21, 2014 at 4:28PM

Expe Logo

Source: Expedia.

Online travel agency Expedia (NASDAQ:EXPE) reported earnings for the second quarter of 2014 on July 31. Both sales and earnings were remarkably strong during the quarter, and the company continues building the foundations for sustainable growth in the years ahead. Let's take a look at Expedia's latest earnings report and what it means for investors.

Solid performance

Sales during the quarter ended on June 30, increased by a healthy 24%, to $1.49 billion from $1.2 billion in the same quarter last year. Gross bookings, meaning the total dollar value of services booked via the platform, increased 29% year over year to $13.046 billion.

International revenues were $706 million during the quarter, a 30% increase versus $541 million in the second quarter of 2013. The domestic segment produced a 19% increase in sales, from $664 million to $789 million

Revenue by Geography 2Q 2014 2Q 2013 Growth % of Revenue
Domestic $789 million $664 million 19% 53%
International $706 million $541 million 30% 47%
Total $1495 million $1205 million 24% 100%

Source: Expedia SEC filings

Expedia has three segments: merchant, agency, and advertising and media. The merchant business model is when Expedia buys blocks of rooms and travel tickets and then resells them to customers, while in the agency division, the company allows hotels and other service providers to list their own prices, acting as an intermediary and charging a commission for every transaction. The agency model is proving to be more effective lately, and it was a big growth driver for Expedia during the second quarter.

Revenue by Segment 2Q 2014 2Q 2013 Growth % of Revenue
Agency $397 million $270 million 47% 27%
Merchant $975 million $855 million 14% 65%
Advertising and Media $123 million $80 million 54% 8%
Total $1495 million $1205 million 24% 100%

Source: Expedia SEC fillings.

Selling and marketing expenses increased substantially in the most recent quarter, growing from $590.5 million in the second quarter of 2013 to $743.6 million, this represents a 26% annual increase and is growing faster than revenues, which means selling and marketing expenses are having a negative impact on profit margins.

On the other hand, cost discipline in other areas allowed Expedia to deliver expanding profit margins at the operating level. Operating margin as a percentage of revenue came in at 8.6%, an increase versus 7.8% in the same quarter last year.

Adjusted earnings per share were $1.03 during the quarter, a big jump of 61% versus the same period in 2013 and comfortably above Wall Street analysts' expectations of $0.76 per share according to data compiled by Thomson Reuters.

Industry context

Competitor Priceline (NASDAQ:PCLN) is the growth leader in the online travel industry. The company has traditionally focused on international markets and the agency business model, which has proven to be a winning strategy over the long term. Based on data from the second quarter of 2014, Priceline produces 86% of gross bookings in international markets and 84% of total gross bookings via the agency model.

However, Expedia has been closing the gap over the last several quarters, which should come as no surprise considering that both international markets and agency sales are being important growth engines for the company.

EXPE Revenue (Quarterly YoY Growth) Chart

EXPE Revenue (Quarterly YoY Growth) data by YCharts.

The company has consolidated its place in the business via a global network offering access to more than 325,000 accommodations around the world. Scale is a very important factor in the online travel industry, since travelers and industry operators attract each other to the most popular online travel platforms. The bigger the company gets, the more attractive the service becomes to both customers and operators.

In any case, leaving competitive considerations aside, the online travel industry is providing enough opportunities for both Priceline and Expedia to deliver impressive performance, and this is a big positive when it comes to evaluating the two companies and their potential for growth over the years ahead.

Key takeaway

Expedia delivered rock-solid financial performance for the second quarter of 2014. Perhaps more important, healthy growth rates in international markets, a growing participation of agency sales in the overall business model, and a strong competitive position in the exciting online travel industry mean the company is well-positioned to continue gaining altitude over the long term.

Leaked: Apple's next smart device can make you rich
Innovative growth companies such as Expedia can be your ticket to explosive gains, so maybe you want to learn more about Apple's next revolutionary device. Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early, in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Andres Cardenal owns shares of Priceline Group. The Motley Fool recommends Priceline Group. The Motley Fool owns shares of Priceline Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers