Expedia Earnings Preview: Fourth Quarter 2008

Expedia [[EXPE]] is scheduled to report their fourth quarter 2008 results before the market opens on Thursday, February 19. Based on our analysis, we are expecting EXPE to report disappointing results that fail to meet Wall Street’s expectations.

 

Analyst Expectations

We are forecasting revenues of $630.5 million and EPS of $.23. This would represent a 5% drop in revenues from last year’s $665.3 million in the same period. The current analyst consensus calls for revenues of $634.9 million and $.24 EPS.

 

Air travel volume has continued to decline in this difficult economic environment. By our calculations, air passenger traffic was down 8% in the fourth quarter. Expedia and Orbitz stand to feel the effects of this downturn in spending more severely than Priceline.

 

It is also interesting to note that Travel Zoo posted a much stronger than expected quarter. We believe this indicates a higher level of unsold inventory as travelers moved away from the traditional travel portals. Our checks seem to confirm this with traffic to the Expedia.com website falling y/y in October and November.

 

In 2009, we that consumer spending on leisure travel will continue to be tempered. Realistic expectations are likely in the neighborhood of a 5 – 10% decline in revenues. This would be worst than the 4% decline that Wall Street is currently forecasting.

 

Share Performance

Expedia’s shares have increased 10% since the beginning of the year. Although 2008 was extremely difficult for EXPE shareholders as the stock dropped 74% compared a 34% drop in the Dow Jones index.

 

Valuation

Shares are now trading at 8x consensus 2009 EPS estimates. This seems like a reasonable multiple value, but we believe there is still considerable downside risk to the 2009 estimates.

 

Recommendation: Hold with a $9 price target.

 

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