Expedia Earnings Preview: First Quarter 2009

Expedia [[EXPE]] is scheduled to report their first quarter 2009 results before the market opens on Thursday, April 30. Based on our analysis, we at EarningsPreviews.com are expecting EXPE to report disappointing results that fail to meet Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $578.3 million and EPS of $.14. This would represent a 16% decline in revenues from last year’s $687.8 million in the same period. The current analyst consensus estimates calls for revenues of $588.3 million and EPS of $.15.

 

We believe that Expedia continues to face a myriad of challenges including the current economic recession, a highly competitive environment and declining consumer spending. While Expedia continues to be the leading internet travel portal based on traffic and revenue, they are rapidly losing market share to Priceline [[PCLN]] and smaller competitors like Kayak. Compounding the problem in 2009 is the decline in consumer spending in non-essential categories such as travel.

 

In a further hit to their financial performance, Expedia recently announced that they would no longer be charging booking fees for air travel. While this change was only announced as temporary, it would be very difficult to re-implement those types of fees in the current environment.

 

Share Performance

Since the beginning of the year, Expedia’s shares are up 36%. In 2008, Expedia’s shares fell 74% as the stock badly underperformed the 34% decline in the Dow Jones index.

 

Valuation

Shares are now trading at 10x consensus 2010 EPS estimates. This is below the relative valuations of their peer group. While valuation looks compelling, we feel that 2010 estimates are likely too optimistic. The next few quarter could see a highly competitive battle among the internet travel portals which would further hurt Expedia’s performance.

 

Recommendation: Sell with a $9 price target.

 

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