Why Is Expedia Stock So Cheap?

 This stock is one of two that control nearly all of the online travel agency booking market. 

Andrew Willis 3 March, 2023 | 4:43AM
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Andrew Willis: As we get thinking about our summer travel plans, the investors among us might also be thinking about airlines or platforms for hosts or drivers like Airbnb and Uber. But what about platforms that do it all? That's where we'll find the leading network of online travel services.

From car rentals to hotels and flights, we see a powerful network advantage with Expedia (EXPE). We expect the company will make a full booking recovery to pre-pandemic levels by fall of this year, with senior equity analyst Dan Wasiolek, seeing higher direct traffic, which involves no marketing costs and can make a difference in an industry where marketing expenses can average run 50% of revenue. It's worth noting now that Expedia and Booking.com (BKNG) combined now control most of the online travel agency booking market. At the same time, Expedia ranks well above Booking.com's mobile app usage, and that's key for tapping into demand.

For Morningstar, I'm Andrew Willis.

 

bulls Bulls Say

  • Expedia has a dominant network effect that we think only a few can enjoy, and recent investments and acquisitions stand to add to the company's platform advantage.
  • Expedia removed $700 million-$750 million in annualized fixed costs in the years following the pandemic. Further, Expedia has removed $200 million in variable costs. We see some of these savings reinvested back into its platform.
  • Expedia stands to benefit from remote work flexibility increasing long-term demand for travel.

bears Bears Say

  • Google continues to siphon free organic traffic in favor of its own platform, causing incremental marketing costs for Expedia.
  • The unknown extent and duration of inflation stands to materially affect demand for travel content offered on Expedia's platform.
  • Competition from existing peers (Booking, TripAdvisor, Google, Costco, Alibaba, and Airbnb) and new entrants (Meta) could meaningfully affect Expedia's growth outlook.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Booking Holdings Inc3,734.29 USD-1.47Rating
Expedia Group Inc110.28 USD0.15Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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