Expedia Group: Sales and earnings estimates for the third quarter exceeded and a share buyback of $5 billion announced!
The online travel booking platform exceeded forecasts in the third quarter with record sales and higher profitability. On November 2, 2023, the company also announced that it will repurchase $5 billion worth of common stock. The buyback is effective immediately and is in addition to the existing $1.8 billion share buyback program.
Expedia reported strong overall booking metrics amid strong demand for global travel. Gross accommodation bookings reached a new high of $25.68 billion, an increase of 7% compared to the same period in 2022. This is the highest level of gross bookings in the third quarter in the company's history. Revenue also increased significantly, reaching $3.92 billion, a 9% increase over 2022 and a record for the company's quarterly performance. Despite a decline in free cash flow from $923 million in the prior quarter to negative $1.59 billion, GAAP gross margin increased to 89.5%.
Expedia launched "One Key", a long-awaited loyalty program, in July 2023, which enables travelers to earn and userewards across the platform, for example by accumulating points on the vacation rental platform Vrbo and redeeming them when booking a flight on Expedia.com or a room on Hotels.com. The new unified customer loyalty program One Key has shown good momentum since its launch in the USA in July. In addition, the final stage of the migration from Vrbo to the unified front end has just been completed. Following these investments, Expedia is well positioned to further accelerate its business and increase returns for its shareholders. Shares in the online travel and accommodation company rose by almost 20% last Friday on heavy volume.
International travel has surged this year as Americans are taking advantage of a stronger US dollar. Expedia has benefited from the booking situation, narrowing the margin gap with market leader Booking Holdings. Competitor Booking has less room for further scaling than Expedia. Booking's EBITDA margin fell from almost 40% before the pandemic to around 35%. Expedia, on the other hand, continues to increase its margins, raising them from 17% to over 20%.
The Expedia Group has a market capitalization of $16.7 billion. Revenue of $12.83 billion is expected in the current financial year. This is expected to increase to $16.54 billion by 2026. The P/E ratio would fall from 1.30 to 1.01. Earnings per share are expected to reach $9.74 in 2023 and rise to $20.14 by 2026. This would reduce the P/E ratio from 11.6 to 5.6. Economic uncertainties and geopolitical tensions still harbor considerable risks for the travel sector. However, Expedia's continuous margin expansion and the low valuation compared to Booking Holdings create an attractive setup. Expedia continues to benefit from the global travel recovery despite short-term challenges.
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