What Expedia’s Financial Health Means for Investors
Improving leverage ratio
Expedia (EXPE) went on an expansion spree in 2015. The company spent over $6 billion to complete four strategic acquisitions—HomeAway, Travelocity, Orbitz Worldwide, and a majority stake in its joint venture with AirAsia. The company used leverage to finance most of the acquisitions.
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As a result, the total debt on Expedia’s balance sheet rose from $1.75 billion at the end of 2014 to $3.2 billion at the end of 2015. Its debt has remained constant since 4Q15. At the end of 2Q17, Expedia’s debt remained at $3.2 billion.
However, increasing profitability helped the company improve its leverage ratio (net debt-to-EBITDA) from 5.3x at the end of 2015 to 3.4x at the end of 2016. For 2Q17, Expedia has become net debt negative. It has more cash on its balance sheet than debt.
Priceline (PCLN) also improved its leverage ratio from 4.0x at the end of 2015 to 3.4x at the end of 4Q16. Its leverage ratio fell to 2.6x at the end of 2Q17. TripAdvisor (TRIP) has negligible debt compared to its cash reserves, while Ctrip.com’s (CTRP) leverage stood at 13.1x at the end of 2Q17.
Improving cash flow
Expedia’s cash flow has also been improving. In 2016, Expedia generated $2.9 billion in cash flow from operations and $4.1 billion in free cash flow. For 1H17, Expedia generated $2.9 billion in cash flow from operations and $4.1 billion in free cash flow. As a result, the cash on the balance sheet rose from ~$1.7 billion at the end of 2015 to $1.9 billion at the end of 2016 and $3.8 billion at the end of 2Q17.
In 1Q17, Expedia announced an increase in the dividend paid to shareholders. The dividend increased to $0.28—compared to $0.26 paid in 4Q16. Expedia’s dividend payout is expected to remain at $0.28 for the rest of 2017.
Expedia’s indicated dividend yield stands at 0.78%—much lower than the S&P 500’s (SPY) dividend yield of 1.9%.