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Expedia’s Valuation: What’s Priced In?

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Current valuation

Expedia (EXPE) currently trades at a forward PE (price-to-earnings) multiple of 17.26x. This is significantly higher than its average valuation multiple of 12.61x as of November 2008. It’s also higher than rival Priceline’s (PCLN) forward PE multiple of 15.06x and the industry median multiple of 16.89x.

The market is expecting EXPE’s EBITDA (earnings before interest, tax, depreciation, and amortization) to grow by 40% in 2016. Its growth is then expected to fall to 24% in 2017. Rival PCLN’s EBITDA is expected to grow at a much slower rate of 16% in 2016, then 18% in 2017.

As can be seen in the above chart, EXPE has mostly traded below Priceline since 2008. Other players such as TripAdvisor (TRIP), Ctrip.com (CTRP), and Qunar (QUNR) are not strictly comparable and have thus been excluded.

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Our analysis

Valuation multiples help us understand the market’s perception of risk, growth, and investors’ willingness to pay. Investors seem to be optimistic about Expedia’s future growth.

Increasing travel demand will drive growth for online travel agencies. Lower airfares and growing consumer disposable income will be positive for the industry, despite the current uncertainty brewing.

However, the strengthening US dollar and increasing competition will keep Expedia’s growth in check. Investors should thus keep track of the trends in the US dollar. Investors should also keep an eye on EXPE’s increasing leverage, as increasing leverage can make a stock more volatile.

EXPE forms ~1.4% of the S&P 500 Pure Growth ETF (RPG).

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