25 Oct

Will Expedia’s Margins Continue to Fall for the Rest of 2016?

WRITTEN BY Ally Schmidt

Analysts’ estimates

For 3Q16, analysts are estimating Expedia’s (EXPE) EBITDA (earnings before interest, tax, depreciation, and amortization) to rise 40.0% to $657 million with an EBITDA margin of 25.8%. For 4Q16, EBITDA is expected to rise 64.3% to $460 million with an EBITDA margin of 22.0%.

Will Expedia’s Margins Continue to Fall for the Rest of 2016?

These figures mean a 47.0% rise in EBITDA for 2016 with EBITDA margins expected to rise to 18.6% from 16.5% in 2015. EBITDA margins are expected to rise further to 20.4% in 2017. As a result, EBITDA is expected to rise 25.0% in 2017.

Priceline’s (PCLN) margins are expected to rise to 40.6% in 2016 from 38.0% in 2015. TripAdvisor’s (TRIP) margins are expected to rise from 22.0% in 2015 to 28.7% in 2016, and Ctrip.com’s (CTRP) margins are expected to fall to 4.4% in 2016 from 6.4% in 2015.

Expedia’s costs have risen

Expedia has been increasing marketing expenses in a bid to capture market share. Most of these spends have gone to Google (GOOGL). For 2Q16, EXPE’s selling and marketing expenses rose 30.0% due to increased promotional costs as well as an increased pace of hiring.

Another cost that rose significantly in the quarter is technology and content expenses due to high people costs and low capitalization rates.

Outlook

Increasing marketing spends and a strong US dollar will continue to be drags on Expedia’s short-term revenues. On the other hand, the eLong sale will provide some respite.

Expedia has maintained its adjusted EBITDA guidance. It expects adjusted EBITDA to rise 35.0%–45.0% in 2016. The company’s two major acquisitions in 2016—Orbitz and HomeAway—are expected to contribute $275 million–$325 million.

EXPE forms 3.0% of the First Trust Dow Jones Internet ETF (FDN).

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