For 4Q16, analysts are estimating Expedia’s (EXPE) EBITDA (earnings before interest, tax, depreciation, and amortization) to rise 58.0% to $441.6 million, with an EBITDA margin of 21.3%. That means a 47.0% rise in EBITDA for 2016, with its EBITDA margin expected to rise to 18.5%, from 16.5% in 2015.
Analysts are expecting EBITDA margins to expand further to 19.5% in 2017. As a result, EBITDA is expected to rise 20.0% 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. Ctrip.com International’s (CTRP) margins are expected to fall to 4.4% in 2016, from 6.4% in 2015.
In 2015, Expedia sold a 62.4% stake in eLong. It was a move that became a key driver of the company’s return to profitability in 3Q15 and the subsequent rise in margins.
EXPE has been increasing marketing expenses in a bid to capture market share. Most of the money has gone to Google (GOOGL). For 3Q16, EXPE’s selling and marketing expenses rose 30.0% due to increased promotional costs and an increased hiring pace.
Another cost that rose significantly in the quarter was technology and content expenses. That was due to high people costs and low capitalization rates.
What’s the outlook?
Increasing marketing spending and a strong US dollar will continue to be drags on EXPE’s short-term revenues. On the other hand, the eLong sale will provide a respite.
Expedia has maintained its adjusted EBITDA guidance. It expected adjusted EBITDA to rise 35.0%–45.0% in 2016. It expects $275.0 million–$325.0 million to be contributed in 2016 by its two major acquisitions—Orbitz and HomeAway.
EXPE forms ~1.6% of the holdings of the First Trust NASDAQ-100 Ex-Technology Sector ETF (QQXT).