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Will Expedia’s Revenue Growth Continue to Disappoint in 2017?

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Gross bookings see strong growth

For 2016, Expedia’s (EXPE) gross bookings grew 21% year-over-year or YoY to $72.4 billion. 13 percentage points of this growth was driven by acquisitions. Domestic bookings grew 24% YoY and International booking grew at 17% YoY. This growth led to full0year revenue growth of 31.5 YoY to $8.8 billion

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Revenues could have been higher

Acquisitions of Orbitz ($764 million sales in 2016) and HomeAway ($689 million sales in 2016) helped improve sales, while the sale of eLong (LONG) reduced revenue. 19 percentage points of Expedia’s revenue growth came from acquisitions. Other factors included growth in Core OTA business, which was driven by growth in brands Expedia, Hotels.com, and Trivago (TRVG).

However, revenues could have been higher. Revenue at Orbitz has actually fallen 17.8% from the $900 million reported in 2015. This fall was due to inefficient integration. While migrating Orbitz business to Expedia platforms, Expedia missed certain features and ended up frustrating customers, leading to declining sales.

Mobile conversion helps

The shift to mobile has helped Expedia improve revenues. This shift allows it to reach additional marketing channels, improve its audience base, and increase repeat business.

Outlook

The Orbitz migration is still not complete, and Expedia’s management expects the arm to underperform in the first half of 2016. However, the shift of the tech team from other products to Orbitz migration should also slow down growth in other businesses. However, management remains optimistic about the long-term growth story. It expects $75 million in synergies after the complete integration.

However, other macro scenarios seem to be troubling the top executives. Though CEO Dara Khosrowshahi said on the earnings call that the Trump travel ban hasn’t had a prolonged effect on its business yet, he was nevertheless concerned about Trump’s policies. He said, “We were frankly worried about the chaos and volatility and the uncertainty and the effect it would have on general business trends and especially travel.”

In an interview with Bloomberg, CFO Mark Okerstrom also expressed concerns on tourism risks after the travel ban.

Investors can gain exposure to Expedia by investing in the First Trust Dow Jones Internet ETF (FDN), which invests 2.7% of its holdings in Expedia. It also holds 1.9% in TripAdvisor (TRIP) but has no holdings in Priceline (PCLN) or Ctrip International (CTRP).

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