Key Takeaways for Expedia Stock:
- Expedia stock currently trades at a discount to our fair value estimate but don't bet on this stock based on vacation sales alone.
- We believe worker flexibility will boost demand for Expedia’s travel services in the long term, and in the immediate term a unified platform, which includes the ability to use loyalty points across brands, will aid sales.
- Expedia has reduced fixed costs by US$700-US$750 million ahead of increased competition in the online travel industry from online and retail giants such as Google, Meta, Amazon, Alibaba, and Costco.
Andrew Willis: With 940,000 hotels and 2 million alternative accommodation listings, chances are you’ve intersected with Expedia (EXPE) at some point in your travels.
But what about a trip with Expedia stock? It trades at a discount to our fair value estimate, and as measured by App Annie on May 8, Expedia’s core platform ranks as a top-10 travel iOS mobile application in 25 countries versus a ranking of 144 for Booking.com, which has a narrow Morningstar Economic Moat Rating, and a ranking of 104 for narrow-moat Airbnb.
So, will Expedia surge in this vacation season that is well underway? Before you invest in Expedia stock, maybe you should consider how it’s not as simple as sold-out—and expensive—hotels in tourist hotspots. For one, in the long term, we see demand driven largely by worker flexibility. Morningstar senior equity analyst Dan Wasiolek says he developed this positive stance because higher-income occupations (like those in technology, finance, legal, and architecture) are in industries that are the most likely to support ongoing work from remote locations.
Expedia Stock Benefits From a Network Effect It May Need
In the intermediate term, there’s also what the company has been doing internally that could serve as a positive catalyst for Expedia stock. We think efforts to migrate technology, data, supply, and loyalty capability onto a unified platform versus previously managing the divisions separately in silos will support the company's network advantage and support operating margin expansion over the intermediate term. Specifically, Wasiolek believes this investment will give platform users more content choices, the ability to accrue and use loyalty points across brands, and to receive more targeted offerings, which will thereby aid sales.
As consumers gain more choices and sales increase, however, competition is sure to be around the corner. We do see more direct traffic ahead thanks to Expedia’s network advantage, since a partner website doesn’t require paying for clicks to a new competitor, like Google.
For Morningstar, I’m Andrew Willis.
Expedia Bulls Say
- Expedia has a dominant network effect that we think only a few can enjoy, and recent investments to unify its platform and acquisitions stand to add to the company's platform advantage.
- Expedia removed US$700 million-US$750 million in annualized fixed costs in the years following the pandemic. Further, Expedia has removed $200 million in variable costs. We see some of these savings reinvested back into its platform.
- Expedia stands to benefit from remote work flexibility increasing long-term demand for travel.
Expedia Bears Say
- Google continues to siphon free organic traffic in favor of its own platform, causing incremental marketing costs for Expedia.
- Demand for Expedia's travel content could be materially affected by lower economic growth or geopolitical events.
- Competition from existing peers (Booking, Tripadvisor, Google, Costco, Alibaba, and Airbnb) and new entrants (Meta) could meaningfully affect Expedia's growth outlook.
The author or authors do not own shares in any securities mentioned in this article.
