Having scored on Priceline (PCLN) in Q1, Citi’s Mark Mahaney has switched his bet to the beaten down Expedia (EXPE)–and maintains this after a “surprisingly healthy” Q1. He does cut his price target, however.
- Expedia Reported A Surprisingly Healthy March Quarter – $688MM in revenue & $0.24 Adjusted EPS vs. Street estimates of $658MM, & $0.23, respectively. OIBA of $126MM was up 21% Y/Y. Revenue upside came from the Domestic segment ($21MM or 5% upside) and the European segment ($8MM or 5%).
- Solid Fundamental Trends With Accelerating Organic Revenue Growth – Organic revenue growth (adjusting for FX and acquisitions) was approximately 20.2% Y/Y, an acceleration vs. the 19.3% Y/Y growth reported in Q4 and 19.6% in Q3. OIBA margin was down 70 bps Y/Y to 18.3%, slightly better than our 18.2% estimate. Advertising revenue of $64MM was a material positive.
- EXPE Trading Off 2% – We attribute this small move to: 1) Concerns re: lower than expected tax rate (36.8% vs. 38%) – but the magnitude was immaterial to EPS; 2) European bookings growth deceleration – valid point; 3) Incrementally more cautious comments re: the U.S. travel sector – you’re not surprised, are you? & 4) Guidance that implies a more back-end loaded ’08 – valid point.
- But We View Long Thesis As Well Intact – 1) Secular growth in online travel; 2) Demonstrating improved execution; 3) EXPE’s relations & economics with travel suppliers are stabilizing; 4) EXPE is showing countercyclical hedges – greater inventory access; 5) High margin (and high multiple) advertising rev. continues to grow; and 6) Valuation is very attractive – 9% ’08 FCF yield.
- Trimming PT to $37 – ’08 Adj. EPS from $1.46 to $1.47. $37 = 12X ’09 EBITDA/25X ’09 GAAP EPS for sustainable 14% EPS growth & strong FCF.
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