Expedia (EXPE): Buy, Sell, or Hold Post Q3 Earnings?

What a fantastic six months it’s been for Expedia. Shares of the company have skyrocketed 71.6%, setting a new 52-week high of $289.44. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is there a buying opportunity in Expedia, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free for active Edge members.

Why Is Expedia Not Exciting?

We’re glad investors have benefited from the price increase, but we don't have much confidence in Expedia. Here are three reasons why EXPE doesn't excite us and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, Expedia grew its sales at a mediocre 8.3% compounded annual growth rate. This was below our standard for the consumer internet sector.

2. Customer Spending Decreases, Engagement Falling?

Average revenue per booking (ARPB) is a critical metric to track because it not only measures how much users book on its platform but also the commission that Expedia can charge.

Expedia’s ARPB fell over the last two years, averaging 1.7% annual declines. This isn’t great, but the increase in room nights booked is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Expedia tries boosting ARPB by taking a more aggressive approach to monetization, it’s unclear whether bookings can continue growing at the current pace.

3. Poor Marketing Efficiency Drains Profits

Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like Expedia grow from a combination of product virality, paid advertisement, and incentives.

It’s very expensive for Expedia to acquire new users as the company has spent 63.1% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates a highly competitive environment with little differentiation between Expedia and its peers.

Final Judgment

Expedia isn’t a terrible business, but it doesn’t pass our quality test. After the recent rally, the stock trades at 10.3× forward EV/EBITDA (or $289.44 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. Let us point you toward one of our top digital advertising picks.

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