AI Investments And Global Expansion Will Strengthen Customer Engagement In Hospitality

Key Takeaways

• Strategic investments in core brands, AI, and international expansion aim to boost market presence, revenue, and customer loyalty.
  
• Growth in B2B and high-margin advertising revenue streams is expected to significantly enhance revenue and earnings.
  
• Competitive pressures and unresolved platform issues could challenge Expedia's growth, while high expenses and tech investments risk impacting margins and investor confidence.

Catalysts

Operates as an online travel company in the United States and internationally.

• Expedia Group plans to invest strategically in growth areas, such as its core consumer brands and international expansion, expected to enhance revenue and earnings by increasing market presence and customer loyalty.
  
• The company aims to drive operational efficiencies and further expand EBITDA margins, potentially improving net margins through cost management and optimized spending.
  
• Increased investment in AI technologies and offerings is anticipated to enhance customer experience and operational productivity, potentially boosting earnings through increased efficiency and consumer engagement.
  
• Growth in the B2B segment, driven by international demand and new partnerships, is expected to positively impact revenue, as the company capitalizes on strong partner relationships and unique market opportunities.
  
• The continued development of high-margin advertising revenue streams, coupled with expanding product offerings, is likely to significantly contribute to overall revenue growth and improved earnings.

Expedia Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Expedia Group's revenue will grow by 6.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.0% today to 11.9% in 3 years time.
• Analysts expect earnings to reach $2.0 billion (and earnings per share of $16.46) by about March 2028, up from $1.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.6 billion in earnings, and the most bearish expecting $1.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.0x on those 2028 earnings, down from 17.2x today. This future PE is lower than the current PE for the US Hospitality industry at 23.3x.
• Analysts expect the number of shares outstanding to decline by 2.93% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.44%, as per the Simply Wall St company report.

Expedia Group Future Earnings Per Share Growth

Risks

• Expedia Group faces strong competition in the travel industry, and maintaining its market position could become challenging, potentially impacting its future revenue and market share.
  
• The replatforming issues at Vrbo and Hotels.com have previously disrupted business, and if not fully resolved or managed, they may continue to affect growth and revenue.
  
• Slow growth expectations for Q1 2025, partly due to foreign exchange headwinds and other factors such as the Easter shift, could impact revenue consistency and investor confidence.
  
• The need for constant investment in AI and technology innovations poses a risk if returns on these investments do not meet expectations, potentially affecting net margins.
  
• Despite efforts to improve efficiency, high marketing and operational expenses could pressure net margins if revenue growth slows or operational efficiencies do not materialize as planned.

Valuation

• The analysts have a consensus price target of $212.539 for Expedia Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $290.0, and the most bearish reporting a price target of just $175.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $16.7 billion, earnings will come to $2.0 billion, and it would be trading on a PE ratio of 16.0x, assuming you use a discount rate of 8.4%.
• Given the current share price of $165.16, the analyst price target of $212.54 is 22.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.