The online travel agency and booking site posted good Q2 numbers, but faces a potentially softer travel market.
Travel company Expedia Group (NASDAQ:EXPE) saw its stock price rise 10% on Friday after the company posted better-than-expected earnings despite a somewhat challenging market for travel.
Expedia’s revenue increased 6% in the second quarter to $3.6 billion, topping estimates of $3.53 billion. Net income came in at $386 million, or $2.80 per share, up 10% year-over-year. Adjusted earnings were up 21% to $3.51 per share, which bested estimates of $3.18 per share.
The earnings beat comes after two rivals, Tripadvisor (NASDAQ:TRIP) and Airbnb (NASDAQ:ABNB) missed revenue estimates and warned of slowing U.S. travel trends.
Best quarter for room night growth in over a year
Expedia owns several well-known travel brands, including Hotels.com, Travelocity, VRBO, Hotwire, Orbitz, Trivago, and, of course, Expedia, among others.
Expedia had fairly strong numbers across its key metrics in Q2, as gross bookings through its sites were up 6% year-over-year to $28.8 billion. Lodging gross bookings rose 8% to $20.7 billion, while hotel bookings jumped 11% compared to the same quarter a year ago.
Also, room nights — the number of nights booked at hotels and lodging facilities — grew 10% to 99 million, the fastest growth rate since the first quarter of 2023. Further, room nights booked under the Expedia brand surged 20%. Expedia CEO Ariane Gorin also cited significant improvement in the VRBO brand, as well as in B2C advertising.
Overall, the key metrics came in at the high end of their expected range, Gorin said.
In addition, the quarter saw strong growth in international bookings, as revenue from non-U.S. points of sale rose 10% year-over-year to $1.3 billion, while revenue from U.S. locations increased 3% to $2.25 billion.
On the expense front, while sales and marketing spend was up 13% year-over-year, technology and general administrative spending was lower, and the cost of revenue dropped 11%.
Travel demand expected to slow
While the second quarter was strong, Gorin noted that travel trends are anticipated to slow for the rest of the year, in line with what rivals are expecting.
“However, in July, we have seen a more challenging macro environment and a softening in travel demand. We are therefore adjusting our expectations for the rest of the year,” Gorin said in the earnings release.
Specifically, the company saw lower average daily rates (ADRs) for hotel rooms as consumers are trading down to lower-priced properties. It also saw a trend of lower airfares in July.
As a result, Expedia lowered its guidance for gross bookings and revenue growth in the third quarter to be in the 3% to 5% range.
For the full year, CFO Julie Whalen targeted gross bookings growth at 4%, which would be at the low end of its mid- to high single digit growth guidance. Revenue growth is expected to be 6%, while the earnings outlook is roughly in line with last year.
The good news is that Expedia is in good shape financially, with operating cash at $1.5 billion, up 31% year-over-year, and free cash flow of $1.3 billion, up 42% from the same quarter a year ago.
Is Expedia stock a buy?
Expedia stock is down about 9% this year, trading at about $129 per share. It also has a low forward P/E of 10.
I wouldn’t expect much from the stock price for the rest of the year, given the market. Longer term, Expedia hasn’t really been a great performer over the years, with a 10-year annualized return of 4.5% and flat growth over the past five years.
While it is cheap, and it is a market leader, it is fairly cyclical depending on travel trends and is probably not a stock that should be high on your buy list.
