The online travel company sold its equity stake in eLong (LONG) , a mainland China-focused travel agency, for $671 million to Ctrip (CTRP) - Get Report, a competitor in the mainland-China travel market on May 22. This, according to Cantor Fitzgerald analysts, indicates a strong competition in China's online travel agency market.
Following the sale of its equity stake in eLong, Expedia no longer has a direct play on the fast growing online travel market in China, yet Cantor Fitzgerald analysts note that the Chinese travel market has been facing cut-throat competition among the online travel agencies, pressuring both revenue growth and profitability at eLong.
"We note that eLong had been a drag on Expedia's reported results in recent quarters, resulting in a $33 million hit to EBITDA in 1Q:15 alone and with expectations of continuing losses through the remainder of 2015 by management," said Cantor Fitzgerald analyst Naved Khan. "We also note that the transaction boosts balance sheet liquidity, which could be deployed towards future share buybacks or M&A, in our view."
The divestiture of Expedia's eLong stake could open the door for the company to seek a strategic partnership with a bigger, faster-growing player in that market, Cantor Fitzgerald analysts noted.
TheStreet Ratings team rates EXPEDIA INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate EXPEDIA INC (EXPE) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, revenue growth and notable return on equity. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Powered by its strong earnings growth of 409.09% and other important driving factors, this stock has surged by 49.47% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, EXPE should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- EXPEDIA INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, EXPEDIA INC increased its bottom line by earning $3.00 versus $1.66 in the prior year. This year, the market expects an improvement in earnings ($3.59 versus $3.00).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Internet & Catalog Retail industry. The net income increased by 408.6% when compared to the same quarter one year prior, rising from -$14.30 million to $44.14 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 19.0%. Since the same quarter one year prior, revenues rose by 14.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Internet & Catalog Retail industry and the overall market, EXPEDIA INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: EXPE Ratings Report