How Will Expedia (EXPE) Stock Respond to Wotif Group Purchase?

NEW YORK (TheStreet) -- Expedia Inc.  (EXPE) announced today that it entered into an agreement to acquire Wotif.com Holdings Limited, an Australian-based online travel company, for total cash consideration of A$703 million or A$3.30 per share, a premium of approximately 30% to Wotif Group's volume weighted average share price for the five trading days leading up to and including July 4, 2014.

The sum is 
equivalent to $658 million or S$3.09 per share based on July 4, 2014 exchange rates.

Shares of Expedia are up 0.47% to $82.60 in pre-market trade.

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TheStreet Ratings team rates EXPEDIA INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate EXPEDIA INC (EXPE) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and compelling growth in net income. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 4.3%. Since the same quarter one year prior, revenues rose by 18.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 85.71% and other important driving factors, this stock has surged by 30.10% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • Net operating cash flow has increased to $971.44 million or 10.25% when compared to the same quarter last year. Despite an increase in cash flow, EXPEDIA INC's average is still marginally south of the industry average growth rate of 16.34%.
  • EXPEDIA INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, EXPEDIA INC reported lower earnings of $1.66 versus $2.16 in the prior year. This year, the market expects an improvement in earnings ($3.84 versus $1.66).
  • EXPE's debt-to-equity ratio of 0.63 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.70 is weak.
  • You can view the full analysis from the report here: EXPE Ratings Report

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