Expedia's Margin Growth and Platform Upgrades: A Reason for Cautious Optimism

Expedia Group has been focusing on simplifying its brand portfolio and enhancing its tech capabilities. The company has made progress in margins and implemented platform upgrades, leading to cautious optimism. Despite challenges, Expedia's 3 key brands - Expedia, Hotels.com, and Vrbo - provide a solid foundation for future growth.

Expedia Group, Inc. (NASDAQ:EXPE) has been making significant strides in simplifying its brand portfolio and enhancing its technological capabilities. The company has been focusing on three key areas: (1) refocusing its brand portfolio on Expedia, Hotels.com, and Vrbo; (2) migrating its B2C platforms onto a unified front-end platform; and (3) growing its consolidated cross-platform loyalty program, One Key [1]. These efforts have led to cautious optimism, despite the challenges faced.

Expedia Group is currently trading at around $180, with a market cap of $22 billion, NTM revenue multiples of ~1.8x, and NTM EBITDA multiples of ~8.4x [1]. The company's business model is complex, involving multiple revenue streams and segments. Its largest business segment is B2C, which includes Expedia, Hotels.com, and Vrbo, offering various travel options like lodging, flights, car rentals, and vacation packages. The B2B segment caters to travel and non-travel companies, leveraging Expedia's technology and supply to enhance their offerings. The company generates revenue through merchant and agency models, where it facilitates bookings and earns commissions, and also operates Trivago, a hotel metasearch website that generates advertising revenue [1].

The global OTA sector is expected to reach well over $1 trillion in market cap value, with growth in the U.S. market at 3.9% in 2025. The sector operates as an oligopoly dominated by Expedia, Booking Holdings (BKNG), and Airbnb (ABNB) [1]. Despite the competitive landscape, Expedia Group has several advantages, including a merchant model that provides a better cash conversion cycle and higher take rates, a broad network of travel offerings, and a diversified business segment exposure to B2B and B2C. Additionally, the company's loyalty program, One Key, drives repeat bookings and enhances retention [1].

However, Expedia Group faces challenges, such as the agency model's impact on the cash conversion cycle and the margin gap between itself and Booking Holdings. The company's overexposure in the U.S. market also poses a risk. Despite these challenges, the company's focus on margin expansion, competitive positioning, and loyalty program engagement provides a solid foundation for future growth [1].

References:
[1] https://seekingalpha.com/article/4803824-expedia-margin-progress-platform-upgrades-why-cautious-optimism-prevails