Will Expedia’s Margins Continue to Decline in 2016?

Expedia's 1Q16 Earnings Analysis: Outpacing Its Peers

(Continued from Prior Part)

Expedia’s 1Q16 performance

For 1Q16, Expedia’s (EXPE) adjusted EBITDA increased by 31% to $177 million as compared to $135 million in 1Q15. The company’s EBITDA margins, however, declined from slightly from 9.8% in 1Q15 to 9.2% in 1Q16.

Costs rise

Expedia’s (EXPE) margins declined as a result of increasing expenses. Its cost of revenues increased by 34% due to increased customer operation expenses and data center costs.

One of EXPE’s major expenses continues to be marketing costs as Expedia tries to reach customers on a global scale. Selling and marketing costs increased by 42% due to increased promotional costs as well as its accelerated pace of hiring.

Expedia’s technology and content expenses also rose significantly during the quarter due to high personnel costs and low capitalization rates.

Outlook

Expedia (EXPE) has maintained its adjusted EBITDA guidance. It expected adjusted EBITDA to grow by around 35%–45% in 2016. Approximately $275 million–$325 million is expected to be contributed by EXPE’s two major acquisitions in 2016: Orbitz and Homeaway.

Analysts are also expecting a 40% growth in EBITDA, driven by EXPE’s acquisitions. Its EBITDA margins are expected to be 18.5% in 2016, rising to 20% in 2017.

Priceline’s (PCLN) margins are expected to increase from 38% in 2015 to 40.6% in 2016. TripAdvisor’s (TRIP) margins are expected to increase from 22% in 2015 to 28.7% in 2016, and Ctrip.com’s (CTRP) margins are expected to fall from 6.4% in 2015 to 4.4% in 2016. EXPE makes up 2.8% of the First Trust Dow Jones Internet Index ETF (FDN).

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Why Did Expedia’s Stock Skyrocket after Its 1Q16 Results?

• Part 2 - Can Expedia’s Revenue Growth Continue to Beat Its Peers in 2016?

• Part 3 - Key Takeaways from Expedia’s 1Q16 Key Metrics Performance