KEY POINTS
- THESIS RECAP: We added EXPE as a Best Idea Long on July 1st. We believe mgmt is largely in control of its own story; specifically the OWW integration (EBITDA target) and the AWAY model transition. On the former, we estimate that EXPE’s effective EBITDA guidance is only calling for low 20% organic growth vs. its 35%-45% target given purchase accounting headwinds from last year. We suspect mgmt can get there largely on the cost side alone, with two additional underappreciated levers to get there in the event of a shortfall. On the AWAY model transition, mgmt really doesn’t need much sub conversion to really move the needle this year, and we suspect the street would likely give the company a pass for any hiccups along the way given that it’s still very early in the transition. More importantly, mgmt isn’t hostage to current travel trends on either of these fronts; but we discuss the current travel environment below.
- THE END ISN’T NIGH: We’re referring to a potential deceleration in travel trends given mounting global headwinds, for which most outside of the sell-side are already bracing. Indeed, Hedgeye’s Gaming, Lodging, & Leisure (GLL) Team has already offered a cautious outlook for the public hotel operators, which is being realized so far this earnings season (Hotel REITs are striking a cautious tone with respect to full year guidance). But there is a difference between the lodgers and the OTAs. The first is the KPIs are different since RevPAR and OCC% are measures of efficiency not volume; the latter is the better way to view the OTAs. Second, the pressure our GLL team is expecting is due primarily to corporate transient, not leisure. We segmented STR’s metrics in our EXPE deck to highlight the diverging trends. Third, as it relates to EXPE, roughly 70% of its point-of-sale transactions are sourced from North America, and we estimate that roughly 70% of its hotel bookings are sourced from the merchant model. Collectively, those two points suggest the EXPE may be the OTA most insulated from any Brexit-related travel headwinds (i.e. slowing EU/UK outbound and/or cancellation risk).
The links to GLL’s Lodging Preview and our EXPE Best Idea Long note are below. Let us know if you would like the deck/replay from our EXPE call.
LODGING | THOUGHTS INTO THE PRINT(S) | TOP LINE GUIDE DOWNS?
07/25/16 04:35 PM EDT
[click here]
EXPE | OTAs | NEW BEST IDEA (LONG)
07/1/16 08:34 AM EDT
[click here]
Hesham Shaaban, CFA
Managing Director
@HedgeyeInternet
