Editor's Note: Please note that Gaming, Lodging & Leisure analyst Todd Jordan and Internet & Media analyst Hesham Shaaban will send out a full report outlining our high-conviction long thesis. In the meantime, below is a brief summary written by Hedgeye CEO Keith McCullough earlier today.
High Beta has been working as of late so I have no problem buying Higher Beta names if:
A) My analyst likes the stock; and
B) The stock is signaling immediate-term TRADE oversold
Call it the KM @Hedgeye A/B test!
Fundamentally (from Todd Jordan and Hesham Shaaban), here's why we're adding Expedia (EXPE) to Investing Ideas:
"We expect 3Q to fuel optimism in both the OWW & AWAY stories since the inorganic seasonality impact should optically amplify their results. First, roughly 40% of OWW’s annual EBITDA is historically concentrated into 3Q. The 3Q15 OWW purchase accounting headwind effectively means EXPE doesn’t really have an OWW comp from last year, and the early leverage we’ve seen on the cost side YTD will only amplify the y/y impact into 3Q16.
For AWAY, the transition into a transactional model introduces a seasonality component that didn’t really exist last year (subscription model). Given the early progress we’ve seen in online-bookability opt-in, coupled with another quarter of +200% y/y growth in online bookings transactions in 2Q, AWAY revenue growth will likely accelerate again since most of those 2Q booking will be recognized as revenue on the 3Q stay, and AWAY will have a full quarter's worth of the user fee in effect.
Meanwhile, the risk of softening trends in room nights is already on the table after 2Q mishap, and we only had to give back 5% on the stock that had ripped through July to essentially hedge that risk away. We should see a big reset in 2016 consensus room night estimates, which basically means we can sleep on the long through 2016 since EXPE is now just an execution story at this point."
KM
