To The Moon

Expedia Group, Inc. is an online travel company. The Company has three segments. The Retail segment provides a full range of travel and advertising services to its worldwide customers. Its portfolio of retail brands includes Brand Expedia, Hotels.com., Vrbo, Orbitz, Travelocity, ebookers and Wotif Group. B2B segment encompasses its Expedia Partner Solutions business. Its Expedia Partner Solutions partners with businesses in a spectrum of countries across a range of travel and non-travel verticals, including airlines, offline travel agents, online retailers, corporate travel management and financial institutions, who market Expedia Group rates and availabilities to their travelers. trivago segment generates advertising revenue primarily from sending referrals to online travel companies and travel service providers from its hotel metasearch websites. trivago is its majority-owned hotel metasearch company, based in Dusseldorf, Germany.

Investment Overview

One of the largest OTAs and is poised to leverage on a growing travel industry. Digitalisation has concurrently hastened the decline of traditional brick-and-mortar travel agencies whilst advancing the breakthrough of online travel agencies. According to Research and markets, the global online travel market size is expected to grow from USD475b in 2022 to US1009b in 2030, representing a CAGR of 9.88%. Behind BKNG, Expedia is still one of the largest OTAs which consensus expects to deliver revenue growth at a 2-year CAGR of 9.9%, below BKNG's 16.4%. Consensus also expects Expedia's EBITDA growth at a 2-year CAGR of 13.6%, behind BKNG's 22.4%.

Strategy targeting high LTV customers could pave the way for LT margin expansion; although long term marketing spend could weigh on near-term EBITDA. Expedia’s new customers turned loyalty members increased more than 60% and hit a record high in 4Q22. The focus on acquiring high lifetime value (LTV) customers could support margin expansion in the long term however higher marketing investments could weigh on near term margins. The street forecasts EBITDA margins of 22% for FY24, slightly higher than 21% in FY23 on the stronger effect of top line growth.

A clear winner emerges between the two industry juggernauts: preference for BKNG over Expedia. Consensus forecast shows that Expedia’s EBITDA margins is on an upward trend and will range between 22-23% in FY24-FY27. However, this is still below BKNG’s EBITDA margins of 34%-37% in FY24-FY27. We believe that is mainly attributed to the market dynamics of the key geographies that the players operate in. Expedia mainly operates in the US where large hotel chains are predominant, resulting in lower bargaining power to charge higher commission rates. On the other hand, BKNG operates mainly in Europe which comprises smaller hotels which gives BKNG more pricing power. We believe that it is hard for Expedia to play catch up with BKNG as the profitability difference stems from geographic exposure. While it is not hard to venture into new markets, scaling operations require much more investments. For this reason, we prefer BKNG over Expedia.

Macroeconomic slowdown. Recession and macro uncertainty may impact discretionary spending on travel and could negatively impact travel service providers through fewer bookings and lower rates.

Intensifying competition. Expedia competes with both online and traditional travel service providers such as Booking Holdings. Players such as Google are expanding into the travel booking space by offering services such as Google Hotel Ads, Google Flights, and Google Travel, adding competitive pressure to the industry.

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