Expedia's stock: Experts say 'buy now'

Expedia Group's hotel book website is one of the more popular picks when it comes to American travelers, making Expedia investors rich over the last ten years.

But a move toward new kinds of accommodations—apartments and vacation homes—and an aggressive push by Google into travel has changed the competitive balance in online travel.

Expedia stock has lagged behind the market, rising 19% this year as the Nasdaq has climbed 24%. At a recent $133 it remains well below the high of $161 it hit in 2017. Expedia now trades at a similar valuation to the broader market, 17.8 times its expected earnings over the next four quarters. Expedia usually fetches more than 20 times expected earnings.

The stock “offers an opportunity for longer-term-oriented investors,” says Dan Wasiolek, a Morningstar analyst.

Expedia Group is the rare web 1.0 start-up that has since successfully navigated every iteration of internet commerce. It began as a division of Microsoft in 1996, went public in 1999, and was bought in 2003 by IAC/InterActive (IAC) before being spun off again in 2005.

To complicate things further, IAC Chairman Barry Diller has controlled Expedia for years through a deal with media mogul John Malone. The arrangement meant Expedia was considered a “controlled company,” where the average shareholder has reduced rights. That arcane share structure undoubtedly kept some investors away.

But in April, Malone’s Liberty Expedia agreed to a deal with Expedia Group that will simplify the ownership structure and reduce Diller’s voting stake to 29%. The move could attract new investors in Expedia “as some funds avoid purchasing major stakes in controlled companies,” notes Kevin Kopelman, a Cowen analyst.

Expedia is becoming more shareholder-friendly in other ways, too. Historically, Expedia has spent most of its cash flow on acquisitions—$7.6 billion between 2012 and 2018, versus $3.1 billion for buybacks and $911 million for dividends, Guggenheim Securities analyst Jake Fuller calculates. But that could change in the years ahead.

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