Page 1 of 18 Date: 11/03/2017 Current Price: $125.76 Target Price: $146.2 / +16.3% Ticker: NASDAQ:EXPE Headquarters: Bellevue Washington, U.S. Recommendation: BUY Highlights We issue a BUY recommendation on Expedia Inc. (EXPE) based on a one-year target price of $146.2, offering a 18.5% upside potential from its closing price of $125.76 on March 11, 2017. Our recommendation is primarily driven by: • Macroeconomic Outlook – As we see a worldwide declining unemploy- ment rate and an expected U.S. GDP growth rate of 2.3%. in 2017, con- sumer spending is set to increase by 2.7% this year and by 1.8% YoY until 2023. • Brand diversity – Expedia Inc. operates a strong brand portfolio with global reach, targeting a broad range of travelers, travel suppliers and ad- vertisers. Expedia’s multi-brand strategy, and wide variety of channels, al- lows the company to grow its customer base extensively and maintain customer loyalty. Expedia’s main growth drivers are technology, product innovation, global expansion and new channel penetration. . Market Profile Closing Price $125,8 52-Week High/Low 96.6/133.6 Avg. Volume (3M) 1,973,320 Dil. Shares Outst.(MM) 154,5 Market Cap. $19.432,1 Dividend Yield 0,9% Beta 1,10 EV / Revenue 2,3x EV/ EBITDA 15,8x P/E 49,3x Inst. Holdings 17,3% Insider Holdings 8,9% Valuation DCF Multiples Est. Price $115.4 $177.1 Weights 50% 50% Target Price $146.2 Consumer Goods Discretionary Tourism/Hospitality/Leisure NASDAQ Equity Research Report This report is published by: WUTIS – Trading and Investment Society 0% 100% 200% 300% 400% Jän.11Jän.12Jän.13Jän.14Jän.15Jän.16 Stock Performance Expe US Equity S&P 500 Priceline PCLN in %. $125.76 Expedia Inc. • Growth Strategy – For the full year 2016, total gross bookings excluding eLong increased by 21%. Various mergers & acquisitions helped Expedia to grow its product portfolio significantly. Gross bookings increased $1.2 billion or 8% year-over-year to $16.1 billion in the fourth quarter of 2016. Revenue increased by 23% YoY to $2.1 billion in the fourth quarter. Expe- dia Inc. will further pursue a takeover strategy to secure its competitive advantage. • Valuation – Valuation methods indicate a current intrinsic value of $149.1 per share. Expedia Inc. offers a long-term upside of 18.5% through strate- gic acquisitions and the ability to maintain an overall high number of trav- eler transactions in a cost-effective manner as well as the ability to attract repeat customers to their sites. • Main Risk factors – Expedia Inc. faces not only the growing competition in the online-travel industry, coming mainly from Google (Alphabet Inc.) but also increasing political risk due to Trump’s recent travel ban. Recent news • Expedia´s subsidiary Trivago reached $183m in revenue in the fourth quarter of 2016, an increase of 65% YoY, and completed its IPO and listing on the Nasdaq Global Select Market in December 2016 • Room nights stayed increased 15% year-over-year in the fourth quarter of 2016, with growth of 16% excluding Orbitz Worldwide. • The recently acquired firm HomeAway saw a 46% (up to $6bn) rise in online bookings income and a rise of 47% (up to 22M) room nights stayed. • 3% 17% 18% 21% 16% 31% 0% 10% 20% 30% 40% 2011 2012 2013 2014 2015 2016 $ 0,0 $ 2.000,0 $ 4.000,0 $ 6.000,0 $ 8.000,0 $ 10.000,0 Revenue Growth Total Revenue % growth Source: Company Data in $ Mio. This report is published for educa- tional purposes only by students being an Analyst at WUTIS.
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Date: 11/03/2017 Current Price: $125.76 Target Price: $146.2 / +16.3% Ticker: NASDAQ:EXPE Headquarters: Bellevue Washington, U.S. Recommendation: BUY
• MacroeconomicOutlook–Asweseeaworldwidedecliningunemploy-ment rate and an expectedU.S. GDP growth rate of 2.3%. in 2017, con-sumerspendingissettoincreaseby2.7%thisyearandby1.8%YoYuntil2023.
• Brand diversity – Expedia Inc. operates a strong brand portfolio withglobalreach,targetingabroadrangeoftravelers,travelsuppliersandad-vertisers.Expedia’smulti-brandstrategy,andwidevarietyofchannels,al-lows the company to grow its customer base extensively and maintaincustomerloyalty.Expedia’smaingrowthdriversaretechnology,productinnovation,globalexpansionandnewchannelpenetration.
• Expedia´s subsidiary Trivago reached $183m in revenue in the fourthquarterof2016,anincreaseof65%YoY,andcompleteditsIPOandlistingontheNasdaqGlobalSelectMarketinDecember2016
Expedia,Inc.(EXPE),wasfoundedin1996andisheadquarteredinBellevue,Washington.Expedia is theworld’s largestonline travel companywithmorethan 20,000 employees and gross bookings representing 6%of total world-wide travel spending (4% in 2014) and a market-share of 20% in theU.S.Togetherwith itssubsidiaries,Expediaoperates in theUnitedStatesandinternationally and serves leisure, corporate travelers, offline retail agents,andtravelserviceprovidersthroughawidesupplyportfolio.Itincludesmorethan350,000propertiesandover1.2milliononlinebookablevacationrentallistings in 200 countries, over 500 airlines, packages, rental cars, cruises, aswellasdestinationservicesandactivities.
Most revenue is generated in the United States (62%), albeit Europe (15%)andAsia/Pacificarea(19%)arealsoimportantrevenuedrivers.Oneof thekey competitiveadvantages ofExpedia is that it operates threebusiness models, Merchant (55%), Agency (28%) and Advertising & Media(9%).Italsogeneratesearningsthroughsubscription-basedrentallistingsandotherancillaryservicesprovidedtopropertyownersandmanagersaswellasfromtravelerservicefee.
Merchant model – The majority of revenue here comes from hotel roombookings.However, themodel also serves the facilitationof airline seats, carrentalsanddestinationservicesfromhotelsuppliers.
AgencyModel – Expedia Inc. facilitates travel bookings and act as agent intransaction,passingreservationsbookedbythetravelertotherelevanttravelprovider. It generates earnings through commissions or ticketing fees fromtravelsuppliersand/ortraveler.
Furthermore, the company operates mainly through four segments: CoreOTA, Trivago, Egencia, and HomeAway, with Trivago and HomeAway havebeenaddedlastyear.CoreOTAhasbeentheprimaryrevenuedriversinceitsfoundationprovidinga fullrangeof travelandadvertisingservicesthroughavarietyofbrands in-cluding:Expedia.comandHotels.comintheUnitedStatesand localizedExpe-diaandHotels.comwebsitesthroughouttheworld,Orbitz.com,ExpediaAffili-ate Network, Hotwire.com, Travelocity, Wotif Group, CarRentals.com, andClassicVacations.TheTrivago segment generates advertising revenue primarily from sendingreferralstoonlinetravelcompaniesandtravelserviceprovidersfromitshotelmetasearchwebsites. ItisoneofthebestknowntravelbrandsinEuropeandNorthAmerica.Lastly,theEgenciasegment,whichalsoincludesOrbitzforBusiness,providesmanaged travel services to corporate customersworldwide. OurHomeAwaysegmentoperatesanonlinemarketplaceforthevacationrentalindustry.StrategyThe company´s main strategy is to expand its global reach through furtherstrategic acquisitions into technology related brands, investments into brandbuilding,operationsandsupplierrelationships.
• Increasingprofitabilityinregionalbrands–Expedia intendstosecureits leading brand position (Orbitz.com, Travelocity, CheapTickets.com,ebookers,Wotif.com)intheU.S.byfocusingonprofitability.
• Top-line growth in global brands – Expedia will make higher invest-mentsintoglobalbrandssuchasTrivagotoexpanditscustomerbaseandadd additionally points of sale. The company sees long-term growth op-portunitiesinemergingmarkets(Africa&middleEast)bysellingitsmar-ketingefficiencybusinessthere.
85,1% 88,1% 80,7%
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InstitutionalHolder:66%
Shareholder:34%
ShareholderStructure
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• GoingAsiaPacific–AsiaPacificcurrentlycontributeto19%tothecom-pany´s revenues.Expedia Inc. recently (2015) increased its stake inAAETravelPte.Ltd.From25%to75%, formingajointventure. It isexpectedthatExpediawillincrease itsstakeandacquireAAETravelPte.Ltd.Withallofitsbrands.
• NewChannelPenetration–Expediahasandwillinvestfurtherintomo-bile device applications asmobile bookings via smartphones present anincrementalgrowthopportunity,despitethatmostbookingsarecomplet-edwithinoneortwodaysbeforethetravelorstay.OneinthreebookingsweremadeviamobiledevicesinDecember2016.
• Reducingeconomicsinvariousgeographicareas–Thedecreaseinthecompany´s generated revenues in themerchantmodel can be explainedwithrecentdevelopments intheExpediaTravelerPreference(ETP)pro-gram.ItofferscustomersthechoicetoeitherpayExpediainadvance(un-dermerchantmodel)ortopayatthehotelattimeofstay(Hotelcollect).Expediahastocompensate forhighercreditcard feesandcustomerser-vicecostsHotelsfaced.Therefore,Expediawillmakeadjustmentsoneco-nomicsinvariousgeographiesandrevenuesgeneratedperroomnightareexpectedtofurtherdecline.
ManagementandGovernanceExpedia Inc.´s executivemanagement teamhas been a key driving force be-hind the company´s overall success. With the completion of the Company´sspin-off from IAC/InterActive Corp. in 2005, the board of directors were al-most entirely acquired with Barry Diller (74 – Chairman and CEO), DaraKhosrowshahi(47–President,CEO),JonathanL.Dolgen(71–nonex.Director)and PeterM. Kern (49 – nonex. Director). The entire executivemanagementteamaveragesmorethan10yearsofexperiencewithExpediaand intheme-diaandinternetindustry.
IntermsofCorporateGovernance,ExpediaInc.ishighlyrated.DisclosureandTransparencyisverygoodassessedduetoregularheldearningscallswhereavariety of key metrics can be discussed. Also, management has successfullynavigatedExpediaInc.throughtheeconomicwinddownin2008-09bytakingcorrectiveactions, increasing efficiency, leveraging globalpresence andadi-versifiedportfolioandadoptingitsbusinessmodeltoincreasecustomerloyal-tywhichledtosharegainsandcostsavings.However,thethreatsinExpedia´sCorporateGovernancecanbeseeninthefollowingarea:
• Ownershipinterestandvotingpower–AsaresultofMr.Diller´sown-ership interest and voting power and Liberty’s upon Mr.Diller’s perma-nentdeparturefromExpedia,Mr.Dilleriscurrently,andinthefutureLib-ertymaybe, inapositiontocontrolor influencesignificantcorporateac-tions, including,corporatetransactionssuchasmergers,businesscombi-nationsordispositionsof assets anddeterminationswith respect tooursignificantbusinessdirectionandpolicies.
COGSMargin%Rev. GrossProfit%Rev.Source:Company Data
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IndustryOverviewandCompetitivePositioning
KeyExternalDrivers
TheGlobalTravelAgencyServicesindustryhasexperiencedrapidgrowthoverthefiveyearsto2017,thoughitistobeconsideredthatithasalreadyreachedits mature stage. Demand for the Global Travel Agency Services industry isderivedfrombothdomesticandinternationaltravel.AccordingtodatafromIBISWorld,weexpecttheindustryrevenuetoincreaseat an annualized rate of 4.6% to $166.3 billion over the five years to 2017.However, multiple economic factors were examined in order to understandtheimpactofExpedia´srelianceontravelbookings.WUTIShasthereforeana-lyzedthefollowingkeyindustrydriversaccordingly:
StrongU.S.andEuropeanEconomicgrowthWhile thewealth effect from theQE program in Europe has lifted consumerspendingandreducedunemploymentratestotheircurrentlevelof8.5%,theunemployment rate in theU.S. has reached a record low of 4.7%U.S. whichwillleadtheFEDtohikeinterestratesfor4timesthisyearwith250bpseach.
GDPoftheBRICnationsInternational touristarrivals inemergingeconomies, includingBrazil,Russia,India and China (the BRIC nations), and travel from emerging nations is ex-pected togrowrapidly in the comingyears.Travel agencies suchasExpediawhichareplanningtoexpandtheirbusinessthereandmanagetodesigntheirtravelpackagesaccordingly,willbenefitmostfromthisgrowingopportunity.
GlobaltouristarrivalsTrends in international and domestic trips and length of stay influence de-mand for travel agency services. A rise in international and domestic tripspositively affects demand for travel agency services because travel agenciesare needed to book various aspects of the trip (e.g. accommodations andtransportation).Globaltouristarrivalsareexpectedtoincreasein2017.
GlobalinternetusageRising internet usage allows consumers to bypass brick-and-mortar travelagents and make travel arrangements online by either using online travelagents or purchasing directly from travel operators' websites, bypassing in-dustryoperatorsentirely.Thisincludespurchasingdomesticandinternationalairlinetickets,accommodationsandtours.Globalinternetusageisexpectedtoincreasein2017.
GlobalconsumersentimentindexChanges in consumer sentiment influence decisions that individuals makeconcerningexpenditureonentertainmentandtraveling,particularlyduringaneconomic recession.Global consumer sentiment is expected to increasemar-ginallyin2017;however,giventhevolatilityofconsumersentiment,itisstillapotentialthreatfortheindustry.
GlobalpercapitaincomeChanges in per capita disposable income have a direct impact on travel de-mand and corresponding demand for travel agency services. As disposableincomes increasearoundtheworld, theGlobalTravelAgencyServices indus-try will benefit from consumers havingmore funds available for travel andaccommodation. Global per capita disposable income is expected to increaseduring2017.
Weestimatethatin2017,theindustry´stopfourplayer,ExpediaInc.andPrice-lineInc.,oneofExpedia´sbiggestcompetitor,willaccountfor21.1%oftheavail-ablemarket,givingthetravelagency industryamediumlevelofconcentration.However, themajority of players are small, independent and privately ownedcompanies,servingnichemarkets.Weexpectthatoverthenextyears,theindus-tryconsolidationwillintensifyandcontinue,makingsmallerplayersvulnerabletotakeovers.
• The Ability to provide goods/services in diverse locations, having a widevarietyofpackagestosuitthespecializedornicheneedsoftravelers.Expe-diaInc.launchedseveralprogramstoachievethis.
• Having a web-based communication, reservation, business operations andinformationtechnology.ExpediaInc.meetsalloftheserequirements.
• Understanding seasonality in travel demand and patterns and tailoringproductsaccordingly.DespitethefactofExpedia’sdiverseofferingsand
Assaidbefore,Operatorsmustoffercustomersthebestprice fordomesticandinternational travel.The increasingnumberof travelwebsiteshas ledtoan in-creasingnumberofcustomersbrowsingto findthebestdealandbookingwiththebest-pricedagency.Therefore, thebargainingpowerofcustomers iscon-sidered to be high. However, non-price elements such as quality of products,detailedknowledgeabouttheirproductsanddestinationsisalsoimportant.Furthermore, the Global Travel Agency Services industry has low barriers toentry,withno restrictive factorsprohibitingnewplayers fromenteringthe in-dustry. Indeed, there are no obstructive licensing requirements that precludenewtravelagentsfromopeningforbusiness,andcapitalrequirementsarerela-tively lowcomparedwithother industrieswhichwill accelerate competition inthefuture.ThelevelofsubstitutesisconsideredtobemoderateasExpediahasachievedtonegatethisbyfocusingonnichesectors–thecorporatesector-aswell,whichisoneofitsmainrevenuedrivers.Asmentionedearlier,competitioninthisindustryisextremelyhighandchang-ing. Since travel agencies depend on long-term relationships with hotels, carrentals,propertyowners,cruises,airlinesetc.thebargainingpowerofsuppli-ers isalsoconsideredtobemoderatetohigh,despiteespeciallyatExpediathefact,thatithadtolowereconomiesforhotelsduringtheETPprogram
Ifwe look on profitabilitymetrics such as ROI, ROE andROA, on the first sight, itseemsthatExpediaInc. isnotasprofitableas itscompetitors.However,intermsofprofitabilityratios(ROIC,ROE,ROA),onlyPricelineandTripAdvisor–whoareoper-ating in the same industry – yield higher returns. EBITDA margin of Ctrip.com isnegative,meaning thatEBITDA isnegativewhich states that itsoperating businessmodelisnotprofitable,alsodemonstrated inotherprofitabilitymetrics.Google(Al-phabet Inc.)onlycompeteswithExpediaInc. intermsofonlineadvertisingwith itsSEObusiness.But,still,Googlehastobeconsideredasaprobablecompetitor inthefuture.
InvestmentSummaryWe issue a BUY recommendation on Expedia Inc. (EXPE) with a target price of$146.2 using aDiscounted Cash FlowAnalysis and a Public Company ComparableAnalysis valuationmodel. This valuation is supported by numerousmerits, as out-linedbelow,aswellasconcernstakenintoconsideration:
MeritsImprovingEfficiencyandOperationsThecompanyismakingamaximumefforttobecomecloudbased.Itexpectstospendabout$110Monthiseffortin2017.Itbelievesthiswillsubstantiallycutitstechnolo-gycosts,while improvingoperations.Thecost factorplaysanextremely importantroleinthebusinessmodelofonlinetravelagenciessincethepricefactorcustomersiscritical.Customerscompare–asmentionedearlier–varioussite-offeringsbeforetheyfinallybook(mostly1-2daysbeforestay)andtherefore,tomaintainprofitabil-ityinsuchdynamicpricingschemes,asubstantialfocusgoestothecostsofrevenuesmetric. HomeAway is a major focus, seeing expected high EBITDA margins in thenextyears.Expediafeelsconfidentitwillachieveits2018$350MEBITDAtargetforthecompany.Itgenerated$163M(totalEXPE$1,616M)in2016.
StrongPortfolioofBrandsandInternationalRevenuegenerationExpediahasaportfolioofstrongbrandswithsignificantglobalscaleandis focusedongrowingitshotelbusinessandcontinuingtoshiftitsbookingsmixtointernation-al markets. We believe Expedia is investing to expand its international footprintthrough its various brands, including Hotels.com, Hotwire, among many others asinternationaltravelisexpectedtoincreasein2017.EXPEattributes itshotel strength to “great”websites, growing repeats andconver-sions,goodmarketingteamsandnewhoteladditions.Weseethisasthebasicattrac-tionof the company, theexpectationof adding content and increasing conversionsand(particularlyveryprofitable)repeatbusiness.
By having a closer look on the competitors itself,we can easily identify thatPriceline Group Inc. is the biggest competitor in terms of size, profitability,geographyandproductofferings.
IntenseCompetitionGiventheintensivecompetitioninthisindustryandthefactthatExpediareliesheav-ily on its relationships with suppliers, Expedia is increasing its marketing & techinvestments which is expected to pressuremargins in the near term.Additionally,EXPEwillneed to find the right resource allocation across itsnumerous brands togrowefficiently.Brandbuildingsisexpensive.Therefore,evenawidediverseportfo-liohasitsnegativesides.
The significant increase in Expedia’s long-term debt andminority interest propor-tionscanbeattributedtothe largeamountof acquisitionExpediahaspursued,de-spiteitsaggressivegrowthstrategyin2015and2016.Inthepast,wehaveseenasignificantslowdownintheglobaltravelindustry;Expe-diabrandperformingbelowexpectationspostplatformmigration;increasedcompe-titionintheU.S.andInternationalmarketsresultinginsignificantlyhighersalesandmarketing investments;Google’s travelproducts or searchad changes leading to areductioninbookingsandonlinetraffic
Trump´sTravelBanDespite the fact that Trumprecentlyannouncedand implementeda travel ban forvariousMuslimcountries,foreigntourismmaydecreaseby6.8%thisyear,accordingto “TravelWeekly”.Additionally, the tourism industry couldalso sufferoutside theU.S.astheEuropeanCommissionintendstorequireU.S.citizenstohavevisaswhenvisitingEurope.
FinancialAnalysis
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Book Value of Com. Equity Minority Interest
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OverviewThe financial condition chart above reveals Expedia´s prospectsmoving for-ward, highlighting our assumptions (See Appendix for full financial projec-tions).Basedonourverticalanalysisofhistoricalfinancialsofthepast5years,2011 is amoderate startingpoint forourestimations, given the fact that theindustry is in itsmaturephase,currently.However, it isnotset instonehowtheindustrywilldevelopoverthenext5years.Furthermore,theheavynum-bersofacquisitionsinthepastmakesitdifficulttopredictnumbers.WeexpectExpediatopursueafurthergrowthstrategy,thoughwithfeweracquisitionsinthefutureasthecompanyhastofocusonitscorebrands.
Since2012,Expedia´soperatingbusinesswasverystable intermsofprofita-bility, thoughEBITmarginswhere slightlydecreasingwitha5-yearCAGRof-17.7%,whereasEBITDAmarginsdecreasedbya5-yearCAGRof-6.7%mak-ing ita goodexample forthedownsidesideofacquisitions,namelyGoodwill(intangibleasset) thathas tobedepreciatedover theyears. See charton theleft-handside.
OptimisticOutlookforExpediaInc.Givenanoverall growing economy, a steadilygrowingmarket shareof1.2%YoY (Team estimate), a $1.7tnMarket in the online travel industrywhich isexpectedtogrowbya5-yearCAGRof4.5%until2022,weareoptimisticthatExpediaInc.canleveragethisopportunitywithviewof itsprofitability,finan-cialhealthinessandbranddiversity.Nevertheless,Expediaisdeemedtoinvest
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Steadily into technology andmarketing, sharing not only themarketmainlywith Priceline Corp. but facing also growing competition from Alphabet Inc.andothertechnologyfirmsasbarriersofentryarelow.
ValuationValuationPriceTarget:$146.2
Anumberofvaluationmethodologieswereutilized inderivingatargetpriceforExpedia Inc.(EXPE), includinga5yearDCF,aRelativeMultipleValuationusing Public Comparable Company Analysis and Monte Carlo Simulation tomodeltheprobabilityofpossibleoutcomesofstockprices.
DCFModelADiscounted CashFlowAnalysiswasused toestimate the intrinsicValueofExpedia Inc.due to thepredictabilityof cash flows in relation togrowthandprofitability.Thebasecaseforthismodelwasformulatedusingguidancefromhistoricalperformance,industryoutlook,anassessmentofEXPE´scompetitivepositioning, and company guidance on acquisitions, revenue, and earningsgrowth. ThismodelisdrivenbyUnleveredFreeCashFlowasthisrepresentscashthatisavailablefordebtandequityholdersand iscalculatedasEBITminustaxes,plus D&A, minus CaPEx and change in Net Working Capital. The historicalhorizonisfiveyears(2011to2016),wherewehaveseensteadysalesgrowthratesandmargins,makingFCFforecastsmorepredictableandreliable.
WeightedAverageCostofCapital(WACC)Asacommondiscountrate,weusedtheWACCas thismetricrepresentbesttheequityanddebtholders interest.However, astheFEDhasplannedthreeinterest ratehikes of about+250bpseach in2017, since its lasthike inDec.2016to0.5%,wealsotookthisintoaccountandincludedthehikesaccording-lyinouranalysis.TocalculateCostofEquity,weutilizedthetraditionalCAPM,whileweusedtheunleveredBetaofourtradingcomparableuniverseandre-levered itwithExpedia´s targetcapitalstructureaswe thinkthis ismore in-linewithhowriskysimilarcompaniesare.
TerminalValueUsing the Perpetuity Growth Method, we get a terminal value which repre-sents 72.1% of the total estimated Enterprise Value, making it a substantialnumberwithmorethan2/3portion inourmodel.Forthisandvariousotherreasons, we utilized the relative multiple approach as well to combine ourfindings.The implied EV/EBITDAmultiple by using the Perpetuity GrowthMethod is19.3xwhichisinlinewiththeindustriesaverage.
SensitivityAnalysisAsweneverrelyononenumberduetothefactthatwithDCFmodellinglotsofassumptionsare involved,we conductedsensitivityanalysis toget arangeofpotentialvalues,atwhichchangeinrevenuegrowthandexitmultiple(indus-try multiple) as well as change in perp. Growth rate and WACC were mostimportant.
With sensitivity analysis, we can clearly see that even small changes in thediscountrateorgrowthratecanhaveaheavyimpactontheshareprice.Withaspreadof108.2points(WACC&Perp.Growth),therangeofpotentialvaluesissignificantlyhigh,whichalsobacksourapproachtousemorethanonesin-glevaluationmethodology.
RelativeValuationForourcomparableuniversewetriedtoselectcompanieswhoaresimilartoExpediaInc. in termsofprofitability,geographicarea,size,productofferings,customer base and capital structure or who compete with Expedia in somesegment. However, extensive research had not yield the success in findingcomparablecompaniesaswewantedsincethemajorityof companies inthisindustry are serving a niche market, are typically very small and thereforeadequatedataispubliclynotavailable.OuruniverseoftradingcompsconsistsofPriceline(PCLN)(biggestU.S.com-petitorofExpedia),TripAdvisor(TRIP),Rakuten(RKUNY),Ctrip.com(CTRP),Alphabet(GOOGL)andLibertyTripAdvisorHolding(LTRPA).
PoliticalRiskTrumpAdministration(PR1)Asanonlinetravelagency,ExpediaInc.isexposedtoanypoliticaldistress.The best example here is the policy of the Trump Administration whorecentlyannouncedatravelbanforsomeMuslimstates.Thismightinflu-ence Expedia´s operating business, even though CEOMr. Diller declinedthatitwillhavemajorimpact,sofar.Therefore,2017andtheyearsaheadcouldhavean impactwhenweseebooingratesdecreasing.Thesedevel-opmentsshouldbecarefullywatched.
EconomicRiskInterestRateHikeRisk(ER1)After the FEDannounced in late2016andyears before that itwill soonhike interestratestodampingtheeconomy,theyearhascomewerethispromises will come true. Unemployment rates in the U.S. are at lowestlevelsincedecadeswhichhasgiventheFEDthegoosebumpstoprobablyhike interest rates step-by-step 4 times over 2016 and 2017 by 250bps.ThefirstratehikehappenedinDec.2016,thesecondonMar2017andtheotherdatesarestilloutstanding.FEDmeetingsshould thereforebe care-fully watched. We still think that a tightening monetary policy was notreallynecessaryeventhoughglobaleconomicgrowthacceleratedrecent-ly.AnideacouldbethattheFEDwantedtocreatemoreconfidenceaboutthehealthinessoftheU.S.economy.InteresthikeshavemanyimplicationsnotonlyontheU.S. governmentsincedebt levelsareatall-timehighsof$20tn (adebt limit expansionhas to be approved inmarch2017,other-wise the government is illiquid), but also on a stronger Dollar whichmakesitforU.S.touristscheapertotravelinternationally.
MarketRisksHighlyvolatilestockprice(MR1)ThemarketpriceofExpediaishighlyvolatilewithahistoricaldailyStand-ardDeviationof2.04%.Changes inmarket behavior can influenceExpe-dia´sshareprice.
Chinaisde-leveraging(MR2)Engineforworldwidemarketgrowthhasbeencreditexpansion.Chinahascreated80%ofthatcreditandnow,Chinaisheavilydeleveraging.Withacorrelation of 74%, the world has historically followed China on theirmovements. When China de-levered, soon, the world has reacted. Fur-thermore,worldwide is atall-timeshigh,similartothat levelas in2009,whentheeconomywasinturmoil.
Theauthor(s),oramemberoftheirhousehold,ofthisreportdoesnotholdafinancialinterestinthesecurities of this company. The author(s), or a member of their household, of this report does notknowoftheexistenceofanyconflictsofinterestthatmightbiasthecontentorpublicationofthisre-port.
Disclaimer: The information set forth herein has been obtained or derived from sources generallyavailable to thepublicandbelievedby theauthor(s) tobereliable,but theauthor(s)doesnotmakeany representation or warranty, express or implied, as to its accuracy or completeness. The infor-mation is not intended tobeusedas thebasis ofany investment decisionsby anypersonorentity.Thisinformationdoesnotconstituteinvestmentadvice,norisitanofferorasolicitationofanoffertobuyorsellanysecurity.Thisreportshouldnotbeconsideredtobearecommendationbyanyindivid-ualaffiliatedwithWUTIS–TradingandInvestmentSociety
