Source: Expedia.
Online travel agency Expedia reported remarkably strong earnings for the second quarter of 2014, and the company seems positioned to continue delivering sound performance. Given its strong results, let's go over Expedia´s latestearnings conference calland highlight a few important takeaways for investors.
Three main growth drivers
Expedia is benefiting from three main growth drivers: Travel demand is growing strongly, and an increasingly bigger part of that demand is happening online and via mobile devices, so the size of the market opportunity is getting bigger for online travel players such as Expedia and its main competitor Priceline .
Unlike Priceline, which has always done most of its business in international markets, Expedia has traditionally been more focused on the U.S. But the company is now expanding more aggressively on the global front, and this is having positive implications on overall growth rates. According to CEO Dara Khosrowshahi:
Volume expansion is a priority over revenue per unit
Expedia is focused on expanding its volume and consolidating its competitive position in the online travel industry, even if this comes at the expense of falling revenue per unit. Revenue growth is still quite impressive, with a 24% increase in sales during the last quarter, but investors may want to watch the volume versus price dynamics in the coming quarters in order to evaluate overall growth prospects.
Per Mark Okerstrom, chief financial officer and executive vice president:
Competitive pressure is on the rise
The competitive landscape is getting tougher as rivals such as Priceline, the owner of Booking.com, and TripAdvisor increase their spending in marketing and advertising, both online and in traditional media. This means Expedia will need to invest actively and execute efficiently in order to continue thriving.
Khosrowshahi said:
Increasing profitability
Despite selling and advertising spending rising by 26% in the last quarter, the company delivered expanding profitability, as adjusted EBITDA margin increased to 17.3% of revenue from 15.9% of sales in the same quarter last year.
Management believes revenue growth should translate into healthy profitability in the future. This bodes well for Expedia investors, since growing sales in combination with an expanding profit margin should provide a double boost to earnings growth.
According to Okerstrom:
The integration of trivago is going well
Expedia completed the acquisition of Germany-based hotel metasearch company trivago in March of last year. Expansion into this area is a crucial strategic move for Expedia, not only as a business opportunity on its own merits, but also because it reduces dependency on Google when it comes to search. According to Okerstrom, the integration of trivago is going quite smoothly.
Key takeaways
Falling revenue per room and an increasingly competitive industry landscape are relevant risks to watch. On the other hand, Expedia is benefiting from strong growth drivers, and growing sales in combination with expanding profitability should allow the company to sustain energetic earnings growth. All things considered, Expedia has what it takes to continue delivering sound performance for investors in the years ahead.
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The article 5 Things Expedia's Management Wants You to Know originally appeared on Fool.com.
Andrés Cardenal owns shares of Priceline Group. The Motley Fool recommends Priceline Group. The Motley Fool owns shares of Priceline Group. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
