Expedia trades at $300.74 per share and has stayed right on track with the overall market, gaining 9.8% over the last six months. At the same time, the S&P 500 has returned 8.9%.
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Why Is Expedia Not Exciting?
We’re sitting this one out for now. Here are three reasons we avoid EXPE, plus one stock we’d rather own.
1. Customer Spending Stalls, Engagement Falling?
Average revenue per booking (ARPB) is a critical metric to track because it not only measures how much users book on its platform but also the commission that Expedia can charge.
Expedia’s ARPB has been roughly flat over the last two years. This isn’t great, but the increase in room nights booked is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Expedia tries boosting ARPB by taking a more aggressive approach to monetization, it’s unclear whether bookings can continue growing at the current pace. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Expedia’s revenue to rise by 6.3%, a slight deceleration versus its 8.6% annualized growth for the past three years. This projection is underwhelming and implies its products and services will see some demand headwinds.
3. Poor Marketing Efficiency Drains Profits
Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like Expedia grow from a combination of product virality, paid advertisement, and incentives.
It’s very expensive for Expedia to acquire new users as the company has spent 60.3% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates a highly competitive environment with little differentiation between Expedia and its peers.
Final Judgment
Expedia’s business quality ultimately falls short of our standards. That said, the stock currently trades at 7.9× forward EV/EBITDA (or $300.74 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re fairly confident there are better stocks to buy right now. Let us point you toward the most dominant software business in the world.
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