Expedia (NASDAQ: EXPE) shares have turned the corner, technically, which may seem surprising since Expedia is an online travel agency and
travel has been ravaged by COVID-19.
Revenue and earnings remain well below pre-pandemic levels, and Expedia will be lucky if the numbers return to pre-pandemic levels in 2021. Forget about 2020.
Shares are 26% off 2020 highs after losing more than two-thirds of their value from peak to trough at the onset of the pandemic.
Zooming in to the past 5+ months, you can see EXPE is in an emerging up-trend – and shares are currently providing an attractive entry point:
Back in late August, shares broke above the 200-day moving average. By early September, EXPE was in overbought territory and embarked on a pullback. In the midst of that pullback, the 50-day moving average crossed over the 200-day. Now, you have the option to buy shares at the 50-day moving average and place a stop-order just below the 200-day moving average. And you can do that with a downside of less than 5%.
So the chart looks great. But do you really want to buy an online travel agency at a time like this?
Here are three reasons why it’s a good idea to get into EXPE:
1. $500 million in Cost Savings
Expedia’s revenue plummeted 82% yoy to $566 million in Q2. Even though Q2 likely represents the worst of the crisis, Expedia is facing an uphill battle to get close to pre-pandemic levels anytime soon.
But Expedia is taking 2020 as an opportunity to get leaner and meaner, targeting $500 million in annualized cost savings. And this isn’t some pie in the sky goal; Expedia has already achieved around $400 million of the savings on a run-rate basis.
Expedia enjoys a huge advantage over travel businesses like airlines and hotels as an online travel agency since a lot of its costs are variable and can easily be scaled up or down.
2. Abbott (NYSE: ABT) Test Makes Pre-Vaccine Mass Travel a Possibility
It’s unlikely that travel will return to pre-pandemic levels before there is a vaccine. Fortunately for Expedia – and the rest of the world – the global race for a vaccine may provide one faster than ever before.
But it could still be six months to a year – at least – before a vaccine can actually bring a large percentage of travel back.
The recently FDA approved Abbott COVID-19 test, however, can help to bring some travel back sooner. The $5 test provides results in just 15 minutes and Abbott plans to manufacture up to 50 million per month by October. Even if it helps to bring travel back to 70-80% of pre-pandemic levels, it would be a huge win for Expedia.
3. Vrbo Offers Long-Term Upside
Few people want to get on a plane or travel abroad (if they can even go where they want due to restrictions), but local travel has taken less of a hit.
Expedia’s Vrbo segment, which deals in short-term vacation rentals, saw solid growth pre-pandemic and has outperformed since the onset of the pandemic.
Pre-pandemic, Vrbo made up around 10% of Expedia’s revenue and was experiencing double-digit revenue growth.
And on the Q2 earnings call, CFO Eric Hart touched on the recent outperformance:
“The increase in June is driven by Vrbo which we've talked a lot about. The strong bookings growth actually year on year, that occurred in Vrbo. If you look at non-Vrbo within that deferred merchant booking, it was essentially flat between May and June.”
People are seeking alternative ways to vacation right now, with Vrbo a major beneficiary. And Expedia is not letting the long-term opportunity go to waste, as the company is “going to take the approach to build the relationship with those individuals.”
The Final Word
Expedia has done a lot of things right over the past six months. Over the next 12-18 months, look for the company to approach pre-pandemic levels. But in 2022, there is a good chance that travel will return to pre-pandemic levels – and Expedia will exceed pre-pandemic heights.
With the chart looking bullish and shares trading at a discount vs. a few weeks ago, now is a good time to initiate a buy-and-hold on EXPE.
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