This week, Oppenheimer hosted two full-day days of well attended investor meetings with Expedia Inc's (NASDAQ:EXPE) investor relations team and came away incrementally positive in the company's ability to drive global online travel share gains. Conversations were consistent with recent public commentary, with topics focusing around key medium-term initiatives including: 1) HomeAway's eCommerce transition; 2) the multiyear cloud investment; 3) room-night trends following the Orbitz migration; and 4) direct marketing investments to increase global share. Oppenheimer remains confident in EXPE's product scale and demand generation competencies overcoming near-term competitive headwinds. Leaving the firm's estimates and $145 price target unchanged. Oppenheimer maintained Outperform.
eCommerce transition entails larger technology and marketing investments for '17, where the company plans to lean more into performance advertising channels, that likely signals improving conversion, in Oppenheimer's view. AirBnb inventory overlap is ~20%, with a higher degree expected as HomeAway increases its urban supply. Reiterated non-linear margin trajectory for its '18 EBITDA target of $350M.
Travel segments with the highest degree of transaction seasonality are the first to migrate. Will assess initial progressions to determine spend trajectory, with goal to have better visibility by 2H17 for '18 cloud costs. Oppenheimer believes '19 could represent normalized data center structure spend in COGS, technology expenses, and capex, respectively.
Conversations around room-night trends were consistent with 4Q16's earnings-call commentary. Apac/LaTam represent jump-ball scenarios with largest competitors, while rhetoric around brand.com directbooking push is improving. Management is expecting an ADR and revenue-perroom-night growth gap in '17, with '18 likely experiencing more normalized trends.
EXPE continues to incentive managers on growth over margin. Performance marketing channels are growing faster than direct traffic on international opportunity, with regional brands being managed more for profit. Willing to run marketing ROI at break-even to slightly negative levels to build out international markets.
Investor meetings were consistent with recent public comments; however, the firm came away with better comprehension of medium-term trends, and a higher conviction in the company's ability to drive global travel share gains that should eventually extract greater shareholder value, in the firm's view.
The companies mentioned in this article are subjects of research reports issued recently by investment firms. Their opinions in no way represent