01—Abstract
Summary
Summary of the 10-Q filed April 29, 2016. Cited figures are marked; the original filing is the authoritative source.
Expedia Group, Inc. reported a net loss of $121.9 milliona for the first quarter of 2016, a significant shift from the net income of $44.1 million in the prior year period.
This loss was largely driven by increased operating expenses, particularly in selling and marketing, technology and content, and amortization of intangible assets, which outpaced revenue growth. The company's revenue, however, saw a substantial increase of 39% year-over-year to $1.9 billionb, largely attributable to significant inorganic growth from recent acquisitions, notably Orbitz and HomeAway, as well as organic growth in its Core OTA segment and trivago. Despite the net loss, the company's operational performance indicates substantial growth potential.
The acquisitions of Orbitz and HomeAway are beginning to contribute to revenue, and the company is strategically investing in technology and global expansion. While the increased operating expenses and a notable rise in interest expense due to new debt issuance present near-term challenges, investors should monitor the integration of recent acquisitions and the company's ability to leverage its expanded platform to drive future profitability and revenue growth.
02—Key points
Key Highlights
- Revenue increased by 39% year-over-year to $1.9 billion, driven by acquisitions (Orbitz, HomeAway) and organic growth in Core OTA and trivago.
- Net loss of $121.9 million in Q1 2016 compared to a net income of $44.1 million in Q1 2015.
- Operating expenses significantly increased, with Selling and Marketing up 36%, Technology and Content up 54%, and Amortization of Intangible Assets up 259%, impacting profitability.
- Acquisitions of Orbitz (September 2015) and HomeAway (December 2015) contributed significantly to revenue growth but also increased associated operating expenses.
- Interest expense increased by 57% to $44 million, largely due to new debt issued for acquisitions.
- The company continued its share repurchase program, buying back 1.7 million shares for $183 million in the quarter.
- Cash flow from operations remained strong at $1.1 billion, though investing activities used $159 million and financing activities used $604 million, primarily due to debt repayment.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q1 FY2016, Expedia Group, Inc. lost $0.06.
- Revenue$1.90B100.0%
- Cost of revenue−$402.6M21.1%
- Gross profit$1.50B78.9%
- Operating costs−$1.60B84.0%
- Operating income−$97.3M5.1%
- Interest, other & tax−$11.3M0.6%
- Net income−$108.6M5.7%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2016filed April 29, 2016Financial Statements
Q1 FY2016 against Q1 FY2015
| Line item | Q1 FY2016Q1 FY2015 | Change |
|---|---|---|
| Revenue | $1.90B$1.37B | +38.6% |
| Cost of Revenue | $402.57M$321.92M | +25.1% |
| Gross Profit | $1.50B$1.05B | +42.8% |
| Operating Income | -$97.30M-$51.00M | −90.8% |
| Interest Expense | $43.96M$27.99M | +57.0% |
| Net Income | -$108.59M$44.14M | −346.0% |
| EPS (Basic) | $-0.72$0.35 | −305.7% |
| EPS (Diluted) | $-0.72$0.34 | −311.8% |
| Shares Outstanding (Basic) | 151.05M127.56M | +18.4% |
| Shares Outstanding (Diluted) | 151.05M131.40M | +15.0% |
05—Questions
Frequently Asked Questions
What is the primary reason for the significant year-over-year decrease in net income?
The primary reason for the substantial decrease in net income to a net loss of $121.9 million in Q1 2016, compared to a net income of $44.1 million in Q1 2015, was the significant increase in operating expenses. Key drivers included higher costs in selling and marketing, technology and content, and a substantial increase in amortization of intangible assets, largely related to recent acquisitions like Orbitz and HomeAway. These expense increases outpaced revenue growth during the quarter.
How are the recent acquisitions of Orbitz and HomeAway impacting the company's financial results?
The acquisitions of Orbitz and HomeAway have had a considerable impact, driving a 39% increase in overall revenue to $1.9 billion. Orbitz and HomeAway contributed to approximately 27% of the inorganic revenue growth. However, these acquisitions also led to increased operating expenses, including higher technology, marketing, and amortization costs, which contributed to the net loss reported for the quarter. The company is actively working on integrating these businesses and expects them to contribute to future growth.
What is the company's outlook regarding revenue per room night and its impact on profitability?
Expedia's revenue per room night has been declining due to strategic decisions to reduce margins in certain instances to expand global hotel supply, increased promotional activities and loyalty programs, and unfavorable foreign exchange translation impacts. The company expects this trend of declining revenue per room night to continue year-over-year in 2016. This puts pressure on overall profitability, even as room night volume grows.
How is the company managing its debt and liquidity following the recent acquisitions?
The company's debt increased to support acquisitions, leading to a 57% rise in interest expense. However, Expedia maintains a strong liquidity position with $2.1 billion in cash and cash equivalents and an undrawn $1.5 billion revolving credit facility. The company's cash flow from operations remains robust at $1.1 billion for the quarter. The repayment of $400 million in HomeAway Convertible Notes in Q1 2016 also demonstrates active debt management.
06—Continue