10-QPeriod: Q2 FY2016

Expedia Group, Inc. Quarterly Report for Q2 Ended Jun 30, 2016

Filed July 29, 2016For Securities:EXPE

Summary

Expedia Group, Inc. reported its financial results for the second quarter and first half of 2016. The company experienced a significant increase in revenue, driven by acquisitions of Orbitz and HomeAway, along with organic growth in its Core OTA segment. However, operating income for the quarter declined significantly, and the company reported an operating loss for the first half of the year. This was primarily attributed to increased costs and expenses, particularly in technology and content, and higher amortization of intangible assets related to recent acquisitions. Despite the short-term profitability pressures, Expedia's balance sheet remains strong with substantial cash and cash equivalents. The company continues to focus on its growth strategy, emphasizing product innovation and global expansion. Investors should note the ongoing legal proceedings related to occupancy taxes and hotel booking practices, which, while currently reserved for, represent potential future financial risks. The company also provided an update on its share repurchase program and dividend declarations.

Financial Highlights

51 data points
Beta

Revenue

$2.20B

81.5% Gross Margin

Net Income

$31.65M

1.4% Net Margin

EPS (Diluted)

$0.21

Total Assets

$16.73B

Cash & Equivalents

$2.30B

Free Cash Flow

$405.37M

Financial Statements
Beta
Revenue$2.20B
Cost of Revenue$406.38M
Gross Profit$1.79B
Operating Income$25.66M
Interest Expense$42.94M
Net Income$31.65M
EPS (Basic)$0.21
EPS (Diluted)$0.21
Shares Outstanding (Basic)149.55M
Shares Outstanding (Diluted)153.53M

Key Highlights

  • 1Revenue increased significantly by 32% year-over-year for the three months ended June 30, 2016, reaching $2.196 billion, driven by acquisitions (Orbitz, HomeAway) and organic growth in the Core OTA segment.
  • 2Operating income for the three months ended June 30, 2016, decreased by 72% to $25.662 million, and the company reported an operating loss of $71.636 million for the six months ended June 30, 2016, compared to an operating income of $39.091 million in the prior year period.
  • 3Net income attributable to Expedia, Inc. for the three months ended June 30, 2016, was $31.649 million, a substantial decrease from $449.644 million in the prior year period. The net loss attributable to Expedia, Inc. for the six months ended June 30, 2016, was $76.940 million, compared to a net income of $493.787 million in the prior year period.
  • 4The company's cash and cash equivalents increased to $2.296 billion as of June 30, 2016, from $1.676 billion as of December 31, 2015, indicating strong liquidity.
  • 5Selling and marketing expenses increased by 30% for the quarter and 33% for the six months, driven by online and offline marketing, personnel growth, and acquisition-related costs.
  • 6Amortization of intangible assets saw a significant increase of 213% for the quarter and 235% for the six months, primarily due to amortization related to the Orbitz and HomeAway acquisitions.
  • 7Expedia continues to actively manage legal proceedings related to hotel occupancy taxes, maintaining a reserve of $46 million as of June 30, 2016.

Frequently Asked Questions

Expedia's revenue growth in Q2 2016 was primarily driven by significant contributions from recent acquisitions, namely Orbitz and HomeAway. Organic growth within its Core Online Travel Agency (OTA) segment, particularly from brands like Brand Expedia and Hotels.com, also played a key role. The acquisition of Orbitz added approximately 16% inorganic revenue growth for the quarter, while HomeAway, acquired in late 2015, contributed significantly to the overall increase.

The company reported an operating loss for the first half of 2016 due to a substantial increase in operating expenses that outpaced revenue growth. Key contributing factors include a significant rise in technology and content expenses, increased amortization of intangible assets resulting from recent acquisitions (Orbitz and HomeAway), and higher selling and marketing costs to support growth and integration efforts. These increased costs, combined with a large gain on the sale of eLong in the prior year's first half, led to the shift from an operating profit to a loss.

Expedia is involved in numerous lawsuits across various states, cities, and counties concerning hotel occupancy taxes. While the company believes it is not liable for these taxes and is defending its position vigorously, it has established a reserve of $46 million as of June 30, 2016, to account for potential settlements. Several cases are ongoing with appeals filed or court rulings being contested, indicating continued legal engagement in this area.

The acquisition of HomeAway in December 2015 added a new reportable segment to Expedia's financial statements. HomeAway's revenue, primarily from its vacation rental marketplace, is included in Expedia's consolidated results. However, HomeAway's business model, which is transitioning to a more transactional model, is noted to potentially impact near-term working capital benefits. The integration of HomeAway also contributed to increased operating expenses, including personnel and other costs, impacting overall profitability.