01—Abstract
Summary
Summary of the 10-Q filed October 28, 2016. Cited figures are marked; the original filing is the authoritative source.
Expedia Group, Inc. reported solid revenue growth for the nine months ended September 30, 2016, with total revenue reaching $6.68 billiona, a 34% increase year-over-year.
This growth was significantly driven by strategic acquisitions, including Orbitz and HomeAway, which contributed substantially to revenue and gross bookings. The company's net income attributable to Expedia, Inc. for the nine months was $202.39 millionb, a notable decrease from $777.00 million in the prior year. This reduction is largely attributable to a significant gain on the sale of eLong in the prior year and increased operating expenses, including higher selling and marketing costs and amortization of intangible assets related to recent acquisitions.
Despite the decrease in net income, the company's operating income for the nine months was $314.5 millionc, though down from $384.1 million in the prior year. Expedia maintains a strong liquidity position with $1.9 billion in cash and cash equivalents and a largely untapped $1.5 billion revolving credit facility.
The company continued its return of capital to shareholders through share repurchases and dividend payments. Investors should note the ongoing legal proceedings related to occupancy taxes and the company's active management of these risks, including establishing reserves.
02—Key points
Key Highlights
- Total revenue for the first nine months of 2016 increased by 34% to $6.68 billion, driven by acquisitions and organic growth in Core OTA and trivago.
- Net income attributable to Expedia, Inc. decreased significantly to $202.39 million for the nine months ended September 30, 2016, down from $777.00 million in the prior year, largely due to a large gain from the sale of eLong in the prior year.
- Operating income for the nine months decreased to $314.5 million from $384.1 million, impacted by increased operating expenses and the prior year's gain from the sale of eLong.
- The company completed the acquisition of Orbitz in September 2015 and HomeAway in December 2015, contributing significantly to revenue and gross bookings in 2016.
- Cash and cash equivalents stood at $1.84 billion as of September 30, 2016, indicating a strong liquidity position.
- Selling and marketing expenses increased by 31% for the nine months, driven by direct and indirect costs, including marketing expenses and increased headcount from acquisitions.
- Amortization of intangible assets increased by 202% to $251.3 million for the nine months, primarily due to recent acquisitions like Orbitz and HomeAway.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2016, Expedia Group, Inc. kept $0.11.
- Revenue$2.58B100.0%
- Cost of revenue−$416.9M16.2%
- Gross profit$2.16B83.8%
- Operating costs−$1.78B68.9%
- Operating income$386.2M15.0%
- Interest, other & tax−$106.8M4.1%
- Net income$279.3M10.8%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2016filed October 28, 2016Financial Statements
Q3 FY2016 against Q3 FY2015
| Line item | Q3 FY2016Q3 FY2015 | Change |
|---|---|---|
| Revenue | $2.58B$1.94B | +33.2% |
| Cost of Revenue | $416.91M$328.07M | +27.1% |
| Gross Profit | $2.16B$1.61B | +34.4% |
| Operating Income | $386.15M$345.00M | +11.9% |
| Interest Expense | $43.37M$33.26M | +30.4% |
| Net Income | $279.33M$283.22M | −1.4% |
| EPS (Basic) | $1.86$2.18 | −14.7% |
| EPS (Diluted) | $1.81$2.12 | −14.6% |
| Shares Outstanding (Basic) | 150.24M129.99M | +15.6% |
| Shares Outstanding (Diluted) | 154.24M133.42M | +15.6% |
05—Questions
Frequently Asked Questions
What was the primary driver of Expedia's revenue growth in the first nine months of 2016?
Expedia's revenue growth was primarily driven by the acquisitions of Orbitz and HomeAway, which contributed significantly to the overall increase. Organic growth in the Core OTA segment and the trivago business also played a role.
Why did net income attributable to Expedia, Inc. decrease significantly in the nine months ended September 30, 2016, compared to the prior year?
The significant decrease in net income was mainly due to a large pre-tax gain of $509 million recognized in the prior year from the sale of the company's stake in eLong. Additionally, increased operating expenses, including higher selling and marketing costs and amortization of intangible assets from recent acquisitions, also impacted profitability.
What is the status of Expedia's legal proceedings related to occupancy taxes?
Expedia is involved in multiple lawsuits concerning hotel occupancy taxes. As of September 30, 2016, the company had established a reserve of $68 million for potential settlements. Recent developments include oral arguments before the California Supreme Court regarding San Diego's case and ongoing proceedings in Hawaii related to car rental transactions. The company believes it does not owe the taxes claimed in most cases but acknowledges that litigation outcomes are uncertain.
How has the company managed its liquidity and capital resources?
Expedia maintained strong liquidity with $1.84 billion in cash and cash equivalents and an available $1.5 billion revolving credit facility. The company generated substantial cash flow from operations and continued to return capital to shareholders through share repurchases and dividend payments.
06—Continue