Over the past six months, Expedia’s stock price fell to $226.69. Shareholders have lost 14% of their capital, which is disappointing considering the S&P 500 has climbed by 11%. This might have investors contemplating their next move.
Is now the time to buy Expedia, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Expedia Not Exciting?
Despite the more favorable entry price, we’re swiping left on Expedia for now. Here are three reasons why there are better opportunities than EXPE, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Expedia’s 7.9% annualized revenue growth over the last three years was tepid. This was below our standard for the consumer internet sector.
2. Customer Spending Stalls, Engagement Falling?
Average revenue per booking (ARPB) is a critical metric to track because it not only measures how much users book on its platform but also the commission that Expedia can charge.
Expedia’s ARPB has been roughly flat over the last two years. This isn’t great, but the increase in room nights booked is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Expedia tries boosting ARPB by taking a more aggressive approach to monetization, it’s unclear whether bookings can continue growing at the current pace. 
3. Poor Marketing Efficiency Drains Profits
Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like Expedia grow from a combination of product virality, paid advertisement, and incentives.
It’s very expensive for Expedia to acquire new users as the company has spent 61% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates a highly competitive environment with little differentiation between Expedia and its peers.
Final Judgment
Expedia isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 6.5× forward EV/EBITDA (or $226.69 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re fairly confident there are better stocks to buy right now. We’d suggest looking at one of our top software and edge computing picks.
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