Booking Holding vs. Expedia Group: What is the Deal?

Written by: Gary Ashton

Later this week, two major online travel companies report 3Q earnings, but analysts' expectations are currently opposed. The Street expects Booking (NASDAQ: BKNG) to report quarterly earnings of $17.21 per share and Expedia (NASDAQ: EXPE) to report a loss of $0.72 per share. How can these expectations be skewed when both companies operate a similar business model in an identical industry with equal revenue of around $6 billion in 2020?

Expedia's earnings rating is "strong-sell," with analysts' expectations revised down 41.18% in the last 90-days compared to Booking, which is rated "strong-buy" with analysts' expectations revised up 38.34% in the previous three months. The massive difference in Street views would be understandable if the earning track records between the two companies were vastly different. Booking disappointed analysts in 1Q with a 25.93% earnings miss and beat expectations in 2Q by just 8.47%. This performance is better than Expedia, of course, with two disappointing quarters in a row, but not different enough to justify such a wide variation in Street expectations in the upcoming 3Q results.

Booking is Expensive

No matter how you slice it, Booking looks expensive. Whether it is the share price over $1600 or the PE ratio of 30.8x, Booking is on the pricy side, especially compared to Expedia, with a share price below $100 and a PE ratio of 17.8x. Closely examining both companies' financial performance makes it easier to understand the markets' appreciation of Booking. For example, Booking's pre-tax profit margin is 33.3% compared to just 6.4% for Expedia, and analysts still see potential upside in Booking's share price of 18.25% compared to only 3.95% for Expedia.

Ironically enough, despite all the company's fundamental challenges, Expedia's share price has outperformed in the last 6-months, up 32.64% compared to just 9.59% for Booking.  3Q earnings could be a turning point for both companies as there has been some relief from the Covid Crisis. Currently, the Street is very bearish on Expedia and surprisingly bullish on Booking. Both companies face similar challenges in the online travel market, so it remains a surprise that Booking should do so much better than Expedia.

Perhaps Expedia has been beaten down too much, and there is room to build on the 6-month momentum that has seen its share price outperform Booking. Still, with weaker profit margins and disappointing quarterly earnings results, Expedia could be facing additional headwinds at the same time Booking anticipates smooth sailing. The market will know for sure when results are released on 4th November for Expedia and 5th November for Booking.

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