Expedia Shares Tumble on Plans to Increase Spending This Year

(Bloomberg) -- Expedia Inc. shares tumbled the most in more than three months after outlining plans to spend a lot more in 2018, in an effort to modernize operations and bolster its short-term vacation rental unit.

The company gave a forecast Thursday for 6 percent to 11 percent annual growth in earnings before interest, taxes, depreciation and amortization -- a measure of profitability. That indicated a maximum of $1.9 billion, falling short of the average analyst estimate of $1.94 billion. All that Ebitda growth will come in the second half of 2018, executives said, which implies heavy spending in the first half.

Expenses rose faster than revenue in the fourth quarter, a trend Expedia said will persist this year. Some of the extra cost in 2018 will be for the company’s transition to cloud-based infrastructure: Chief Financial Officer Alan Pickerell said Expedia will spend $170 million on the cloud this year, an acceleration from 2017.

Expedia fell as much as 18 percent Friday to $101.23. It was the biggest drop since October and brought losses for the year to 15 percent.

The company is also trying to stake out a larger piece of the burgeoning short-term home rental market, a key area for growth. Expedia plans to accelerate spending on sales and marketing for HomeAway, focusing on adding new rental units to the platform and spreading brand awareness. Chief Executive Officer Mark Okerstrom said investments made in HomeAway last year are starting to work, “and when they work, it allows HomeAway to start stepping on the gas in sales and marketing.”

Still, Okerstrom added, “the flip side of that, of course, is that it can put pressure on near-term profitability.” HomeAway was significantly less profitable in the fourth quarter than in the same period a year earlier.

“After a long run of growth and leveling the playing field, it seems that Expedia is going to have a much tougher time capturing market share than previously anticipated,” Benchmark analyst Daniel Kurnos said in a note to investors. “The revenue take rate for HomeAway was disappointing and the Ebitda result was even more so across the board.” He downgraded the stock to a hold.

Upstarts challenging the dominance of Expedia and its rival Priceline Group Inc. with mobile-only travel booking apps say the older companies are struggling to adapt to the smartphone world. While the companies still are the leaders in online booking, they’re spending money to keep up with changing consumer tastes and developments in technology.

Profit excluding certain costs was 84 cents a share in the fourth quarter, down almost 30 percent from a year earlier. Analysts estimated $1.15 a share, marking the sixth straight quarter the company missed projections. Revenue was $2.32 billion in the period, which included much of the busy holiday season. Analysts estimated $2.36 billion.

Trivago NV, which is majority controlled by Expedia, was also a drag on earnings in the fourth quarter, reporting revenue growth of 7.3 percent, a slowdown from the previous period. Trivago expects a sales decline in the first half of this year, though that should be more than offset by growth in the second half.

To contact the reporters on this story: Gerrit De Vynck in New York at gdevynck@bloomberg.net, Jing Cao in New York at hcao38@bloomberg.net.

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew Pollack

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