Expedia Group Inc.'s stock is set to reach its lowest closing point since November 14, with the largest one-day percentage drop since March 16, 2020. This comes as Wall Street expresses concerns about the online travel company's immediate future following a surprise CEO change.
BofA Securities analyst Justin Post emphasized that Expedia has significant challenges to overcome in the first half of the year and will face increased uncertainty due to the CEO transition. As a result, Post downgraded his rating on Expedia's stock to a hold-equivalent.
In his note, Post outlined several potential issues impacting the stock, including a longer-than-expected recovery for Expedia-owned vacation-rental company VRBO, a growth strategy involving higher marketing spending in competitive international markets, and the execution challenges associated with the CEO departure.
To gain a more positive outlook on the stock, Post stated that better evidence of VRBO's recovery, along with the benefits of Expedia's new loyalty program called One Key, would be necessary, as well as reduced perceived guidance risk.
While the CEO change was unexpected, other analysts remain optimistic. Naved Khan with B. Riley Securities believes that given Gorin's background and experience, the transition is likely to be smooth, and Kern's successful turnaround as CEO since 2020 sets a strong foundation for the incoming executive. Overall, Khan maintains a positive view on Expedia.
Khan's optimism is supported by several factors, including Expedia's projected above-market growth rate and margin expansion for this year, reduced costs, strength in the business-to-business segment, and the positive impact of an aggressive share buyback program.
Expedia's Prospects and Challenges
Jed Kelly at Oppenheimer holds a positive outlook on Expedia, stating that any decline in share price should be seen as an opportunity, given the company's projected higher margins and revenue growth. While the recent change in CEO introduces some complexity, UBS analyst Stephen Ju believes that the latest quarter results and guidance cater to both the bullish and bearish investors.
Expedia is considered a self-help execution story, with significant product updates (such as One Key) scheduled to roll out in 2024. These updates can potentially alter the company's gross bookings, revenue, and profit growth trajectory. Ju emphasizes that the success or failure of these initiatives lies largely in the hands of the management. The CEO change, announced simultaneously with the earnings report, adds to the anticipation surrounding Expedia's crucial year of transition and offensive strategy. Investors are thus advised to wait for further signs that the company can meet its guidance targets.
On a positive note, Expedia is successfully diversifying its traffic and transactions by targeting businesses. This reduced reliance on online search and bookings demonstrates the company's adaptability and nimble product development approach.
However, there are concerns for the bears. The return on investments made in One Key remains uncertain, and there is expected to be increased marketing expenditure to drive global expansion. Additionally, the CEO change occurs during a crucial period for executing new product rollouts.
So far this year, Expedia's stock has shown an 11% increase compared to a 23% gain for the broader S&P index. However, the stock experienced a challenging start to the year, currently down 14%.
Overall, Expedia's future presents both promising prospects and potential challenges as it undergoes strategic changes.
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