Buy Expedia As Technical Strength Emerges (NASDAQ:EXPE)

Expedia Group, Inc. (NASDAQ:EXPE) released the Q4 2023 earnings on February 8, 2024, and reported strong growth in room night bookings, gross bookings, and revenue, but experienced a year-over-year drop in net income. However, the yearly numbers show improvement in net income and earnings per share. This article discusses the earnings result and provides the technical analysis of Expedia to find the next direction of the stock price and investment opportunities. It is observed that the stock price remains within the strong uptrend and the recent price correction presents a strong buying opportunity for long-term investors.

Earnings, Growth, and Future Prospects

The Q4 2023 earnings data show a positive trend in consumer interest, with the 9% year-over-year increase in room night bookings. It is observed that 77.4 million nights were booked in Q4 2023 as compared to 70.8 million in Q4 2022. This strong performance was also observed for the full year 2023, whereby 350.9 million of room nights were booked in 2023 as compared to 312 million in 2022. The strong growth in room nights bookings was also reflected in the gross bookings with a 10% increase in 2023. However, this growth in gross bookings is lower than the strong growth observed in 2021 and 2022 with an increase of 97% and 31%, respectively. Despite the lower rate of growth in gross bookings for 2023, the strong numbers present the strong consumer demand.

The quarterly and yearly revenue also shows a strong positive trend, but the rate of increase of revenue in 2023 is lower than that in 2021 and 2022 as shown in the chart below. The revenue for 2023 was increased by 10% as compared to the increment of 97% and 36% in 2021 and 2022. This sharp increase in these years was due to the strong recovery in the financial conditions after the Covid-19 crisis which caused a significant downturn in financial performance in 2020 due to travel restrictions, lockdowns and reduction in travel demand.

On the other hand, the net income for Q4 2023 was $132 million, as compared to $177 million in Q4 2022. This 25% drop in net income was extended to diluted earnings per share, which was decreased by 17% to $0.92. Despite the Q4 drop, the company reported a strong year-over-year growth of 127% in net income and 144% in diluted earnings per share for full year 2023. The annual growth in net income and earnings per share for 2023 indicates strong financial recovery and operational efficiency.

Moreover, the cash from operations decreased by 22% to $2.69 billion in full year 2023, but the chart below presents strong recovery and positive momentum after the 2020 drop. This presents the company’s ability to generate positive operational cash flow momentum during challenging times. The drop in cash from operations may be due to higher costs of operations, as the total operating expenses jumped to $3.692 billion in 2023.

The chart below presents the price to free cash flow ratio for Expedia, Booking Holdings Inc. (BKNG), Airbnb, Inc. (ABNB) and Tripadvisor, Inc. (TRIP). The low ratio among its competitors indicates that the company is undervalued relative to its peers. The lower ratio may be an excellent opportunity for investors to buy the stock at a cheap price as the company shows strong profitability potential. Moreover, the company also announced Ariane Gorin as the new CEO on May 13, 2023. Arian Gorin has achieved significant achievements as the President of Expedia. This leadership change may boost investor confidence in the company’s strategic direction.

Overall, the strong growth in room night bookings, gross bookings and revenue indicates a strong market demand. Moreover, the strong growth in net income and earnings per share in 2023 highlights the company’s strength and operational efficiency. The company’s undervalued position as compared to its competitors suggests strong growth potential and an attractive investment opportunity for long-term investors.

Long-Term Technical Picture

The technical outlook for Expedia is strongly bullish, as illustrated in the quarterly chart below. The stock price has been in a bullish trend since hitting the low of $5.06 in 2008 and reaching record highs in 2022 at $217.72. However, strong volatility is observed with the emergence of ascending broadening wedge. This wedge shows that the biggest drop in price was observed in 2020 due to the travel restrictions, lockdowns and drop in travel demand when the price produced a bottom at $40.76. This situation impacted the financial performance of Expedia and resulted in a strong price drop. However, the strong technical oversold conditions resulted in a strong price rebound which was supported by the gradual easing of travel restrictions which contributed to a boost in travel demand.

Based on the quarterly chart, the stock price hit the ascending broadening wedge and then reversed higher to hit the upper resistance of this wedge at $217.72. The strong price fluctuations within this wedge highlight the strong volatility. Recently, the stock price rebounded again from the support of this wedge pattern and highlighting price strength. The strong positive candle for Q4 2023 after the rebound from support indicates that the stock price is ready to surge higher in coming quarters. Therefore, any price correction within this quarter is considered a strong buying opportunity for investors.

Understanding the key levels

To delve deeper into the positive outlook, the monthly chart below illustrates the key levels of support and resistance. These key levels are measured by applying the Fibonacci retracement tool from the 2008 low of $5.06 to the 2022 high of $217.72. The price correction from the record highs has reached the 61.8% Fibonacci retracement at $86.30 which is considered a strong support. It is interesting to observe that this support level coincides with the support of the ascending broadening wedge, which is marked by the red dotted trend lines in the monthly chart.

After multiple consolidations at this long-term support, the stock price rallied and closed above 38.2% Fibonacci retracement in December 2023. The strong correction in February 2024 is taking the stock price back to this level around $136.48 which is considered an entry point for investors. The RSI has also closed above the mid-level which indicates investment opportunities. Overall, the Fibonacci levels of $86.30, $111.39 and $136.48 are the strong market support and entry points for investors.

Key Action for Investors

Since the long-term trend remains strong and the stock price is currently trading near the short-term support, this correction offers an entry point for investors. To further clarify this entry point, the weekly chart below presents the multiple key reversals from the bottom, as marked by the red arrows. The stock price has hit the strong support region of $117-$123 marked by the red line. Due to the multiple key reversals in the weekly chart, the stock price is expected to rebound from the support line.

Furthermore, the RSI is rebounding from the mid-line, which presented strong support for Expedia. Investors may consider buying at the current level and add more positions if the stock price drops to lower support levels of $111.39 and $86.30.

Risk Factors

The decrease in net income and diluted earnings per share in Q4 2023 highlights the potential fluctuations in profitability. These fluctuations indicate that the company needs to navigate the challenges of maintaining profitability. The company shows strong growth in 2021 and 2022 due to the strong recovery from the pandemic. However, the slowdown in the rate of increase in revenue and gross booking indicates potential saturation in the travel market, increased competition or changes in consumer behavior. These factors may affect the company’s ability to maintain high growth rates. The company may continue to innovate and adapt to changing market conditions to maintain growth momentum based on evolving consumer preferences and competitive pressures. On the other hand, Expedia presents strong volatility within the ascending broadening wedge. The strong volatility may initiate strong price fluctuations in both directions. However, the recent price correction has taken the price to strong support levels. A monthly and quarterly close below $86.30 will negate the bullish outlook and initiate a strong price drop.

Bottom Line

In conclusion, Expedia’s Q4 2023 earnings reveal strong growth and resilience in the long term, despite a short-term drop in net income for Q4 2023. The impressive growth in room night bookings, gross bookings and revenue presents strong consumer demand, while the significant improvement in net income and earnings per share for the full year 2023 reflects operational efficiency. The appointment of Ariane Gorin as CEO may further boost investor confidence.

From the technical perspective, the stock price remains within a strong bullish trend but presents heavy volatility. Despite heavy volatility, the strong rebound from the key levels followed by the strong bullish quarterly candle, highlights the buying potential. Since the stock price is cheap and currently trading at strong support, investors can consider buying the stock at current levels to benefit from the positive momentum. The key levels of support remain $136.48, $111.39, and $86.30.