P. 1
2011.05.02 Michael Song - Projections and SOTP Analyses for Expedia (EXPE)

2011.05.02 Michael Song - Projections and SOTP Analyses for Expedia (EXPE)

|Views: 43|Likes:
Published by Michael Song
Projections and SOTP Analysis for Thesis
Projections and SOTP Analysis for Thesis

More info:

Published by: Michael Song on May 04, 2011
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF or read online from Scribd
See more
See less

10/24/2012

Expedia (NYSE: EXPE) Analyst: Michael Song (miksong@gmail.

com) Recommendation: LONG THESIS PROJECTIONS:

Long Date: 05/03/11

As this analysis is focused on the break-up SOTP value of the entity post-spin, the overall company Thesis Case projections were made with an added level of conservatism o I made sure my own estimates did not drift too far from consensus estimates for the purposes of this exercise  Non-GAAP EPS estimates may be above consensus figures as consensus likely includes a few outlier sell-side analysts submitting GAAP EPS estimates into the consensus
Historical 2009A $2,634.8 0.3% 108.3 (1.2%) 212.4 5.9% 139.7 43.0% (139.7) $2,955.4 0.6% $845.9 32.1% 1.4 1.2% 195.9 55.6% (139.7) (142.0) $761.5 25.8% $864.3 29.2% $37.7 1.3% $61.7 2.1% $662.2 22.4% (6.2) 84.2 35.4 90.8 $458.0 154.4 $303.6 10.3% $1.46 (32.4%) $584.0 19.8% Consensus 2011E 2012E NA NM NA NM NA NM NA NM NA $3,801.4 13.5% NA NM NA NM NA NA NM NA NA NM $1,013.7 26.7% NA NM NA NM NA NM NA NA NA NA NA NA NA NM $1.84 8.3% NA NM NA NM NA NM NA NM NA NM NA $4,199.0 10.5% NA NM NA NM NA NA NM NA NA NM $1,113.0 26.5% NA NM NA NM NA NM NA NA NA NA NA NA NA NM $2.10 14.1% NA NM Thesis Case 2011E 2012E $3,237.5 12.0% $178.8 25.0% $402.5 28.0% $213.9 25.0% ($213.9) $3,818.8 14.1% $906.5 28.0% 23.2 13.0% 326.7 53.0% (213.9) (150.0) $892.5 23.4% $1,022.5 26.8% $32.5 0.9% $64.9 1.7% $795.2 20.8% (11.6) 115.9 20.0 0.0 $670.9 208.0 $462.9 12.1% $1.90 11.9% $739.1 19.4% $3,464.1 7.0% $214.6 20.0% $503.1 25.0% $256.7 20.0% ($256.7) $4,181.8 9.5% $970.0 28.0% 27.9 15.0% 395.1 52.0% (256.7) (150.0) $986.3 23.6% $1,116.3 26.7% $31.4 0.8% $66.9 1.6% $888.0 21.2% (14.7) 115.9 20.0 0.0 $766.8 237.7 $529.1 12.7% $2.21 16.0% $692.1 16.6%

($ in millions)

2008A $2,626.8 7.3% 109.6 20.1% 200.6 60.2% 97.7 26.5% (97.7) $2,937.0 10.2% $844.5 32.2% 4.8 4.3% 150.0 50.3% (97.7) (203.9) $697.8 23.8% $774.6 26.4% $69.4 2.4% $61.3 2.1% $567.0 19.3% (30.4) 72.0 44.2 2,996.0 ($2,514.7) 6.0 ($2,520.7) (85.8%) $2.15 78.6% $360.9 12.3%

2010A $2,890.6 9.7% 143.0 32.1% 314.5 48.1% 171.1 22.5% (171.1) $3,348.1 13.3% $851.1 29.4% 16.7 11.7% 259.6 53.5% (171.1) (125.6) $830.7 24.8% $949.1 28.3% $37.1 1.1% $59.7 1.8% $733.9 21.9% (7.2) 101.3 17.2 2.0 $620.6 195.0 $425.6 12.7% $1.70 16.6% $622.3 18.6%

Revenue: Leisure Growth Egencia Growth Trip Advisor - Third Party Revenue Growth Trip Advisor - Intersegment Growth Corporate & Eliminations Total Net Revenue Growth OIBA: Leisure OIBA Margin Egencia OIBA Margin Trip Advisor OIBA Margin Trip Advisor Eliminations Corporate & Eliminations OIBA OIBA Margin EBITDA excl. SBC Margin Amortization of Intangibles % of Sales Stock-Based Compensation % of Sales GAAP EBIT Margin Interest (Income) Interest Expense Other Expenses Unusual Expenses Pre-Tax Income Tax Provision (Benefit) Reported Net Income Margin Non-GAAP Diluted EPS Growth Free Cash Flow Margin

Page |1

Expedia (NYSE: EXPE) Analyst: Michael Song (miksong@gmail.com) Recommendation: LONG SOTP FINANCIALS:

Long Date: 05/03/11

In order to conduct an appropriate SOTP valuation, I first had to break up the projected financials for both TripAdvisor and Legacy EXPE. As the company provides OIBA segment reporting, creating a reasonable proxy was not difficult
($ in millions, except per share data)

($ in millions)

EBITDA: Leisure OIBA Egencia OIBA Trip Advisor Eliminations Legacy Expedia OIBA Before Corporate Elim. Remaining Corporate Elim. Legacy Expedia OIBA After Corporate Elim. Depreciation of PPE % of Depreciation Allocated Allocated Depreciation Legacy Expedia EBITDA Margin Trip Advisor OIBA Estimated Corporate Expenses Allocation Additional Public Company Costs Trip Advisor OIBA After Corporate Margin Depreciation of PPE % of Depreciation Allocated Allocated Depreciation Trip Advisor EBITDA Margin

2011E $906.5 23.2 (213.9) $715.9 (105.0) $610.9 130.0 85.0% $110.5 $721.4 21.1% $326.7 (45.0) (10.0) $271.7 44.1% 130.0 15.0% $19.5 $291.2 47.2%

2012E $970.0 27.9 (256.7) $741.2 (105.0) $636.2 130.0 85.0% $110.5 $746.7 20.3% $395.1 (45.0) (10.0) $340.1 44.8% 130.0 15.0% $19.5 $359.6 47.3%

EPS: Legacy Expedia OIBA After Corporate Elim. Allocation of Other Allocation of Interest Income Interest Expense (Notes due 2018 and 2020) Legacy Expedia Pre-Tax Income Tax Rate Net Income (excl. SBC and Amort of Intangibles) Margins Diluted Shares Outstanding Legacy Expedia Non-GAAP EPS Trip Advisor OIBA After Corporate Allocation of Other Allocation of Interest Income Interest Expense (Notes due 2016) Trip Advisor Pre-Tax Income Tax Rate Net Income (excl. SBC and Amort of Intangibles) Margins Diluted Shares Outstanding Trip Advisor Non-GAAP EPS

2011E $610.9 14.2 (8.3) 81.9 $523.0 31.0% $360.9 10.6% 278.300 $1.30 $271.7 5.8 (3.3) 34.0 $235.3 31.0% $162.3 26.3% 278.300 $0.58

2012E $636.2 13.5 (9.9) 81.9 $550.7 31.0% $380.0 10.3% 278.300 $1.37 $340.1 6.5 (4.8) 34.0 $304.4 31.0% $210.0 27.6% 278.300 $0.75

EBITDA SOTP Financials o For the Legacy Expedia business, I assumed that 100% of the cost associated with intersegment revenue to TripAdvisor remains a cost going forward  The remaining projected corporate eliminations to get to the overall company OIBA were allocated based on EBITDA contribution; this could be over-estimating costs to TripAdvisor as its business has better margins than Legacy EXPE, but I wanted to build in a margin of safety Furthermore, I built in an additional $10mm of corporate costs for TripAdvisor to account for any additional public company costs

 o •

Depreciation of PPE was distributed based on revenue contribution as there should be less PPE depreciation costs associated with TripAdvisor compared to Legacy EXPE

NON-GAAP EPS SOTP Financials o o Allocations of Other expenses and Interest Income were distributed based on EBITDA contribution For Interest Expense, I assumed that the 8.5% $400mm notes due 2016 went along with the TripAdvisor business; as the 7.456% $500mm notes due 2018 have a put option on them for 2013. Accordingly, I assumed the 5.95% $750mm notes due 2020 also went along with the Legacy EXPE business  Realistically, one or more of these tranches of debt will be refinanced as part of the transaction, as EXPE has the option to repurchase the tranches with make-whole provisions, but I wanted to include the higher average coupon rate for conservative purposes Furthermore, if management is able to spin-off TripAdvisor, debt-free, it would provide upside to my Non-GAAP EPS estimates, subsequently also providing upside to the valuation as TripAdvisor will gain a higher P/E multiple

Page |2

Expedia (NYSE: EXPE) Analyst: Michael Song (miksong@gmail.com) Recommendation: LONG VALUATION / PRICE TARGET
• A minority of the sell-side analysts covering EXPE have attempted to conduct a preliminary SOTP
Sum-Of-The Parts Multiple Sell-Side Analyst Coverage Date Rating BofA / Merrill 4/29/2011 Hold Citi 4/29/2011 Buy Cannacord 4/8/2011 Hold RBC 4/8/2011 Buy Jefferies 4/8/2011 Buy Mean Price Tgt. 2011E EBITDA $29.00 NA $29.00 NA $25.00 NA $28.00 6.0x $31.00 5.0x $28.40 5.5x Legacy EXPE 2012E EBITDA 2011E EPS 6.0x NA 5.0x NA NA 17.3x NA NA NA NA 5.5x 17.3x

Long Date: 05/03/11

SELL-SIDE ANALYST SOTP ANALYSIS
TripAdvisor 2012E EPS 2011E EBITDA 2012E EBITDA 2011E EPS 10.0x NA 11.0x NA NA NA 10.0x NA NA NA NA 19.3x NA 10.0x NA NA NA 15.0x NA NA 10.0x 12.5x 10.5x 19.3x

2012E EPS 22.0x NA NA NA NA 22.0x

However, looking at the Legacy EXPE online travel comparables, the valuations seem like they may be undervaluing Legacy EXPE, as they use multiples in-line with those of Orbitz, which is meaningfully less competitive and far more exposed to the troubled airline booking business
Share Market Enterprise EBITDA Margin Revenue Growth EV / Revenue EV / EBITDA P/E Price Cap. Value CY 2011E CY 2012E CY 2011E CY 2012E CY 2011E CY 2012E CY 2011E CY 2012E CY 2011E CY 2012E $555.65 $27,311.3 $26,171.3 30.7% 32.5% 29.8% 20.3% 6.5x 5.4x 21.3x 16.7x 30.0x 23.4x $48.71 6,993.0 6,500.7 40.4% 41.6% 26.4% 27.1% 11.6x 9.1x 28.7x 22.0x 30.4x 24.4x $30.28 1,033.6 981.4 15.9% 25.6% (22.7%) 35.4% 11.1x 8.2x 69.6x 32.0x 100.9x 50.5x $3.06 313.5 711.2 17.9% 18.9% 2.0% 5.6% 0.9x 0.9x 5.1x 4.6x 30.6x 15.3x MEAN MEDIAN 26.2% 24.3% NA NA 21.1% 29.6% 29.0% 20.3% 8.9% 14.2% 13.5% 22.1% 23.7% 10.5% 7.5x 8.8x NA 5.9x 6.8x NA 31.2x 25.0x NA 18.8x 19.3x NA 48.0x 30.5x NA 28.4x 23.9x NA

ONLINE TRAVEL COMPARABLES
May 2, 2011
($ in millions)

priceline.com Incorporated (NasdaqGS:PCLN) Ctrip.com International Ltd. (NasdaqGS:CTRP) MakeMyTrip Limited (NasdaqGS:MMYT) Orbitz Worldwide, Inc. (NYSE:OWW)

Legacy Expedia - Post-Spin of TA

NA

Priceline clearly deserves to trade at a premium based on projected fundamentals, but Legacy EXPE’s scale, global reach, higher exposure to hotels and growth prospects would indicate that Legacy EXPE should trade at a distinct premium to Orbitz

Page |3

Expedia (NYSE: EXPE) Analyst: Michael Song (miksong@gmail.com) Recommendation: LONG
SMALL / MID CAP ONLINE COMPARABLES
May 3, 2011
($ in millions)

Long Date: 05/03/11

WebMD Health Corp. (NasdaqGS:WBMD) IAC/InterActiveCorp. (NasdaqGS:IACI) OpenTable, Inc. (NasdaqGS:OPEN) Monster Worldwide, Inc. (NYSE:MWW) Ancestry.com Inc. (NasdaqGS:ACOM) Travelzoo Inc. (NasdaqGS:TZOO) Demand Media, Inc. (NYSE:DMD) QuinStreet, Inc. (NasdaqGS:QNST) United Online, Inc. (NasdaqGS:UNTD) The Knot, Inc. (NasdaqGS:KNOT)

Share Price $56.89 $35.84 $105.00 $16.52 $39.71 $75.56 $14.83 $18.75 $6.48 $9.75 MEAN MEDIAN

Market Enterprise EBITDA Margin Revenue Growth EV / Revenue EV / EBITDA P/E Cap. Value CY 2011E CY 2012E CY 2011E CY 2012E CY 2011E CY 2012E CY 2011E CY 2012E CY 2011E CY 2012E 3,357.5 2,957.0 35.5% 37.0% 18.4% 17.1% 4.7x 4.0x 13.1x 10.8x 43.8x 31.6x 3,225.6 2,064.1 17.2% 18.1% 16.3% 8.9% 1.1x 1.0x 6.3x 5.5x 21.1x 17.9x 2,468.6 2,426.0 36.9% 40.8% 49.1% 30.3% 16.4x 12.6x 44.5x 30.9x 95.5x 65.6x 2,136.3 2,065.3 17.7% 21.4% 21.3% 14.1% 1.9x 1.6x 10.5x 7.6x 41.3x 20.7x 1,815.0 1,712.8 34.7% 35.2% 32.2% 17.9% 4.3x 3.7x 12.4x 10.4x 30.5x 24.8x 1,243.9 1,192.0 30.5% 34.9% 41.2% 27.9% 7.5x 5.8x 24.5x 16.7x 47.2x 32.9x 1,233.7 1,575.3 25.8% 29.9% 24.0% 26.9% 5.0x 4.0x 19.5x 13.2x 148.3x 37.1x 876.4 867.7 21.6% 21.5% 19.6% 18.6% 1.9x 1.6x 8.8x 7.5x 31.3x 23.4x 571.0 728.8 18.5% 18.8% (1.3%) 1.2% 0.8x 0.8x 4.3x 4.2x 8.1x 8.1x 308.1 168.5 14.7% 17.5% 7.3% 8.7% 1.4x 1.3x 9.5x 7.3x 48.8x 48.8x 25.3% 23.7% 27.5% 25.7% 22.8% 20.4% 17.2% 17.5% 4.5x 3.1x 3.6x 2.6x 15.4x 11.5x 11.4x 9.0x 51.6x 42.5x 31.1x 28.2x

• •

When examining small / mid cap online comparables for TripAdvisor, TripAdvisor aligns with higher multiple companies, such as Web MD and Demand Media (11.0x – 14x 2012E EBITDA), based on comparable margins and prospective growth To better illustrate the point, a scatter plot of the companies selected in the small / mid cap internet comparable universe shows TA should at the very least trade at 11.0x – 14x 2012E EBITDA and well above a 25.0x 2012E P/E multiple
45.0% 40.0% 35.0% OPEN - 30.9x, 65.6x TZOO - 16.7x, 32.9x

2010 - 2012E Revenue CAGR

30.0% DMD - 13.2x, 37.1x 25.0% ACOM - 10.4x, 24.8x 20.0% 15.0% IACI - 5.5x, 17.9x 10.0% KNOT - 7.3x, 48.8x 5.0% UNTD - 4.2x, 8.1x 0.0% 10.0% (5.0%) 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% QNST - 7.5x, 23.4x MWW - 7.6xx, 20.7x WBMD - 10.8x, 31.6x TA - ?, ?

2012E EBITDA Margin
Compa ra bl e - 2012E EBITDA Mul ti pl e, 2012E P/E Mul ti pl e

Page |4

Expedia (NYSE: EXPE) Analyst: Michael Song (miksong@gmail.com) Recommendation: LONG
Downside Case

Long Date: 05/03/11

Before I get into my Base Case SOTP valuation for EXPE, it s appropriate to acknowledge a Downside Case scenario o o o In this case, I have applied the conservative Orbitz multiple to Legacy EXPE that is in-line with sell-side analysts’ SOTPs I also apply an extremely conservative EBITDA multiple to TripAdvisor that is well below its small / mid cap online peers with comparable margin and growth profiles Furthermore, I assumed that 25% of the business TripAdvisor receives from EXPE will go away and will not be offset by other online travel companies or an increase in the transacted pricing to EXPE
DOWNSIDE CASE: Expedia - 2012E EBITDA TripAdvisor - 2012E EBITDA (-25% of Intersegment Rev.) Statistic $746.7 $329.2 Multiple Range Low High 5.0x 6.0x 8.0x 10.0x Implied Ent. Value Low High $3,733.4 $4,480.1 2,633.9 $6,367.2 105.8 $6,473.1 282.535 $22.91 (9.7%) 3,292.3 $7,772.4 105.8 $7,878.2 282.535 $27.88 9.9%

EXPE Implied Enterprise Value Plus Net Cash EXPE Implied Equity Value Shares Outstanding EXPE Implied Share Price Premium / (Discount)

Despite these concessions, the low-end of my Downside Case valuation range is only a 10% discount to EXPE’s current trading price; based on the high end of the valuation range, the shares appear to be appropriately priced

Base Case
• In my Base Case valuation, I have removed the discount to the TripAdvisor intersegment revenues as I believe that advertising on TripAdvisor will continue to be a part of Legacy EXPE’s strategic plan (meaningful portion of Expedia.com traffic is currently driven by TripAdvisor sites) and TripAdvisor will also pick up demand from other online travel companies
BASE CASE - EBITDA VALUATION: Expedia - 2012E EBITDA TripAdvisor - 2012E EBITDA Statistic $746.7 $359.6 Multiple Range Low High 5.0x 6.0x 10.0x 15.0x Implied Ent. Value Low High $3,733.4 $4,480.1 3,596.0 $7,329.4 105.8 $7,223.6 282.272 $25.59 2.4% 5,394.0 $9,874.1 105.8 $9,768.2 282.272 $34.61 38.5%

EXPE Implied Enterprise Value Plus Net Cash EXPE Implied Equity Value Shares Outstanding EXPE Implied Share Price Premium / (Discount) BASE CASE - P/E VALUATION: Expedia - 2012E EPS TripAdvisor - 2012E EPS Statistic $1.37 $0.75 Multiple Range Low High 10.0x 16.0x 20.0x 30.0x

Implied Price Per Share Low High 13.66 21.85 15.09 $28.75 15.1% 22.64 $44.49 78.1%

EXPE Implied Share Price Premium / (Discount)

The key takeaway to note is that the low-end of the Base Case multiple ranges are still conservative and easily justifiable by comparables, but also result in the low end of the ranges being above the current EXPE share price o o The high-end of the ranges also very much stay within the realm of reason based on TripAdvisor’s fundamentals and equivalent comparables and result in a 40% – 80% premium to the current trading price My target price of $35 per share is based on the approximate mid-point of the low end of the EBITDA valuation and the high end of the P/E valuation, but I will enthusiastically point out that meaningful upside remains Page |5

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->