Analyst Note| Dan Wasiolek |
Although third-quarter bookings were disappointing, narrow-moat Expedia shares flew 10% higher on upbeat forward demand comments, as well as strong profitability in the period. Although we don’t expect a material change to our 2021 bookings forecast to reach (low-70% of 2019 levels), we plan to increase our $151 fair value estimate around 10% mostly to account for worker flexibility driving higher long-term travel demand, as well as stronger near-term profitability. Our constructive stance on remote working conditions is formed by higher income occupations (like computers, finance, legal, architecture) being the most likely industries to sustain such flexibility. We think Expedia shares reflect the improving demand outlook and management’s strong execution. We reiterate that investors interested in travel exposure should shift their focus from nonurban U.S. players that have led the travel recovery (like narrow-moat Choice and Wyndham) to those with a Europe and China presence (like narrow-moat Booking and Accor), which we believe will experience stronger relative demand improvement next year versus the former. Specifically, we highlight Accor, which trades at a 20% discount to our EUR 40 fair value estimate while offering 60% hotel exposure to Europe.