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The online travel agent has gotten more efficient even while trading at half the multiple of its competitor.

Although it has had a rough year, Expedia Group could be an investor’s ticket to paradise. A report that Uber Technologies has looked into purchasing the online travel agent only makes the case stronger.

Expedia, whose bread and butter is matching people with empty hotel rooms, has made something of a round trip in 2024: The stock crashed in early February following mixed quarterly results, lackluster guidance, and the departure of CEO Peter Kern. While Kern had led the company through the tumultuous pandemic period, investors grew impatient as they waited for his transformative strategy to unfold.

The results looked even worse when compared with Priceline owner Booking Holdings, which has returned 20% annually over the past three years to Expedia’s annual loss of 4.2%. Only recently has Expedia stock climbed back to where it started the year.

Signs of improvement under new CEO Ariane Gorin are already visible, with the company targeting increased market share for its Expedia, Hotels.com, and VRBO brands, says Naveen Jayasundaram, a senior analyst at ClearBridge Investments, as well as improvements in efficiency and sales growth. Its overhaul puts it in position to play an impressive game of catch-up with Booking. “Expedia is a business in the midst of a turnaround,” Jayasundaram says. “There are early signs of progress.”

In recent months, Uber has discussed a potential bid for Expedia, according to the Financial Times. Uber CEO Dara Khosrowshahi was previously the CEO of Expedia and remains on its board.

Expedia, of course, rises and falls with travel spending. Though travel demand is down from the immediate postpandemic frenzy, it’s still at remarkably high levels. Domestic and international air traffic in the first half of the year was back in line with 2019 levels, and nearly five million more people will set sail on cruises in 2024 than they did in the year before the pandemic.

While bears worry that hotels, unhappy about forking over a percentage of profits to other sites, could fight back, as airlines have done in the past, the vast majority of hotels are owned by small operators that don’t have the same clout. Tech behemoths aren’t a big worry, either. While investors have fretted that Google parent Alphabet will use its considerable resources to muscle out smaller online travel services, it hasn’t been able to crush its rivals.

“The more fragmented the industry is, the harder it’s going to be for [competitors], even Google,” says Christopher Conway, a senior portfolio manager at GYL Financial Synergies.

The new travel normal has also brought more novice users online looking for hotel and airfare bargains. They are less likely to be brand loyal and intent on booking directly with providers, and tend to turn to online travel agents as a one-stop shop. Increasingly, that means Booking and Expedia, which enjoy a near duopoly, controlling roughly 42% of global bookings, according to travel industry firm Skift.

“There isn’t going to be just one winner here,” says Jay Aston Jr., a portfolio manager on Neuberger Berman’s global equity megatrends team. “Booking does a good job, but Expedia has a pretty fantastic platform.”

And one that has gotten better. As painful as the pandemic was for online travel agents—and the industry as a whole—it allowed Expedia to rapidly integrate the numerous brands it had acquired in the prepandemic years into a more streamlined platform, giving it a chance to maximize the value of its data and capture the benefits of scale. Those changes have helped it generate $1.3 billion in free cash flow in the most recent quarter, up 42% from the year-ago period, leaving the stock trading at 8.4 times free-cash-flow estimates for the next 12 months, about half Booking’s 16.2 times and a third of the S&P 500 index’s 25.6 times.

“A more unified platform will allow Expedia to generate significantly more meaningful cash flow, and there’s a lot more operating leverage to come,” says Aston. “If you look at free cash flow, it’s wildly undervalued.”

And not just on free cash flow. Expedia trades for just 11 times forward earnings, half of Booking’s 22 times—simply too cheap for what Dan Ahrens, managing director and portfolio manager at AdvisorShares, calls a “blue-chip travel stock.”

And it isn’t for a lack of growth. Analysts predict earnings per share to climb 21.5% this year, to $11.78, and another 20% in 2025, to $14.18—and on about 7% revenue growth for each year. Earnings will get a boost from VRBO, which showed a promising rebound in the second quarter as it benefits from the company’s recently launched One Key loyalty program. In addition, Expedia’s business-to-business division, in which other travel players fulfill their orders through Expedia’s inventory, has also been growing. The company will report third-quarter results on Nov. 7, when it will have another chance to show that its initiatives are working.

“Expedia is probably interesting here, relative to Booking, since the valuation is more attractive—we like that,” says Randy Hare, director of equity research at Huntington National Bank. “Their estimates seem doable…we could see decent growth and upward movement.”

Sure, it may still not be cheap to book a vacation, but at least Expedia looks like a bargain.

Tough luxury market dims Dior’s shine

Sales stutter at LVMH brand run by Bernard Arnault’s daughter Delphine as luxury downturn deepens

At one of Shanghai’s most exclusive malls, a Dior store is spread across four floors and includes special tea rooms for premium shoppers, in a market that was once associated with rapid growth for luxury brands.

But on Thursday afternoon there were few customers despite it being launch day of the French company’s new spring collection in China.

“You can’t compare it to before,” said one assistant. “The entire market is like this”.

Chinese consumers helped drive an unprecedented boom in the global luxury sector in recent years but a deepening slowdown in the crucial market is now taking its toll on some of the sector’s biggest names.

Shares across the industry dropped this week after Dior owner LVMH, the world’s biggest luxury group, reported a fall in third-quarter sales on the back of weakening Chinese demand. 

Sales in LVMH’s core fashion and leather goods division — the industry bellwether that houses top brands including Louis Vuitton and Dior — fell 5 per cent, the first contraction since the start of the Covid-19 pandemic in 2020 and worse than consensus expectations.

“If you look at growth rates from 2021 to 2023 . . . eventually something has to give. It’s not sustainable. So you have this very, very fast normalisation, and I think the problem at this time is Dior,” said Flavio Cereda, luxury investor at GAM. 

“Louis Vuitton is holding up OK — not great, but it’s an amazing brand. The rich, the poor — they’ve managed to make products for everyone. But Dior has now become more difficult.”

That presents a challenge for Delphine Arnault — the eldest child of LVMH’s billionaire owner and chief executive Bernard Arnault — who took over as Dior CEO at the start of last year following a period under her predecessor Pietro Beccari when the brand’s sales grew fourfold to about €10bn, according to HSBC estimates. 

LVMH does not release financial data on the performance of individual brands. But chief financial officer Jean-Jacques Guiony said Louis Vuitton’s sales in the quarter had been “a little bit above the average” in the fashion and leather goods division, “while Dior is a little bit below”. 

People familiar with the performance say Louis Vuitton sales were down by low single digits, while Dior’s decline was in the low double digits. Smaller Fendi, which had an estimated €2.5bn in sales last year, is also facing a drop in revenues, the people said. 

“While Louis Vuitton and Dior have tended to trend similarly previously, we see quite a dichotomy now,” analysts at HSBC wrote, adding that “the success of [smaller brands] Loro Piana, Loewe and Rimowa will have been negated by declines in other parts of that portfolio.”

LVMH and Dior declined to comment.

The world’s biggest luxury group with a market value of €312bn, LVMH owns almost 100 brands ranging from hotel chains to perfumes, but Louis Vuitton — a megabrand with roughly €22bn in annual sales — and Dior are the two biggest contributors to profits. Together they accounted for about 65 per cent of group earnings before interest and tax last year, according to HSBC.

LVMH is not alone in facing tougher times as the industry adjusts after years of record growth, but is faring better than some peers. In central Shanghai, Burberry and Gucci stores were also quiet at the same downtown shopping complex.

Another Dior store in the city’s financial district had more customers for the new collection, although an assistant at one of the company’s make-up stalls elsewhere in the city said footfall was down 20 per cent and that they had reached out to repeat customers to drum up business. 

Shares in LVMH rival Kering are down more than 40 per cent this year after a series of profit warnings, a rarity in the sector. Sales at its flagship brand Gucci are expected to have fallen 23 per cent year-on-year when the group reports third-quarter revenues next week, according to Barclays. 

But within LVMH, Dior now faces the challenge of forging a path forward under a new chief executive after a period of turbocharged growth.

“There is some resetting happening,” said one luxury financier, adding that Delphine Arnault’s “energy is not the same” as Beccari’s, and “she’s coming into something that is perhaps a bit stressed after being milked for growth”. 

Beccari, now chief executive at Vuitton, transformed Dior by moving it into new categories and gaining market share across women’s and men’s fashion, leather goods, jewellery and homeware.

During his time at Dior, he was “all about volume, being aggressive, and is very very good at that”, said Cereda at GAM. “But exceptionally strong growth also came from excessive price increases as we saw at Chanel.”

Average prices for luxury goods tracked by HSBC have risen 50 per cent since 2019. Dior has raised them the most, according to Bernstein analysis, pushing up like-for-like price tags on “evergreen” products by more than 60 per cent between 2020 and 2023.

“At some point in the consumer’s mind, the absolute numbers just don’t make sense,” said the luxury financier. For the industry as a whole “you can no longer just grow through price” — particularly at top brands such as Dior and Vuitton that are now so big that they need to look beyond the ultra-wealthy for sales. 

Delphine Arnault has been focused on “long-term desirability”, a person close to her said, investing in the Dior brand through big destination runway shows — such as a recent one in Scotland — and dressing stars from Céline Dion to Lady Gaga at the Paris Olympics opening ceremony.

Industry players say a recent investigation by Italian authorities into poor labour conditions at factories working as subcontractors for brands including Dior and Armani has had little impact on customers, but that Dior faces broader questions about the quality of some items particularly in light of the scale of price increases.

“We’re already at a price point where affluent customers have problems with spending power, and there is an issue with the price point at Dior,” said another person close to the group. 

Analysts at research firm Third Bridge also note that Dior — where Maria Grazia Chiuri has been creative director since 2016 — has not launched a new blockbuster bag since the “book tote” hit the market more than three years ago.

“Handbags are the cornerstone of luxury brands, as they are often the most prominent and lucrative category,” said Third Bridge analyst Yanmei Tang. “The lack of relevance with customers in the handbag segment appears to be part of a broader issue affecting Dior’s product line-up.”

A person close to Delphine Arnault said recent launches such as the Toujours bag released six months ago were performing well. Under her leadership the brand has also increased the number of bags it includes in Chiuri’s runway shows to build out the key product offering, with a focus on appealing to the brand’s highest-end clientele. “This is where most of Dior’s growth is coming from,” the person said.

For luxury’s biggest brands, sustaining momentum is a challenge once a certain scale has been reached.

After €10bn in sales, “you need an exceptional storyline, heritage and product for a lot of different customers while managing the dilution of exclusivity”, said Cereda. “Walking around any Dior megastore quickly flags what the challenges are today.”

Lower-ranking creditors complain to utility they have been cut out of restructuring negotiations

Thames Water’s battle for survival intensified on Friday when debtholders fell out over a proposed £1.5bn emergency loan and restructuring plan that would help the UK’s largest privatised water utility stave off financial collapse by Christmas.

The crisis-struck company, which provides water and sewerage services to about 16mn households in south-east England, is struggling under a £19bn debt load and has faced lukewarm demand for an attempt to raise as much as £3bn in equity from infrastructure investors.

On Friday, a group of creditors wrote to Thames Water complaining that they had been cut out of negotiations around a new loan to prevent a cash crunch at the utility, which has warned that it risks running out of readily available liquidity shortly after Christmas.

These creditors, which hold some of the lower-ranking bonds, have hired heavyweight litigation law firm Quinn Emanuel to represent their interests, after a large bondholder group ejected them on Thursday.

“Our clients are concerned that [Thames Water] and its advisors appear to be close to launching a restructuring plan without having consulted an important creditor constituency,” Quinn Emanuel wrote to Thames Water’s legal advisers on Friday evening.

Thames Water declined to comment.

The dispute raises the stakes in the company’s bid to avoid financial collapse, given the sheer numbers of creditors that need to reach agreement on any proposal. It risks being renationalised under the government’s special administration regime if it cannot agree a restructuring with debtholders.

The creditors behind Friday’s letter include hedge funds, banks and insurers, according to people familiar with the matter, and represent a significant portion of Thames Water’s £1.4bn of class B debt. They stand to take heavy losses or have their bonds wiped out should the company be renationalised. The class B bonds were trading at less than 20p in the pound on Friday, reflecting their low recovery expectations.

Holders of these lower-ranking bonds were ejected earlier this week from Thames Water’s largest creditor group of more than 100 institutions, which owns more than £10bn in bonds.

Some of this group’s remaining class A debt holders have been negotiating a restructuring plan and emergency loan of at least £1.5bn that would rank ahead of all existing debt, according to people familiar with discussions.

This group’s advisers warned the class B holders on Thursday of a “significant risk of a conflict of interest” emerging between them and higher-ranking class A holders. Thames Water has about £16bn of class A debt outstanding, and this would rank ahead of class B holdings in a special administration or insolvency.

The largest holders within the class A bondholder group have been negotiating with Thames Water around a “new money” loan with an aim of formally proposing terms in the coming weeks, according to people close to the discussions.

“It is clear that negotiations with a single creditor group cannot lead to the objectively best available deal for [Thames Water],” Quinn Emanuel’s lawyers wrote on Friday. “It is also critical that any new money contribution is not structured in such a way that limits the runway for an equity-raising process.”

The letter also claimed that the class B holders would be able to “contribute significant new money” to Thames Water and could potentially “provide funding on competitive and potentially attractive terms”.

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