A look into the Expedia and Dodgy Accounting

A look into the Expedia and Dodgy Accounting

Expedia has earned a high reputation as one of the leading online travel agents across the globe. It has a wide array of lodging platform websites that stand out of the ordinary in making the travel hassle-free for you. If you are planning to go for a vacation, you can refer to it. It will provide the prerequisite assistance for the booking of hotels, flights, etc. You can also refer to it for choosing the car hire services. Planning your holiday is going to be easier as you opt for it.

The stock of the previous year

If you take a close look at its stock in the previous year, you will find that it was trading at the rate of US$140. However, for several people, it involves a huge cut off from the pocket and it looks really expensive, specifically with the rise in competition. However, as per the reports, the stock of the account dropped down for the second time in the time span of 6 months to the US $104. After a thorough research, it was found that the reduction of the stock was due to the fact that the company guided down the earning of 2018. However, to an ample extent, it was due to the ramp-up in the growth investments that can produce a market share of additional revenue for a longer time. In according with the analysts, the stock is on the forward EV/EBITDA of 7-8x.

Reasons for the drop down of the stock

It will take no time to unveil the issue. The combination of the dodgy accounting along with the lack of security or critical thinking of the DB analysts is responsible for the same. The valuation is still found to be very high which is almost 40 times the earnings in the year 2017. The stock seems like a clear avoid at the recent prices, considering the rise in the competition, slow-maturing market and the ever-present threat posed by the tech giants of the industry with the larger user base.

Primary issues

There are three primary issues with the Expedia and dodgy accounting. As the no good-will intangibles amortization were added back, the compensation based on the stock was added once again and the capitalization of the software development costs that are coupled with the focus on EBITDA, it leads to the issues. The treatment of the company in a few of the items are really not fair. In case the prerequisite adjustments are no accomplished, the earnings of the company are going to be double in no time. For instance, for the year 2017, the adjusted EPS was known to be US$4.30 for every share. However, in accordance with the reported GAAP EPS, it was found to be US$2.42 which is evidently 50% less. In addition to this, for the 4Q17, the adjusted EPS’ of US$0.84 was much more than the double. of the EPS of US$0.35. The first two products contribute to the significant part of the disparity.

The company has also capitalized the costs of the software development into the fixed assets after which they were depreciated. Owing to this, the EBITDA is recognized to be the misleading representation of the underlying cash generation capabilities of the company.