Expedia, Inc. (EXPE)

Discount cash flow analysis

Sell Overvalued by 78.7%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for Expedia, Inc., based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in $ millions
2007 2008 2009 2010 2011 2012 2013 2014
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $23.44 $23.12 $22.82
Terminal Growth% 0 $23.53 $23.21 $22.91
  +1% $23.63 $23.31 $22.99

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of $92.14 (overvalued by 15.3%) - 12 months ago
  • SethWellbourne created a new valuation of $10.50 (undervalued by 17.85%) - over 8 years ago
  • GordonGekko created a new valuation of $9.50 (undervalued by 28.73%) - over 8 years ago
  • TheCrunchBlog created a new valuation of $23.21 (undervalued by 20.45%) - 9 years ago

Comments

Expedia (EXPE) – the on-line travel site looks a buy

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/08/expedia-expe-the-on-line-travel-site-looks-a-buy/

EXPE grew revenues from US$1.8 billion in 2004 to US$2.7 billion in 2007 – a 14% compound annual growth rate. Our assumptions of revenues for the next three years are US$3.0 billion in 2008 growing to US$3.75 billion in 2010 – a 12% compound annual growth rate (2007-10). We have projected EBITDA margins to be flat at 25% to 2010. We have used a terminal growth rate of 3.75%. We calculated this terminal growth rate based on year three (2009-10) growth of 10% dropping to a 3.0% stable growth rate by year 10. We used a terminal capital expenditure number of US$150 million. We have used a WACC (discount rate) of 12.0%.

The key assumptions as we see them are:

EXPE Revenues for the next three years. We believe that 12% per annum growth (2007-10) is a reasonable estimate.

EXPE WACC. We view EXPE’s WACC in the 11-13% range. We took a mid-point. This discount rate is intended to reflect the potential uncertainties of the EXPE cash flows in the near term.

By TheCrunchBlog, about 9 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 31,652
Net Debt (Long-term borrowings less cash): 467
Equity Value: 5,523
Number of Shares Outstanding: 286,000,000
Calculated value per share: $23.21

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.