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eTravel Stocks - A
Quick Trip to the Land of
Profitability
eTravel
stocks. As a group, they've definitely defied the theory that
virtually all consumer dot com companies are essentially road
kill.
This has
simply not been the case. eTravel survivors are actually
having fun amidst all of the rubble and ruins.
While the
vast majority of consumer focused Net stocks have been sliced
into Swiss cheese in the past year, the eTravel sector has
been left sitting pretty. Very pretty. Profits- not losses-
are what all of the surviving eTravel players are now
delivering to investors. Surprisingly, the sky appears to be
rising - not falling - for the group.
Even with
most major airline and hotel companies now ramping up their
own direct online reservation efforts, business at eTravel
middlemen continues to surge. Most eTravel stocks are
currently trading near their 52-week highs even with the
launch of Orbitz.com (a new airline industry backed
venture) right around the corner.
Thus, I
thought it would be interesting to take a look at three of the
largest publicly traded eTravel players in this week's report.
Travelocity.com, Expedia and Hotel Reservation Network are
under my analytical microscope for the week.
Travelocity.com Inc. [TVLC]
A veteran
of the e-travel landscape, Travelocity.com has over 27 million
registered members and has sold more than 14 million airline
tickets to date. Travelocity currently boasts booking
relationships with more than 700 airlines, 50,000 hotels and
more than 50 car rental companies. Adding further strategic
firepower, Travelocity is still majority owned by SABRE
[TSG], the world's largest travel reservation system.
Even
amidst the current "dot coma", Travelocity has so far managed
to stay out of the b-to-c quicksand. If anything, Travelocity
seems to be thriving and accelerating - not decelerating- in
this clouded environment. Sales jumped over 100% to almost $73
million in the most recent quarter, as the company actually
posted a net profit of $618,000 or $.03 per share for the
first time. Yep, a dot com with real profits- what a
concept!
At a
recent price of $35 per share, though, Travelocity shares
still look extremely pricey. This eTravel player currently
checks in with a frothy forward P/E of 184 based on Wall St.
estimates of $.19 cents per share in earnings for 2001. Even
with Travelocity poised to produce 50% annual earnings and
sales growth for 2001 and 2002, this stock still looks like a
real sucker's bet at these levels. Play it smart on this one
and don't become that sucker.
Expedia, Inc. [EXPE]
Travelocity.com isn't the only eTravel site with
profitability on its immediate agenda. Microsoft [MSFT]
controlled Expedia recently joined the select world of
profitable dot com companies as well. Expedia posted earnings
of $4.4 million or $.9 cents per share before non-cash charges
in the most recent quarter, as sales rose 88% to $110 million.
These results clearly surprised analysts, whom didn't expect
Expedia to actually post a profit until next year.
Much like
Travelocity, improved gross margins and strong growth in gross
travel bookings, appear to have pushed Expedia to
profitability much sooner than analysts had expected. Expedia
also saw its average number of monthly site visitors swell 29%
sequentially to roughly 7 million monthly visitors during the
quarter. Clearly, consumers may be watching their wallets a
little more closely lately, but they're still spending their
vacation dollars in record numbers online.
Not
surprisingly, given its strong recent earnings performance, at
a recent price of $29 per share, Expedia is trading near its
52-week high of $32.70. Expedia currently expects to post
earnings of between $.30-$.40 cents per share for fiscal 2002,
suggesting a forward P/E range of between 73 and 96. Thus,
even with earnings expected to jump over 100% next year,
Expedia shares still look more than fully valued at current
levels.
Hotel Reservation Network [ROOM]
While
eTravel sites Travelocity.com and Expedia duke it out over
booking airfares, Hotel Reservation Network has the discount
hotel booking market largely to itself. A majority owned
subsidiary of USA Networks [USAI], HRN is the largest
consolidator of discount hotel room accommodations worldwide.
HRN provides these services to more than 18,600 affiliated
websites including eTravel powerhouse Travelocity.com.
While HRN
originally began as a phone and fax based service, the company
has taken phenomenally well to the Internet. Sales grew more
than 90% to $105 million during the first quarter as HRN
reported adjusted net income of $11.2 million during the
period. HRN's EBITDA grew 94% to almost $16 million for the
quarter. This resulted in earnings of $.20 cents per share for
the quarter versus only $.12 cents in the year ago quarter.
HRN
management now expects sales of $500 million and adjusted
earnings per share of at least $.92 for fiscal 2001. Based on
these estimates, HRN is currently on track for 50% sales
growth and 33% earnings growth with a forward P/E of almost
39. While HRN shares still hardly look like a value play at
these prices, this company looks much better insulated long
term from the pricing pressures that Travelocity and Expedia
potentially face.
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