Expedia's on Sale

Dan Wasiolek: Most travelers are aware of the online travel brand Expedia, but [investors] should be mindful that the company possesses a powerful network effect and currently trades at a substantial discount to our $175 fair value estimate, offering investors an attractive entry point.

Expedia's share price has underperformed recently, due to the market's ill-advised concern over increasing competition and investment. But in our view, Expedia's market position is unwavering with no signs of cracks, supported by solid trends in its international and vacation rental segments. This reinforces our stance that the firm's incremental spend in these divisions is justified and being done from a position of strength versus weakness.

Despite this spend dampening Expedia's near-term profits, we see it as a strong use of capital, supporting its around 10% average annual bookings growth the next several years versus the roughly 9% rate we expect for the industry. We also believe these investments stand to buoy Expedia's leading network of 600 million monthly visits and nearly 2 million properties, which is the source of the narrow moat we award the company.

The meaningful discount to our valuation implies that the market seems to assume consistent share losses for Expedia, largely writing off any benefit from the current actions to bolster its network advantage. Therefore we recommend long-term investors buckle up and travel with Expedia shares.