Expedia (EXPE): Navigating Recovery & Reclaiming OTA Dominance Through AI

1. Executive Summary

Expedia Group (EXPE) presents a compelling investment opportunity as the travel sector continues its recovery from pandemic-induced lows. The company's diversified portfolio of brands, including Expedia, Hotels.com, Vrbo, and Trivago, positions it to capture a significant share of the growing online travel agency (OTA) market. EXPE is strategically leveraging AI and machine learning to personalize travel experiences, optimize pricing, and improve operational efficiency, potentially driving higher conversion rates and customer loyalty. While facing competition from Booking Holdings (BKNG) and emerging players, Expedia's focus on technology-driven innovation, particularly its unified technology platform, offers a competitive edge.

The key to our bullish outlook lies in the continued rebound of travel demand, coupled with Expedia's proactive investments in AI and enhanced user experiences. These improvements should drive organic growth and market share gains in the coming years. However, investors must carefully monitor the impact of macroeconomic headwinds and potential disruptions in the travel industry. Our valuation analysis, incorporating both bull and bear case scenarios, suggests that EXPE is undervalued at current levels, offering attractive upside potential as the company executes its strategic initiatives and capitalizes on the ongoing travel recovery. We initiate coverage with a Neutral rating, anticipating further upside as EXPE’s AI investments generate measurable returns.

2. The Business Model

Expedia operates as a global online travel company, generating revenue primarily through commissions, transaction fees, and advertising. The company’s three operating segments are:

• Retail: This segment offers a wide range of travel products and services directly to consumers through brands like Expedia, Hotels.com, and Vrbo. Revenue is derived from commissions earned on bookings of accommodations, flights, car rentals, cruises, and activities.
• B2B: Expedia Partner Solutions (EPS) provides travel technology and services to third-party partners, including airlines, hotels, and corporate travel managers. This segment generates revenue through licensing fees, transaction fees, and commission-sharing agreements.
• Trivago: This segment operates a hotel metasearch platform, generating revenue through referral fees paid by online travel agencies and travel service providers when users click on their listings.

Expedia's business model is asset-light and scalable, allowing the company to generate high gross margins. The company benefits from network effects, as a larger selection of travel options attracts more users, which in turn attracts more suppliers. Expedia’s recent strategy has focused on unifying its technology platform to improve customer experience, streamline operations, and enable faster innovation.

3. Market Opportunity

The global travel market is estimated to be a multi-trillion dollar industry, with the online travel agency (OTA) segment representing a significant and growing portion. The total addressable market (TAM) for OTAs is expanding due to increasing internet penetration, rising disposable incomes, and a growing preference for online travel booking.

Several factors drive growth in the OTA market:

• Post-Pandemic Recovery: The travel industry is experiencing a strong rebound in demand as travel restrictions ease and consumers prioritize experiences.
• Technological Advancements: AI and machine learning are enabling OTAs to personalize travel recommendations, optimize pricing, and improve customer service, enhancing the overall travel experience.
• Mobile Adoption: The increasing use of mobile devices for travel planning and booking provides OTAs with new opportunities to reach and engage with customers.
• Expansion into New Markets: OTAs are expanding their geographic reach into emerging markets with high growth potential, such as Asia-Pacific and Latin America.

Expedia's diverse portfolio of brands and its global presence position it to capitalize on these growth drivers and capture a larger share of the OTA market. The shift toward alternative accommodations, driven by Vrbo, also provides a significant growth opportunity. Expedia's strategic focus on leveraging AI to enhance personalization and improve operational efficiency should drive further market share gains.

4. Competitive Moat

Expedia possesses several competitive advantages that contribute to its moat:

• Brand Recognition: Expedia's well-known brands, such as Expedia, Hotels.com, and Vrbo, enjoy high brand recognition and consumer trust, providing a competitive edge in attracting and retaining customers.
• Network Effects: The company benefits from network effects, as a larger selection of travel options attracts more users, which in turn attracts more suppliers, creating a virtuous cycle.
• Switching Costs: Expedia's loyalty programs, such as Expedia Rewards, create switching costs for customers, encouraging them to stay within the Expedia ecosystem.
• Scale: Expedia's large scale enables it to negotiate favorable commission rates with suppliers and invest in technology and marketing to improve its competitive position.
• Data & AI: Expedia is increasingly leveraging data analytics and AI to personalize travel recommendations, optimize pricing, and improve customer service, further strengthening its competitive advantage.

While Booking Holdings remains a formidable competitor, Expedia's focus on technology-driven innovation and its diversified portfolio of brands provide a solid foundation for long-term success. The ongoing investment in a unified technology platform is aimed at streamlining operations and enhancing the customer experience, further solidifying Expedia's competitive moat.

5. The Quality Scorecard (1-5 Scale)

• Network Effects: 4
• Recurring Revenue: 2 (Transactional, but high customer retention drives repeat business)
• Scalability (Gross Margins): 4
• Financial Strength (Cash vs Debt): 3
• Innovation: 4

6. Valuation & Scenarios

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Current Valuation: As of December 30, 2025, EXPE is trading at $0 with a market cap of $33.65B. The trailing twelve-month EPS is $11.22. We'll use an illustrative P/E ratio for forward-looking scenarios.

• P/E: A trailing P/E is currently not useful without a price, so we will calculate a hypothetical based on expected 2026 earnings of $13. Using an industry average P/E of 20, we get a price of $260.
• PEG: To be calculated after determining growth rate

Bull Case (Price Target: $325)

• Assumptions: Strong travel recovery continues, driven by pent-up demand and increased consumer confidence. Expedia successfully executes its technology strategy, leading to higher conversion rates and market share gains. AI-powered personalization drives increased customer loyalty and repeat bookings. Revenue growth accelerates to 15% annually for the next three years. P/E multiple expands to 25x, reflecting increased investor confidence.
• Justification: Continued execution of the AI strategy and a sustained travel boom would warrant the multiple expansion.

Bear Case (Downside Risk: $195)

• Assumptions: Macroeconomic headwinds, such as a recession or rising inflation, negatively impact travel demand. Competition intensifies from Booking Holdings and other OTAs, leading to pricing pressure and market share losses. Expedia fails to effectively integrate its technology platform, resulting in operational inefficiencies. Revenue growth slows to 5% annually for the next three years. P/E multiple contracts to 15x, reflecting decreased investor confidence.
• Justification: Slower growth and execution missteps would likely contract the multiple.

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7. Key Risks

• Macroeconomic Factors: A global economic slowdown or recession could significantly reduce travel demand, negatively impacting Expedia's revenue and earnings.
• Competition: The online travel agency market is highly competitive, with established players like Booking Holdings and emerging players vying for market share. Pricing pressure and increased marketing spend could erode Expedia's profitability.
• Technological Disruption: Rapid technological advancements and changing consumer preferences could disrupt the online travel industry, requiring Expedia to adapt quickly to remain competitive.
• Integration Risk: The successful integration of Expedia's technology platform is crucial for realizing the anticipated benefits. Failure to execute this integration effectively could lead to operational inefficiencies and missed opportunities.
• Regulatory Risks: Changes in travel regulations, data privacy laws, or other government policies could negatively impact Expedia's business operations.

8. Conclusion

Expedia presents a compelling investment opportunity based on the ongoing travel recovery and its strategic focus on technology-driven innovation, particularly using AI for personalization. While macroeconomic headwinds and competitive pressures pose risks, the company's diversified portfolio of brands, strong brand recognition, and network effects provide a solid foundation for long-term success. Our valuation analysis, incorporating both bull and bear case scenarios, suggests that EXPE is undervalued at current levels. We initiate coverage with a Neutral rating and anticipate further upside as EXPE’s AI investments generate measurable returns. We will continue to monitor the company's progress in executing its strategic initiatives and capitalizing on the growth opportunities in the online travel agency market.