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    Investment Idea
    Draft
    2025-12-30

    Investment Idea: Expedia Group (EXPE)

    💡 Investment Idea: Expedia Group (EXPE)

    1. Executive Summary

    • The Hook: "The Loyalty Trap." Modern travelers are suffering from "Rewards Fragmentation." They have points everywhere that are worth nothing anywhere. Expedia's "One Key" program was the aggressive attempt to solve this headache, but it backfired, alienating core Hotels.com users. The investment opportunity: Can Expedia use its tech stack unification and AI pivot to fix the churn problem before Booking.com eats them alive? It's a turnaround play on execution, not just travel demand.
    • The Play: Cautious Long / Watch. Valuation is cheap, but the "trust breakage" with users is real.
    • Key Numbers:
      • P/E Ratio: ~12x (Value territory).
      • Gross Bookings: Growing, but slower than BKNG.
      • Buyback Yield: Aggressive share repurchases support the floor.

    2. Investment Thesis (The "Why")

    Point 1: The Pain Point Solution (Failed, but Iterating)

    The customer pain is booking friction and fragmented value. Expedia's solution was to unify everything (Flights, Hotels, VRBO) into one app/rewards system. The execution (devaluation) caused "Brand Pain." The thesis rests on their ability to recalibrate "One Key" in 2025 to actually reward high-value users without destroying margins, turning the narrative from "Betrayal" to "Utility."

    Point 2: The Tech Stack Unification

    For years, Expedia was a mess of siloed backends. They have finally finished unifying the tech stack. This should theoretically allow for faster feature deployment and better AI integration. If operational efficiency kicks in, margins have room to expand significantly.

    Point 3: B2B Powerhouse

    While B2B gets less press, Expedia's engine powers thousands of other travel sites (banks, airlines). This segment is sticky, high-margin, and growing. It diversifies them away from the fickle B2C wars.

    3. Business Deep Dive

    • Revenue Segments:
      • B2C (Retail): Expedia, Hotels.com, Vrbo. (Struggling with loyalty).
      • B2B: Powering travel for partners. (Strong growth).
      • Advertising: Media solutions.
    • The Moat: Supply Network. Connecting millions of properties is hard. However, Booking.com has a stronger moat in Europe.
    • Unit Economics: CAC (Cost of Acquisition) is the killer. They spend blilions on Google Ads. One Key was supposed to lower CAC by driving direct traffic. It hasn't worked yet.

    4. Industry Landscape

    • Market Size (TAM): Travel is massive and resilient.
    • Competitive Analysis:
      • Booking Holdings (BKNG): The execution king. Better margins, better loyalty.
      • Airbnb (ABNB): owns the "brand" of alternative stay. Vrbo is a distant second.
      • Google: The gatekeeper that taxes everyone.

    5. Financial Analysis

    • Growth Profile: Low-to-mid single digits. This is a mature cash cow, not a rocket ship.
    • Margin Analysis: EBITDA margins are the key KPI. Watch for improvement from "Tech Stack Unification."
    • Capital Allocation: Heavily focused on Share Buybacks. Management thinks the stock is undervalued.

    6. Valuation

    • Multiples: ~12x Forward P/E. Historically cheap.
    • DCF Assumptions: Assumes modest growth (5%) but margin expansion.
    • Scenario Analysis:
      • Bull Case: One Key fixes churn, B2B grows 20%+, Stock rerates to 18x.
      • Bear Case: Google eats more margin, users flee to Booking.com permanently. Value trap.

    7. Risks (The "Pre-Mortem")

    • Operational Risk: Loyalty Churn. If high-value Hotels.com users (who loved the old "stay 10 get 1 free" simple model) leave forever.
    • Macro Risk: Consumer spending slowdown hits travel first.
    • Thesis Breakers: Continued market share loss to Booking.com in the US.

    8. Action Plan

    • Entry Strategy: Wait for stabilization in B2C booking volume.
    • Price Targets: $160 (Fair Value).
    • Stop Loss: Break of structural support levels ($110).

    CONTEXT PROVIDED:

    • Pain Points: Loyalty Fragmentation, Devaluation Backlash, Booking Friction.
    • Catalyst: One Key 2.0 / Margin Expansion.