Intrinsic value of Expedia - EXPE

Previous Close

$120.88

  Intrinsic Value

$502.66

stock screener

  Rating & Target

str. buy

+316%

Previous close

$120.88

 
Intrinsic value

$502.66

 
Up/down potential

+316%

 
Rating

str. buy

We calculate the intrinsic value of EXPE stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 18.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  31.50
  17.80
  16.52
  15.37
  14.33
  13.40
  12.56
  11.80
  11.12
  10.51
  9.96
  9.46
  9.02
  8.62
  8.25
  7.93
  7.64
  7.37
  7.13
  6.92
  6.73
  6.56
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
Revenue, $m
  8,774
  10,336
  12,043
  13,894
  15,885
  18,014
  20,276
  22,669
  25,190
  27,838
  30,610
  33,506
  36,528
  39,675
  42,949
  46,354
  49,894
  53,572
  57,394
  61,366
  65,496
  69,790
  74,257
  78,905
  83,746
  88,788
  94,043
  99,523
  105,240
  111,207
  117,438
Variable operating expenses, $m
 
  8,768
  10,085
  11,513
  13,049
  14,691
  16,437
  18,283
  20,228
  22,270
  24,409
  25,850
  28,180
  30,608
  33,135
  35,761
  38,492
  41,330
  44,278
  47,343
  50,529
  53,841
  57,288
  60,874
  64,608
  68,498
  72,553
  76,780
  81,191
  85,794
  90,601
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  8,324
  8,768
  10,085
  11,513
  13,049
  14,691
  16,437
  18,283
  20,228
  22,270
  24,409
  25,850
  28,180
  30,608
  33,135
  35,761
  38,492
  41,330
  44,278
  47,343
  50,529
  53,841
  57,288
  60,874
  64,608
  68,498
  72,553
  76,780
  81,191
  85,794
  90,601
Operating income, $m
  450
  1,568
  1,958
  2,381
  2,836
  3,322
  3,839
  4,386
  4,962
  5,567
  6,201
  7,657
  8,347
  9,066
  9,815
  10,593
  11,402
  12,242
  13,115
  14,023
  14,967
  15,948
  16,969
  18,031
  19,137
  20,290
  21,491
  22,743
  24,049
  25,413
  26,837
EBITDA, $m
  1,244
  2,666
  3,107
  3,584
  4,098
  4,647
  5,231
  5,848
  6,499
  7,182
  7,897
  8,644
  9,423
  10,235
  11,080
  11,958
  12,872
  13,820
  14,806
  15,831
  16,897
  18,004
  19,157
  20,356
  21,605
  22,906
  24,261
  25,675
  27,150
  28,689
  30,297
Interest expense (income), $m
  154
  155
  256
  367
  487
  617
  755
  902
  1,058
  1,221
  1,394
  1,574
  1,762
  1,958
  2,163
  2,376
  2,597
  2,827
  3,066
  3,315
  3,573
  3,841
  4,120
  4,411
  4,713
  5,027
  5,355
  5,697
  6,053
  6,424
  6,812
Earnings before tax, $m
  277
  1,413
  1,702
  2,014
  2,349
  2,706
  3,084
  3,484
  3,905
  4,346
  4,807
  6,083
  6,585
  7,108
  7,652
  8,217
  8,804
  9,415
  10,049
  10,709
  11,394
  12,107
  12,849
  13,621
  14,425
  15,262
  16,135
  17,046
  17,996
  18,988
  20,024
Tax expense, $m
  16
  381
  460
  544
  634
  730
  833
  941
  1,054
  1,173
  1,298
  1,642
  1,778
  1,919
  2,066
  2,219
  2,377
  2,542
  2,713
  2,891
  3,076
  3,269
  3,469
  3,678
  3,895
  4,121
  4,357
  4,602
  4,859
  5,127
  5,407
Net income, $m
  282
  1,031
  1,242
  1,470
  1,714
  1,975
  2,251
  2,543
  2,850
  3,172
  3,509
  4,441
  4,807
  5,189
  5,586
  5,998
  6,427
  6,873
  7,336
  7,817
  8,318
  8,838
  9,379
  9,943
  10,530
  11,141
  11,779
  12,444
  13,137
  13,861
  14,618

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,869
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  15,778
  16,380
  19,086
  22,019
  25,175
  28,548
  32,133
  35,925
  39,921
  44,116
  48,510
  53,101
  57,889
  62,876
  68,065
  73,462
  79,071
  84,900
  90,957
  97,252
  103,796
  110,602
  117,681
  125,048
  132,719
  140,710
  149,039
  157,723
  166,783
  176,240
  186,114
Adjusted assets (=assets-cash), $m
  13,909
  16,380
  19,086
  22,019
  25,175
  28,548
  32,133
  35,925
  39,921
  44,116
  48,510
  53,101
  57,889
  62,876
  68,065
  73,462
  79,071
  84,900
  90,957
  97,252
  103,796
  110,602
  117,681
  125,048
  132,719
  140,710
  149,039
  157,723
  166,783
  176,240
  186,114
Revenue / Adjusted assets
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
Average production assets, $m
  3,850
  4,537
  5,287
  6,099
  6,974
  7,908
  8,901
  9,952
  11,058
  12,221
  13,438
  14,709
  16,036
  17,417
  18,855
  20,350
  21,903
  23,518
  25,196
  26,940
  28,753
  30,638
  32,599
  34,639
  36,764
  38,978
  41,285
  43,691
  46,200
  48,820
  51,555
Working capital, $m
  -2,677
  -5,354
  -6,238
  -7,197
  -8,229
  -9,331
  -10,503
  -11,742
  -13,048
  -14,420
  -15,856
  -17,356
  -18,921
  -20,551
  -22,248
  -24,012
  -25,845
  -27,750
  -29,730
  -31,788
  -33,927
  -36,151
  -38,465
  -40,873
  -43,380
  -45,992
  -48,714
  -51,553
  -54,514
  -57,605
  -60,833
Total debt, $m
  3,160
  5,224
  7,489
  9,944
  12,585
  15,408
  18,409
  21,583
  24,928
  28,439
  32,117
  35,959
  39,967
  44,141
  48,485
  53,001
  57,696
  62,575
  67,645
  72,914
  78,392
  84,088
  90,013
  96,179
  102,600
  109,288
  116,259
  123,528
  131,112
  139,027
  147,292
Total liabilities, $m
  11,645
  13,710
  15,975
  18,430
  21,071
  23,894
  26,895
  30,069
  33,414
  36,925
  40,603
  44,445
  48,453
  52,627
  56,971
  61,487
  66,182
  71,061
  76,131
  81,400
  86,878
  92,574
  98,499
  104,665
  111,086
  117,774
  124,745
  132,014
  139,598
  147,513
  155,778
Total equity, $m
  4,132
  2,670
  3,111
  3,589
  4,103
  4,653
  5,238
  5,856
  6,507
  7,191
  7,907
  8,655
  9,436
  10,249
  11,095
  11,974
  12,889
  13,839
  14,826
  15,852
  16,919
  18,028
  19,182
  20,383
  21,633
  22,936
  24,293
  25,709
  27,186
  28,727
  30,337
Total liabilities and equity, $m
  15,777
  16,380
  19,086
  22,019
  25,174
  28,547
  32,133
  35,925
  39,921
  44,116
  48,510
  53,100
  57,889
  62,876
  68,066
  73,461
  79,071
  84,900
  90,957
  97,252
  103,797
  110,602
  117,681
  125,048
  132,719
  140,710
  149,038
  157,723
  166,784
  176,240
  186,115
Debt-to-equity ratio
  0.765
  1.960
  2.410
  2.770
  3.070
  3.310
  3.510
  3.690
  3.830
  3.950
  4.060
  4.150
  4.240
  4.310
  4.370
  4.430
  4.480
  4.520
  4.560
  4.600
  4.630
  4.660
  4.690
  4.720
  4.740
  4.760
  4.790
  4.800
  4.820
  4.840
  4.860
Adjusted equity ratio
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  282
  1,031
  1,242
  1,470
  1,714
  1,975
  2,251
  2,543
  2,850
  3,172
  3,509
  4,441
  4,807
  5,189
  5,586
  5,998
  6,427
  6,873
  7,336
  7,817
  8,318
  8,838
  9,379
  9,943
  10,530
  11,141
  11,779
  12,444
  13,137
  13,861
  14,618
Depreciation, amort., depletion, $m
  794
  1,099
  1,149
  1,204
  1,262
  1,325
  1,392
  1,462
  1,536
  1,614
  1,696
  987
  1,076
  1,169
  1,265
  1,366
  1,470
  1,578
  1,691
  1,808
  1,930
  2,056
  2,188
  2,325
  2,467
  2,616
  2,771
  2,932
  3,101
  3,277
  3,460
Funds from operations, $m
  1,733
  2,130
  2,391
  2,674
  2,977
  3,300
  3,643
  4,005
  4,387
  4,787
  5,205
  5,428
  5,883
  6,358
  6,851
  7,364
  7,897
  8,451
  9,027
  9,625
  10,247
  10,894
  11,567
  12,268
  12,997
  13,757
  14,550
  15,376
  16,238
  17,138
  18,078
Change in working capital, $m
  169
  -809
  -884
  -959
  -1,031
  -1,102
  -1,172
  -1,240
  -1,306
  -1,371
  -1,436
  -1,500
  -1,565
  -1,630
  -1,696
  -1,764
  -1,833
  -1,905
  -1,980
  -2,058
  -2,139
  -2,224
  -2,314
  -2,408
  -2,507
  -2,612
  -2,722
  -2,839
  -2,961
  -3,091
  -3,228
Cash from operations, $m
  1,564
  2,939
  3,276
  3,632
  4,008
  4,402
  4,815
  5,245
  5,693
  6,158
  6,641
  6,928
  7,448
  7,988
  8,547
  9,128
  9,731
  10,357
  11,007
  11,683
  12,386
  13,119
  13,881
  14,676
  15,505
  16,369
  17,272
  18,215
  19,199
  20,229
  21,305
Maintenance CAPEX, $m
  0
  -258
  -305
  -355
  -409
  -468
  -531
  -597
  -668
  -742
  -820
  -902
  -987
  -1,076
  -1,169
  -1,265
  -1,366
  -1,470
  -1,578
  -1,691
  -1,808
  -1,930
  -2,056
  -2,188
  -2,325
  -2,467
  -2,616
  -2,771
  -2,932
  -3,101
  -3,277
New CAPEX, $m
  -749
  -687
  -750
  -813
  -874
  -934
  -993
  -1,051
  -1,107
  -1,162
  -1,217
  -1,272
  -1,326
  -1,381
  -1,438
  -1,495
  -1,554
  -1,615
  -1,678
  -1,744
  -1,813
  -1,885
  -1,961
  -2,041
  -2,125
  -2,214
  -2,307
  -2,406
  -2,510
  -2,620
  -2,735
Cash from investing activities, $m
  -718
  -945
  -1,055
  -1,168
  -1,283
  -1,402
  -1,524
  -1,648
  -1,775
  -1,904
  -2,037
  -2,174
  -2,313
  -2,457
  -2,607
  -2,760
  -2,920
  -3,085
  -3,256
  -3,435
  -3,621
  -3,815
  -4,017
  -4,229
  -4,450
  -4,681
  -4,923
  -5,177
  -5,442
  -5,721
  -6,012
Free cash flow, $m
  846
  1,993
  2,222
  2,465
  2,725
  3,000
  3,291
  3,597
  3,918
  4,254
  4,604
  4,755
  5,135
  5,530
  5,941
  6,368
  6,811
  7,272
  7,751
  8,248
  8,766
  9,304
  9,864
  10,447
  11,055
  11,688
  12,349
  13,038
  13,757
  14,509
  15,294
Issuance/(repayment) of debt, $m
  -404
  2,064
  2,265
  2,455
  2,641
  2,823
  3,001
  3,174
  3,344
  3,512
  3,677
  3,842
  4,008
  4,174
  4,344
  4,517
  4,695
  4,879
  5,070
  5,269
  5,477
  5,696
  5,925
  6,167
  6,421
  6,688
  6,971
  7,269
  7,583
  7,915
  8,265
Issuance/(repurchase) of shares, $m
  -315
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -541
  2,064
  2,265
  2,455
  2,641
  2,823
  3,001
  3,174
  3,344
  3,512
  3,677
  3,842
  4,008
  4,174
  4,344
  4,517
  4,695
  4,879
  5,070
  5,269
  5,477
  5,696
  5,925
  6,167
  6,421
  6,688
  6,971
  7,269
  7,583
  7,915
  8,265
Total cash flow (excl. dividends), $m
  271
  4,057
  4,487
  4,920
  5,366
  5,823
  6,292
  6,771
  7,262
  7,765
  8,282
  8,597
  9,142
  9,704
  10,285
  10,885
  11,506
  12,151
  12,821
  13,517
  14,243
  15,000
  15,789
  16,614
  17,476
  18,377
  19,320
  20,307
  21,341
  22,424
  23,559
Retained Cash Flow (-), $m
  732
  -407
  -441
  -478
  -514
  -550
  -584
  -618
  -651
  -684
  -716
  -748
  -780
  -813
  -846
  -880
  -914
  -950
  -987
  -1,026
  -1,067
  -1,109
  -1,154
  -1,201
  -1,250
  -1,303
  -1,358
  -1,416
  -1,477
  -1,541
  -1,610
Prev. year cash balance distribution, $m
 
  1,869
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  5,519
  4,046
  4,442
  4,852
  5,273
  5,707
  6,153
  6,611
  7,082
  7,565
  7,849
  8,362
  8,891
  9,439
  10,005
  10,592
  11,201
  11,833
  12,491
  13,176
  13,890
  14,635
  15,413
  16,225
  17,074
  17,962
  18,891
  19,864
  20,882
  21,949
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  5,292
  3,704
  3,866
  3,995
  4,088
  4,142
  4,157
  4,132
  4,068
  3,966
  3,727
  3,568
  3,381
  3,169
  2,937
  2,692
  2,437
  2,179
  1,923
  1,674
  1,437
  1,214
  1,010
  826
  664
  524
  405
  307
  228
  165
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Expedia, Inc. is an online travel company. The Company operates through four segments: Core Online Travel Agencies (Core OTA), trivago, Egencia and HomeAway. The Company's Core OTA segment provides a range of travel and advertising services to its customers across the world, through a range of brands, including Expedia.com and Hotels.com in the United States, and localized Expedia and Hotels.com Websites throughout the world, Orbitz.com, Expedia Affiliate Network, Hotwire.com, Travelocity, Wotif Group, CarRentals.com and Classic Vacations. The Company's trivago segment sends referrals to online travel companies and travel service providers from its hotel metasearch Websites. Its Egencia segment, which also includes Orbitz Worldwide (Orbitz) for Business, provides managed travel services to corporate customers across the world. The Company's HomeAway segment operates an online marketplace for the vacation rental industry.

FINANCIAL RATIOS  of  Expedia (EXPE)

Valuation Ratios
P/E Ratio 64.3
Price to Sales 2.1
Price to Book 4.4
Price to Tangible Book
Price to Cash Flow 11.6
Price to Free Cash Flow 22.3
Growth Rates
Sales Growth Rate 31.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -4.8%
Cap. Spend. - 3 Yr. Gr. Rate 19.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 76.5%
Total Debt to Equity 76.5%
Interest Coverage 3
Management Effectiveness
Return On Assets 2.7%
Ret/ On Assets - 3 Yr. Avg. 5.1%
Return On Total Capital 3.7%
Ret/ On T. Cap. - 3 Yr. Avg. 9.5%
Return On Equity 6.3%
Return On Equity - 3 Yr. Avg. 16.5%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 81.8%
Gross Margin - 3 Yr. Avg. 80.6%
EBITDA Margin 14%
EBITDA Margin - 3 Yr. Avg. 17.5%
Operating Margin 5.1%
Oper. Margin - 3 Yr. Avg. 9.3%
Pre-Tax Margin 3.2%
Pre-Tax Margin - 3 Yr. Avg. 8.4%
Net Profit Margin 3.2%
Net Profit Margin - 3 Yr. Avg. 7.2%
Effective Tax Rate 5.8%
Eff/ Tax Rate - 3 Yr. Avg. 15.8%
Payout Ratio 53.2%

EXPE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EXPE stock intrinsic value calculation we used $8774 million for the last fiscal year's total revenue generated by Expedia. The default revenue input number comes from 2016 income statement of Expedia. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our EXPE stock valuation model: a) initial revenue growth rate of 17.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for EXPE is calculated based on our internal credit rating of Expedia, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Expedia.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of EXPE stock the variable cost ratio is equal to 86.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for EXPE stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.9% for Expedia.

Corporate tax rate of 27% is the nominal tax rate for Expedia. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the EXPE stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for EXPE are equal to 43.9%.

Life of production assets of 14.9 years is the average useful life of capital assets used in Expedia operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for EXPE is equal to -51.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $4132 million for Expedia - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 151.636 million for Expedia is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Expedia at the current share price and the inputted number of shares is $18.3 billion.

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Financial statements of EXPE
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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