Intrinsic value of Expedia - EXPE

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$154.43

  Intrinsic Value

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  Value-price divergence*

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$154.43

 
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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 23.2

 

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
  23.20
  21.38
  19.74
  18.27
  16.94
  15.75
  14.67
  13.71
  12.83
  12.05
  11.35
  10.71
  10.14
  9.63
  9.16
  8.75
  8.37
  8.04
  7.73
  7.46
  7.21
  6.99
  6.79
  6.61
  6.45
  6.31
  6.18
  6.06
  5.95
  5.86
Revenue, $m
  8,774
  10,810
  13,121
  15,711
  18,581
  21,729
  25,150
  28,841
  32,793
  37,002
  41,461
  46,165
  51,110
  56,293
  61,712
  67,367
  73,259
  79,393
  85,772
  92,404
  99,296
  106,458
  113,901
  121,637
  129,681
  138,048
  146,754
  155,818
  165,258
  175,095
  185,350
Variable operating expenses, $m
 
  9,134
  10,917
  12,915
  15,129
  17,558
  20,197
  23,044
  26,094
  29,341
  32,781
  35,616
  39,431
  43,429
  47,609
  51,972
  56,518
  61,250
  66,172
  71,288
  76,605
  82,131
  87,873
  93,841
  100,047
  106,502
  113,218
  120,211
  127,493
  135,082
  142,995
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
  9,134
  10,917
  12,915
  15,129
  17,558
  20,197
  23,044
  26,094
  29,341
  32,781
  35,616
  39,431
  43,429
  47,609
  51,972
  56,518
  61,250
  66,172
  71,288
  76,605
  82,131
  87,873
  93,841
  100,047
  106,502
  113,218
  120,211
  127,493
  135,082
  142,995
Operating income, $m
  450
  1,676
  2,204
  2,796
  3,452
  4,171
  4,953
  5,796
  6,700
  7,661
  8,680
  10,550
  11,680
  12,864
  14,102
  15,394
  16,741
  18,143
  19,600
  21,116
  22,691
  24,328
  26,028
  27,796
  29,634
  31,546
  33,536
  35,607
  37,764
  40,012
  42,356
EBITDA, $m
  1,244
  2,789
  3,385
  4,053
  4,794
  5,606
  6,488
  7,440
  8,460
  9,546
  10,696
  11,910
  13,185
  14,522
  15,920
  17,379
  18,899
  20,482
  22,128
  23,838
  25,616
  27,464
  29,384
  31,380
  33,455
  35,614
  37,860
  40,198
  42,633
  45,171
  47,817
Interest expense (income), $m
  154
  155
  287
  437
  605
  792
  996
  1,219
  1,459
  1,716
  1,989
  2,279
  2,585
  2,906
  3,243
  3,595
  3,963
  4,346
  4,744
  5,159
  5,590
  6,038
  6,504
  6,987
  7,490
  8,013
  8,557
  9,123
  9,712
  10,325
  10,965
Earnings before tax, $m
  277
  1,521
  1,917
  2,359
  2,847
  3,379
  3,957
  4,577
  5,241
  5,946
  6,691
  8,271
  9,095
  9,958
  10,859
  11,799
  12,778
  13,797
  14,856
  15,957
  17,101
  18,289
  19,525
  20,809
  22,144
  23,533
  24,979
  26,484
  28,052
  29,687
  31,391
Tax expense, $m
  16
  411
  518
  637
  769
  912
  1,068
  1,236
  1,415
  1,605
  1,807
  2,233
  2,456
  2,689
  2,932
  3,186
  3,450
  3,725
  4,011
  4,308
  4,617
  4,938
  5,272
  5,618
  5,979
  6,354
  6,744
  7,151
  7,574
  8,015
  8,476
Net income, $m
  282
  1,110
  1,400
  1,722
  2,078
  2,467
  2,888
  3,342
  3,826
  4,340
  4,885
  6,037
  6,639
  7,269
  7,927
  8,613
  9,328
  10,072
  10,845
  11,648
  12,484
  13,351
  14,253
  15,190
  16,165
  17,179
  18,235
  19,334
  20,478
  21,671
  22,915

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
  17,131
  20,793
  24,898
  29,447
  34,435
  39,858
  45,706
  51,970
  58,640
  65,707
  73,162
  80,999
  89,212
  97,800
  106,762
  116,100
  125,821
  135,931
  146,441
  157,363
  168,713
  180,509
  192,769
  205,517
  218,777
  232,574
  246,938
  261,898
  277,487
  293,741
Adjusted assets (=assets-cash), $m
  13,909
  17,131
  20,793
  24,898
  29,447
  34,435
  39,858
  45,706
  51,970
  58,640
  65,707
  73,162
  80,999
  89,212
  97,800
  106,762
  116,100
  125,821
  135,931
  146,441
  157,363
  168,713
  180,509
  192,769
  205,517
  218,777
  232,574
  246,938
  261,898
  277,487
  293,741
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
  4,745
  5,760
  6,897
  8,157
  9,539
  11,041
  12,661
  14,396
  16,244
  18,201
  20,267
  22,437
  24,713
  27,091
  29,574
  32,161
  34,854
  37,654
  40,565
  43,591
  46,735
  50,003
  53,399
  56,930
  60,603
  64,425
  68,404
  72,548
  76,867
  81,369
Working capital, $m
  -2,677
  -5,599
  -6,796
  -8,138
  -9,625
  -11,256
  -13,028
  -14,939
  -16,987
  -19,167
  -21,477
  -23,914
  -26,475
  -29,160
  -31,967
  -34,896
  -37,948
  -41,126
  -44,430
  -47,865
  -51,435
  -55,145
  -59,001
  -63,008
  -67,175
  -71,509
  -76,019
  -80,714
  -85,603
  -90,699
  -96,011
Total debt, $m
  3,160
  5,853
  8,918
  12,354
  16,161
  20,336
  24,875
  29,770
  35,013
  40,596
  46,511
  52,751
  59,310
  66,185
  73,372
  80,874
  88,690
  96,826
  105,288
  114,085
  123,227
  132,727
  142,600
  152,862
  163,532
  174,630
  186,179
  198,201
  210,723
  223,771
  237,375
Total liabilities, $m
  11,645
  14,339
  17,404
  20,840
  24,647
  28,822
  33,361
  38,256
  43,499
  49,082
  54,997
  61,237
  67,796
  74,671
  81,858
  89,360
  97,176
  105,312
  113,774
  122,571
  131,713
  141,213
  151,086
  161,348
  172,018
  183,116
  194,665
  206,687
  219,209
  232,257
  245,861
Total equity, $m
  4,132
  2,792
  3,389
  4,058
  4,800
  5,613
  6,497
  7,450
  8,471
  9,558
  10,710
  11,925
  13,203
  14,542
  15,941
  17,402
  18,924
  20,509
  22,157
  23,870
  25,650
  27,500
  29,423
  31,421
  33,499
  35,661
  37,910
  40,251
  42,689
  45,230
  47,880
Total liabilities and equity, $m
  15,777
  17,131
  20,793
  24,898
  29,447
  34,435
  39,858
  45,706
  51,970
  58,640
  65,707
  73,162
  80,999
  89,213
  97,799
  106,762
  116,100
  125,821
  135,931
  146,441
  157,363
  168,713
  180,509
  192,769
  205,517
  218,777
  232,575
  246,938
  261,898
  277,487
  293,741
Debt-to-equity ratio
  0.765
  2.100
  2.630
  3.040
  3.370
  3.620
  3.830
  4.000
  4.130
  4.250
  4.340
  4.420
  4.490
  4.550
  4.600
  4.650
  4.690
  4.720
  4.750
  4.780
  4.800
  4.830
  4.850
  4.860
  4.880
  4.900
  4.910
  4.920
  4.940
  4.950
  4.960
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
  1,110
  1,400
  1,722
  2,078
  2,467
  2,888
  3,342
  3,826
  4,340
  4,885
  6,037
  6,639
  7,269
  7,927
  8,613
  9,328
  10,072
  10,845
  11,648
  12,484
  13,351
  14,253
  15,190
  16,165
  17,179
  18,235
  19,334
  20,478
  21,671
  22,915
Depreciation, amort., depletion, $m
  794
  1,113
  1,181
  1,257
  1,342
  1,434
  1,535
  1,644
  1,760
  1,884
  2,016
  1,360
  1,506
  1,659
  1,818
  1,985
  2,158
  2,339
  2,527
  2,723
  2,926
  3,137
  3,356
  3,584
  3,821
  4,067
  4,324
  4,591
  4,869
  5,159
  5,461
Funds from operations, $m
  1,733
  2,223
  2,580
  2,979
  3,420
  3,901
  4,424
  4,985
  5,586
  6,225
  6,900
  7,398
  8,145
  8,928
  9,745
  10,598
  11,487
  12,411
  13,372
  14,371
  15,409
  16,488
  17,609
  18,774
  19,986
  21,247
  22,559
  23,924
  25,347
  26,830
  28,376
Change in working capital, $m
  169
  -1,054
  -1,197
  -1,342
  -1,487
  -1,631
  -1,772
  -1,911
  -2,047
  -2,180
  -2,310
  -2,437
  -2,561
  -2,685
  -2,807
  -2,929
  -3,052
  -3,177
  -3,305
  -3,435
  -3,570
  -3,710
  -3,855
  -4,007
  -4,167
  -4,334
  -4,510
  -4,695
  -4,890
  -5,096
  -5,312
Cash from operations, $m
  1,564
  3,270
  3,778
  4,321
  4,906
  5,532
  6,196
  6,897
  7,634
  8,405
  9,210
  9,834
  10,707
  11,612
  12,552
  13,528
  14,539
  15,588
  16,677
  17,806
  18,979
  20,198
  21,464
  22,782
  24,153
  25,581
  27,068
  28,619
  30,237
  31,926
  33,689
Maintenance CAPEX, $m
  0
  -258
  -318
  -387
  -463
  -547
  -640
  -741
  -850
  -966
  -1,090
  -1,222
  -1,360
  -1,506
  -1,659
  -1,818
  -1,985
  -2,158
  -2,339
  -2,527
  -2,723
  -2,926
  -3,137
  -3,356
  -3,584
  -3,821
  -4,067
  -4,324
  -4,591
  -4,869
  -5,159
New CAPEX, $m
  -749
  -895
  -1,015
  -1,137
  -1,260
  -1,382
  -1,502
  -1,620
  -1,735
  -1,848
  -1,958
  -2,065
  -2,171
  -2,275
  -2,379
  -2,483
  -2,587
  -2,693
  -2,801
  -2,911
  -3,026
  -3,144
  -3,267
  -3,396
  -3,531
  -3,673
  -3,822
  -3,979
  -4,144
  -4,318
  -4,502
Cash from investing activities, $m
  -718
  -1,153
  -1,333
  -1,524
  -1,723
  -1,929
  -2,142
  -2,361
  -2,585
  -2,814
  -3,048
  -3,287
  -3,531
  -3,781
  -4,038
  -4,301
  -4,572
  -4,851
  -5,140
  -5,438
  -5,749
  -6,070
  -6,404
  -6,752
  -7,115
  -7,494
  -7,889
  -8,303
  -8,735
  -9,187
  -9,661
Free cash flow, $m
  846
  2,116
  2,445
  2,797
  3,183
  3,603
  4,054
  4,536
  5,049
  5,591
  6,162
  6,548
  7,176
  7,831
  8,515
  9,227
  9,967
  10,737
  11,537
  12,368
  13,231
  14,128
  15,060
  16,030
  17,038
  18,087
  19,179
  20,317
  21,502
  22,738
  24,028
Issuance/(repayment) of debt, $m
  -404
  2,693
  3,066
  3,436
  3,807
  4,175
  4,539
  4,895
  5,243
  5,583
  5,915
  6,240
  6,559
  6,875
  7,188
  7,501
  7,816
  8,136
  8,462
  8,797
  9,142
  9,500
  9,873
  10,262
  10,670
  11,098
  11,548
  12,022
  12,522
  13,048
  13,604
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
  2,693
  3,066
  3,436
  3,807
  4,175
  4,539
  4,895
  5,243
  5,583
  5,915
  6,240
  6,559
  6,875
  7,188
  7,501
  7,816
  8,136
  8,462
  8,797
  9,142
  9,500
  9,873
  10,262
  10,670
  11,098
  11,548
  12,022
  12,522
  13,048
  13,604
Total cash flow (excl. dividends), $m
  271
  4,808
  5,510
  6,233
  6,990
  7,778
  8,592
  9,431
  10,292
  11,174
  12,077
  12,788
  13,735
  14,706
  15,703
  16,728
  17,784
  18,873
  19,999
  21,164
  22,373
  23,628
  24,933
  26,292
  27,708
  29,185
  30,727
  32,339
  34,024
  35,787
  37,632
Retained Cash Flow (-), $m
  732
  -529
  -597
  -669
  -741
  -813
  -884
  -953
  -1,021
  -1,087
  -1,152
  -1,215
  -1,277
  -1,339
  -1,400
  -1,461
  -1,522
  -1,584
  -1,648
  -1,713
  -1,780
  -1,850
  -1,923
  -1,998
  -2,078
  -2,161
  -2,249
  -2,341
  -2,439
  -2,541
  -2,649
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
 
  6,148
  4,913
  5,564
  6,249
  6,965
  7,708
  8,478
  9,271
  10,087
  10,925
  11,572
  12,457
  13,367
  14,303
  15,267
  16,262
  17,289
  18,351
  19,451
  20,593
  21,778
  23,010
  24,293
  25,630
  27,024
  28,478
  29,998
  31,585
  33,246
  34,982
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
 
  5,894
  4,498
  4,842
  5,145
  5,399
  5,594
  5,727
  5,794
  5,794
  5,728
  5,496
  5,316
  5,082
  4,802
  4,482
  4,132
  3,762
  3,380
  2,995
  2,617
  2,253
  1,909
  1,592
  1,305
  1,051
  831
  644
  489
  363
  263
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., together with its subsidiaries, operates as an online travel company in the United States and internationally. The company operates through four segments: Core OTA, Trivago, Egencia, and HomeAway. It facilitates the booking of hotel rooms, airline seats, car rentals, and destination services from its travel suppliers; and acts as an agent in the transactions. The company serves leisure and corporate travelers, offline retail travel agents, and travel service providers through Expedia.com, Hotels.com, Hotwire.com, Wotif.com, Wotif.co.nz, lastminute.com.au, lastminute.com.nz, travel.com.au, CarRentals.com, and Orbitz.com Websites; and Travelocity, HomeAway, Egencia, trivago, Classic Vacations, Expedia Local Expert, and Expedia CruiseShipCenters brands, as well as Expedia Affiliate Network. It also engages in advertising and media business. The company was founded in 1996 and is headquartered in Bellevue, Washington.

FINANCIAL RATIOS  of  Expedia (EXPE)

Valuation Ratios
P/E Ratio 82.2
Price to Sales 2.6
Price to Book 5.6
Price to Tangible Book
Price to Cash Flow 14.8
Price to Free Cash Flow 28.4
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 23.2% 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 150.27 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 $23.2 billion.


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▶ Chelsea Clinton joins Expedia board   [Mar-18-17 11:14PM  AAP]
Stock chart of EXPE Financial statements of EXPE Annual reports 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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