Expedia Group, Inc. (EXPE) stock intrinsic value fair value estimate & owner earnings analysis

Expedia Group runs one of the world's largest online travel marketplaces. Its consumer business offers hotels, vacation rentals, flights, cars and activities under three main brands: Expedia, Hotels.com and Vrbo. It brought in $9.47 billion of 2025's $14.73 billion revenue. Its business-to-business arm supplies the same hotel inventory and booking technology to airlines, travel agents, online retailers, corporate travel managers and banks, and earned $4.84 billion. The hotel search site trivago, which Expedia majority-owns, added $417 million. Lodging is 80% of revenue. The two main segments are growing at very different speeds. Business-to-business gross bookings grew 21% in 2024 and 20% in 2025, to $35.7 billion. Consumer bookings grew only 2% and 3%, to $83.9 billion. How we measure earnings. We start from the cash the business generates from operations. We then remove swings in working capital, the cost of stock paid to employees, and the capital spending needed just to keep the platform running. That upkeep spending has averaged about 7% of revenue; spending above that on growth is not charged. One judgement matters a great deal. Expedia collects most customer payments before the trip, and held $10.4 billion of these prepayments at the end of 2025. Growth in that balance added $1.86 billion to 2025 operating cash flow. We do not count that growing float as earnings, because it is customers' money and it reverses in a downturn: in 2020 it fell by $2.58 billion. A second issue: Expedia's currency hedges settle outside operating cash flow. As a result, our measure understates 2025 by roughly $248 million and overstates 2024 by about $135 million. We noted this but did not adjust for it. We treated the goodwill and intangible write-downs ($426 million in 2023, $147 million in 2024) as sunk costs. On that basis, owner earnings were $8.40 a share in 2022, $8.27 in 2023, $10.96 in 2024 and $12.22 in 2025. Earlier years ($1.56 to $3.88 from 2016 to 2019) describe a lower-margin business that spent more on capital. We excluded 2020's pandemic loss of $13.68 a share. The median of the four post-pandemic years is $9.68. We started the cases from the 2025 level of $12.22 instead of that median, because six straight quarters support the higher level. Operating income rose from $1.32 billion in 2024 to $1.87 billion in 2025. First-half 2026 operating income was $1.05 billion, against $415 million a year earlier, on revenue up 14%. Base case ($258.50 per share). Owner earnings grow 15% in 2026. That is above the 11.5% per-share growth actually achieved in 2025, and the first-half 2026 results justify it. Growth then runs at 8% a year through 2030, as the business-to-business arm keeps compounding while the consumer side grows slowly, and at 4% a year through 2035 as that arm matures. Earnings then hold flat for a decade. The support for that is the company's record: revenue grew from $5.76 billion in 2014 to $14.73 billion in 2025 while Google promoted its own travel products throughout. Earnings then fade to nothing over the following decade, because we cannot show evidence that the advantage lasts beyond that. Bear case ($80.87). 2026 comes in at $12.50 a share. A travel recession then cuts owner earnings to $2.00 in 2027; travel is highly cyclical, and revenue fell 57% in 2020. Earnings recover to $10.00 by 2030. After that they decline 3% a year. The drivers are Google's travel products and AI trip-planning tools, both named as competitive threats in the annual report, wearing down the consumer brands, and higher refinancing costs. Expedia had $6.16 billion of debt at the end of 2025. The $748 million due in 2027 and $998 million due in 2028 carry 3.8% to 4.6% coupons, against 5.4% on its most recent notes, due 2035. A downturn would also force the company to refund customer prepayments just as earnings fall. Earnings fade to zero over the second decade. Bull case ($381.32). The first-half 2026 gains hold for the full year, taking owner earnings to about $15.64 a share. Growth then runs at 12% a year through 2030, as the business-to-business arm keeps growing near its 20% pace and Expedia's own advertising revenue (up 19% in 2025 to $758 million) grows. Growth slows to 6% through 2035, earnings stay flat for fifteen years, and then fade over ten. All values use the 2025 average diluted share count of 131.9 million. Buybacks had cut this to 122.6 million by the second quarter of 2026, and we give no credit for that. We do not subtract debt separately, because owner earnings are measured after interest; the bear case carries the leverage. Margin-of-safety price. The margin-of-safety price is $140.00, about 46% below the base case. A wide margin is warranted for four reasons: travel demand is cyclical, the consumer business is barely growing, that business is exposed to search engines and AI assistants taking its customers, and the company carries meaningful debt alongside large customer prepayments. From that price, the base case implies well above 20% a year if value is reached within a few years. The bear case implies a loss of about 42% from that price, which is why the margin-of-safety price is not set higher. What would make this wrong: business-to-business growth stalling, the 2026 margin gains reversing, or a sharp drop in consumer traffic from Google or AI assistants. The filings did not give first-half 2026 working-capital detail, so the 2026 run rate comes from the income statement rather than cash flow.