Hook / Thesis
Expedia’s latest quarter (period ended 09/30/2025; filed 11/07/2025) looked like the company many investors hoped for: stronger revenue, a step-function improvement in operating income and hefty net profit. Q3 2025 revenue was $4.412 billion and operating income came in at $1.036 billion, delivering a healthy operating margin near 23.5% for the quarter. Those are not incremental beats — they are the sort of structural margin improvement that can justify a higher multiple.
At roughly $269 a share today, the market is valuing Expedia at an implied market capitalization in the mid-$30 billion range (using the company’s diluted average shares reported in Q3 2025 of 131,014,000). That valuation looks consistent with tangible earnings power: an approximate last-twelve-month (LTM) net income run-rate of about $1.8 billion implies a P/E in the neighborhood of 20x. Given Expedia’s asset base, $6.2 billion of long-term debt and positive operating cash generation over most of the year, I view the rally as fundamentally supported rather than a pure momentum trade.
What Expedia does and why investors should care
Expedia is the world’s second-largest online travel agency by bookings, with lodging representing roughly 80% of total 2024 sales, air tickets about 3%, rental cars/cruises/in-destination/other about 10%, and advertising ~7%. Its core consumer brands (Expedia, Hotels.com, Vrbo) plus metasearch brand Trivago drive transaction fees that make up the majority of revenue and profit.
The market cares because travel is a structurally large, multi-year recovery story and Expedia is a cash-generative operator with scale advantages in lodging distribution and marketing. When bookings growth turns into higher take-rates and fixed-cost leverage, EPS and free cash flow accelerate quickly. Q3 2025 is the first clear example in the most recent reporting cadence of Expedia extracting that leverage.
Recent financials and the fundamental drivers
Key reported numbers (quarter ended 09/30/2025):
- Revenues: $4.412 billion.
- Operating income: $1.036 billion (operating margin ~23.5% for the quarter).
- Net income: $964 million; diluted EPS (quarter) $7.33 on 131.014 million diluted average shares.
- Balance sheet snapshot: total assets $25.108 billion, long-term debt $6.216 billion, equity $2.593 billion.
- Cash flow: Q3 saw net cash flow from operating activities of -$497 million, although the company reported strong operating cash earlier in the fiscal year (Q1 2025: +$2.952 billion; Q2 2025: +$1.121 billion).
- Dividends: quarterly cash dividend $0.40 (annualized $1.60; dividend yield ~0.6% at $269).
Three things jump out:
- Margin expansion: Q3 operating income of $1.036 billion versus Q2 operating income of $485 million points to material improvement in profitability. The Q3 margin is closer to the high-teens/low-20s, a level that supports a higher earnings multiple compared with mid-single-digit margins earlier in the year.
- Volatile but overall positive cash generation: operating cash flow is lumpy. The company recorded very strong operating cash in Q1 and Q2 and a small operating outflow in Q3. Lumpy cash can be seasonal or timing-related; combined with a solid asset base and reasonable debt profile, Expedia still has the flexibility to invest and return capital.
- Share count is coming down: diluted share counts have moved lower over the last year which amplifies EPS gains and indicates the company is returning capital (financing activities show net outflows consistent with buybacks and dividends).
Valuation framing
Using the last trade price near $269 and the company’s diluted average shares in Q3 2025 (131,014,000), an approximate market cap is about $35.3 billion. Building an LTM net income approximation from the most recently reported quarters (Q3 2025 net income $964M; Q2 2025 $322M; Q1 2025 -$197M; and the most recent comparable quarter we have that fills the four-quarter window shows net income $684M), the rough LTM net income is about $1.77 billion. That produces an implied P/E around 20x.
Is 20x expensive for an OTA? Not obviously, given Expedia’s improved margin profile, ongoing capital returns and operational scale. It also compares favorably to growth-tech multiples and fits a category of high-quality consumer platform with cyclical exposure to travel demand. If operating margins hold around the Q3 level and cash flow normalizes after the seasonal swing, the valuation can be justified.
Actionable trade idea
Trade direction: Long
Time horizon: Position (3-6 months)
Risk level: Medium
Entry / sizing:
- Primary entry zone: $255 - $270 (buy on the dip inside this band; current prints near $269).
- If you prefer a more conservative entry, wait for a pullback to $240 - that level was a consolidation low in the most recent price action and acts as structural support.
Stop: $235 (if price closes below $235, invalidate the trade idea; this sits beneath recent support and limits downside to a manageable percent for a typical position).
Targets:
- Near-term target: $320 (first upside objective, roughly 20% above current — aligns with prior post-earnings highs north of $300).
- Aggressive target: $360 (further upside if company sustains Q3 margin levels and cash generation; this would represent re-rating of multiples and execution upside).
Risk management notes: keep position sizes modest if you are trading around earnings cadence or macro events. Use trailing stops to protect gains if the stock approaches the near-term target.
Catalysts to drive the trade
- Continued margin sustainment or improvement - if operating margins remain near Q3 levels, the multiple can expand.
- Stabilization and normalization of operating cash flow after Q3 timing issues; consistent positive OCF would support buybacks and debt paydown.
- Further share repurchases or modest dividend increases; financing activities have shown net outflows consistent with shareholder returns.
- Macro tailwinds: resilient global travel demand, an easing in macro volatility and positive currency trends.
Risks and counterarguments
- Seasonality and cash flow volatility: operating cash flow swung from +$2.952B in Q1 2025 to -$497M in Q3 2025. That kind of variability can mask weaker underlying free cash flow if timing issues or working capital swings persist. If cash flow remains inconsistent, the trust in recurring earnings power weakens.
- Concentration in lodging: lodging is ~80% of sales. A shock to hotel demand (local regulation, travel restrictions in major markets, or a slowdown in corporate travel) could disproportionately hurt revenue and take rates.
- Balance sheet & leverage: long-term debt is ~$6.2 billion while equity sits near $2.6 billion. A sharp revenue deterioration or prolonged slowdown could pressure the balance sheet and force heavier capital returns to be curtailed.
- Competition & regulatory risk: online travel is competitive and occasionally faces regulatory scrutiny (pricing, tax collection). Competitive pressure or adverse rulings could compress margins.
- Counterargument: one could argue the Q3 earnings beat is seasonal and driven by one-offs (e.g., timing of nonoperating items or FX). If Q4 or next quarter reverts materially, the current P/E ~20x would look expensive and the stock could give back gains. That is a valid scenario — monitoring next two quarters of cash flow and operating margin is essential.
Conclusion and what would change my mind
My baseline: Expedia’s current valuation is supported by real improvements in profitability and sensible capital returns. The company is not without operational noise — cash flow lags and seasonality require close attention — but the Q3 2025 results demonstrate that Expedia can convert bookings into meaningful operating income. For a trade with a 3-6 month horizon I prefer a long stance with entries in the $255-$270 area, a stop at $235 and upside targets at $320 (near-term) and $360 (aggressive).
What would change my mind: a material and sustained deterioration in operating cash flow, a reversal of the margin expansion (operating income slipping back dramatically), or evidence of deteriorating bookings mix (meaningful decline in lodging bookings) would force me to re-evaluate. Conversely, repeated quarters with Q3-like margins and steady positive operating cash flow would push me to upgrade conviction and potentially expand position size.
Disclosure: This is not financial advice. I am presenting an actionable trade idea based on the company’s most recent reported results and publicly available price information. Do your own due diligence and size positions to your risk tolerance.