Expedia Group Inc. (NASDAQ:EXPE)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) initially increased from 2017 to 2019, then experienced a substantial decline in 2020, followed by a recovery in 2021. This pattern directly influences the observed economic profit performance.

Economic Profit Trend

Economic profit exhibited a negative trend from 2017 through 2021. Losses decreased from US$1,336 million in 2017 to US$786 million in 2019, indicating improving, though still negative, economic returns. However, 2020 saw a dramatic increase in the loss to US$7,941 million, before partially recovering to a loss of US$328 million in 2021. The magnitude of the 2020 loss is considerably larger than in previous years.

NOPAT and its Impact

NOPAT increased from US$1,026 million in 2017 to US$1,922 million in 2019, contributing to the reduced economic losses during this period. The sharp decrease in NOPAT to -US$5,503 million in 2020 is the primary driver of the significantly larger economic loss that year. The subsequent increase in NOPAT to US$2,614 million in 2021 partially offset the negative economic profit, but did not return it to positive territory.

Cost of Capital

The cost of capital remained relatively stable throughout the period, fluctuating between 15.47% and 17.94%. While there were some variations, these changes do not appear to be the primary cause of the substantial swings in economic profit. The cost of capital in 2020 was the lowest observed, at 15.47%, yet economic profit was at its worst.

Invested Capital

Invested capital generally increased over the period, rising from US$14,039 million in 2017 to US$17,498 million in 2021. This increase in invested capital, coupled with the fluctuations in NOPAT, significantly impacted the economic profit calculation. The increase in invested capital likely contributed to the larger economic losses in 2020, as a larger capital base was utilized to generate a significantly lower NOPAT.

In summary, the economic profit performance is heavily influenced by NOPAT. While the cost of capital and invested capital play a role, the substantial changes in NOPAT, particularly the significant decline in 2020, are the dominant factor driving the observed trends in economic profit.

The financial data reveals significant fluctuations in profitability over the analyzed periods.

Net Income (Loss) Attributable to Expedia Group, Inc.

The company experienced positive net income from 2017 through 2019, with values steadily increasing from 378 million USD in 2017 to 565 million USD in 2019. In 2020, there was a sharp and substantial loss of 2,612 million USD, indicating a major adverse impact on profitability. The net income slightly recovered in 2021, recording a marginal profit of 12 million USD, which suggests a fragile rebound but still far below pre-2020 levels.

Net Operating Profit After Taxes (NOPAT)

This metric exhibits a similar trend to net income, with continuous growth from 1,026 million USD in 2017 to 1,922 million USD in 2019. The year 2020 marked a deep negative NOPAT of 5,503 million USD, underscoring the operational difficulties faced during this period. In 2021, there was a notable improvement with NOPAT returning to a positive figure of 2,614 million USD, surpassing pre-pandemic levels, which may reflect operational recovery and enhanced efficiency or cost management.

Overall, the data illustrates strong growth in profitability through 2019, a severe downturn in 2020 presumably linked to extraordinary circumstances, followed by partial to full recovery across key profit measures in 2021. The divergence in magnitude of loss between net income and NOPAT in 2020 highlights the scale of operational and possibly non-operational challenges during that year.

The analysis of the provided financial data indicates noteworthy fluctuations in the income tax expense (benefit) and cash operating taxes over the observed five-year period.

Income Tax Expense (Benefit)

The income tax expense exhibits a rising trend from 2017 through 2019, increasing from 45 million USD to 203 million USD. However, this trend reverses strongly in 2020, with the figure turning negative to -423 million USD, indicating a tax benefit rather than an expense. In 2021, the amount remains negative but with a reduced benefit of -53 million USD. This significant shift in 2020 and 2021 reflects either substantial tax credits, loss carrybacks, or other tax relief measures impacting the income tax recorded.

Cash Operating Taxes

Cash operating taxes increase sharply from 212 million USD in 2017 to 427 million USD in 2018, followed by a decline to 323 million USD in 2019. The downward trend continues in 2020, dropping to 142 million USD, and then slightly recovers to 167 million USD in 2021. This pattern suggests a peak in cash outflows related to taxes in 2018, with subsequent moderation likely due to operational changes or tax planning strategies.

Overall, the data reveals contrasting movements between reported income tax expense and actual cash tax payments, especially notable in 2020 when the income tax expense turns into a substantial benefit while cash taxes paid decrease markedly. This divergence may indicate changes in accounting treatment or timing differences between tax expense recognition and cash tax payments.

The presented financial data reveals several notable trends over the five-year period from 2017 to 2021.

Total Reported Debt & Leases

There is an overall increasing trend in total reported debt and leases, rising from $4,941 million in 2017 to $8,887 million by the end of 2021. Notably, the increase between 2019 ($5,589 million) and 2020 ($8,855 million) is substantial, indicating a significant rise in leverage during that period, which then stabilizes into 2021.

Total Stockholders’ Equity

Total stockholders' equity shows a declining trend over the same period. Starting at $4,522 million in 2017, it decreases somewhat gradually to $3,967 million in 2019, followed by a sharper decline to $2,532 million in 2020 and then further to $2,057 million in 2021. This decreasing equity trend suggests potential erosion of shareholder value or increased liabilities relative to assets.

Invested Capital

Invested capital remains relatively steady between 2017 and 2020, fluctuating mildly from $14,039 million in 2017 to $15,765 million in 2020. However, a noticeable increase occurs in 2021, reaching $17,498 million. This rise may reflect accumulated investments, retained earnings, or other capital inputs despite the reduction in equity.

In summary, the financial structure indicates rising debt levels alongside falling equity, which could imply increased financial risk or strategic leveraging. The increase in invested capital alongside these changes indicates ongoing commitments to assets or operations. These trends warrant further investigation into the underlying causes, such as capital expenditures, income performance, or financing activities, to comprehensively assess financial health and risk exposure.

The economic spread ratio exhibited considerable fluctuation between 2017 and 2021. Initially, the ratio demonstrated a decreasing negative trend, followed by a substantial decline and subsequent recovery. Economic profit consistently remained negative throughout the analyzed period, though with varying magnitudes.

Economic Spread Ratio

In 2017, the economic spread ratio was -9.52%. This figure improved to -8.58% in 2018, and further to -4.87% in 2019, indicating a lessening of the gap between the cost of capital and returns generated from invested capital. However, 2020 saw a dramatic decrease to -50.37%, representing a significant underperformance relative to the cost of capital. The ratio recovered substantially in 2021, reaching -1.88%, suggesting improved profitability relative to invested capital, though still remaining negative.

Economic Profit

Economic profit moved from -1,336 million in 2017 to -1,238 million in 2018, indicating a reduction in the absolute value of the loss. This trend continued in 2019 with a further decrease to -786 million. However, 2020 experienced a substantial increase in the economic loss, reaching -7,941 million. In 2021, economic profit improved to -328 million, demonstrating a significant reduction in the magnitude of the loss compared to 2020, but remaining negative.

Invested Capital

Invested capital generally increased over the period. From 2017 to 2019, it rose from 14,039 million to 16,161 million. A slight decrease was observed in 2020 to 15,765 million, followed by an increase to 17,498 million in 2021. This suggests a continued investment in the business, despite the fluctuations in economic profitability.

The substantial deterioration in the economic spread ratio and increase in economic loss in 2020 likely correlate with external factors impacting the business. The subsequent improvement in 2021 suggests a partial recovery, but the negative economic spread ratio indicates that returns on invested capital still did not exceed the cost of capital during that year.

The economic profit margin exhibited significant fluctuations between 2017 and 2021. Initially, the margin demonstrated a gradual improvement, followed by a substantial decline and subsequent recovery. A review of the economic profit and adjusted revenue figures reveals the underlying drivers of these changes.

Economic Profit Margin Trend

The economic profit margin began at -12.48% in 2017 and improved to -10.01% in 2018, and further to -5.88% in 2019. This indicates a lessening of economic loss during these years. However, 2020 witnessed a dramatic deterioration, with the margin plummeting to -320.46%. The margin then partially recovered to -2.94% in 2021.

Relationship to Economic Profit

The substantial decline in the economic profit margin in 2020 directly correlates with a significant decrease in economic profit, which reached -7,941 million US dollars. This suggests a considerable underperformance relative to the cost of capital during that year. The improvement in the margin in 2021 is linked to a reduced economic loss of -328 million US dollars.

Relationship to Adjusted Revenue

Adjusted revenue increased from 10,705 million US dollars in 2017 to 13,376 million US dollars in 2019, coinciding with the initial improvement in the economic profit margin. However, revenue experienced a sharp contraction in 2020, falling to 2,478 million US dollars, which exacerbated the negative economic profit margin. Revenue rebounded to 11,173 million US dollars in 2021, contributing to the partial recovery of the margin.

The volatility in the economic profit margin highlights the sensitivity of profitability to both revenue fluctuations and the cost of capital. The pronounced negative margin in 2020 warrants further investigation to understand the specific factors contributing to the substantial economic loss during that period.