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 consistently remained negative throughout the analyzed period. The magnitude of the negative economic profit increased significantly in 2020, reaching its lowest point at -8,355 US$ millions. While economic profit improved in 2021, it remained negative at -854 US$ millions, indicating that the company’s returns did not exceed its cost of capital in any of the observed years.

NOPAT Performance

NOPAT increased from 1,026 US$ millions in 2017 to 1,922 US$ millions in 2019, representing a growth of approximately 87.1%. However, 2020 saw a dramatic decrease to -5,503 US$ millions, likely due to external factors impacting the business. A partial recovery was observed in 2021, with NOPAT reaching 2,614 US$ millions, but it did not return to the levels seen in 2019.

Cost of Capital

The cost of capital fluctuated between 18.09% and 21.16% during the period. It peaked in 2018 at 21.16% and reached its lowest point in 2020 at 18.09%. The cost of capital remained relatively stable in 2017 and 2021, at 19.82%. These fluctuations in the cost of capital contribute to the variations in economic profit, as a higher cost of capital reduces economic profit.

Invested Capital

Invested capital generally increased over the period, rising from 14,039 US$ millions in 2017 to 17,498 US$ millions in 2021. The increase was not linear, with a slight decrease observed between 2019 and 2020. The growth in invested capital, coupled with the negative economic profit, suggests that the company has been investing capital without generating sufficient returns to cover its cost.

In summary, the analysis reveals a consistent failure to generate economic profit, despite increases in NOPAT and invested capital in certain years. The substantial loss in 2020 significantly impacted the overall performance, and while there was improvement in 2021, returns remained below the cost of capital.

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 partial recovery.

Economic Spread Ratio Trend

In 2017, the economic spread ratio was -12.51%. This figure improved slightly to -11.80% in 2018, and continued to improve to -7.84% in 2019, indicating a lessening of the gap between the return on invested capital and the cost of capital. However, 2020 saw a dramatic deterioration, with the ratio plummeting to -53.00%. This represents a significant underperformance of invested capital relative to its cost. The ratio partially recovered in 2021, reaching -4.88%, though it remained negative, signifying that the company’s returns did not cover its cost of capital.

The invested capital generally increased over the period, moving from US$14,039 million in 2017 to US$17,498 million in 2021. This growth was not consistent year-over-year, with a slight decrease observed between 2019 and 2020.

Economic Profit and Invested Capital Relationship

Economic profit remained negative throughout the observed period, ranging from -US$1,266 million to -US$8,355 million. The largest negative economic profit occurred in 2020, coinciding with the most substantial decline in the economic spread ratio. The negative economic profit consistently indicates that the company’s returns are insufficient to cover its cost of capital, despite the increasing invested capital base.

The substantial decline in the economic spread ratio in 2020 warrants further investigation to understand the underlying factors contributing to this underperformance. While a partial recovery occurred in 2021, the ratio remained negative, suggesting continued challenges in generating returns commensurate with the capital employed.

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 partial recovery.

Economic Profit Margin Trend

In 2017, the economic profit margin stood at -16.41%. This figure improved to -13.76% in 2018 and further to -9.47% in 2019, indicating a lessening of economic loss relative to revenue. However, 2020 witnessed a dramatic deterioration, with the margin plummeting to -337.17%. This represents a significant negative shift. A partial recovery was observed in 2021, with the margin increasing to -7.64%, though it remained negative.

The economic profit itself mirrored this volatility. While negative throughout the period, the absolute value of the economic profit increased substantially in 2020 before decreasing in 2021. This suggests that the substantial decline in the economic profit margin in 2020 was driven by a disproportionately large decrease in adjusted revenue, as the economic profit also experienced a large negative swing.

Relationship between Adjusted Revenue and Economic Profit Margin

Adjusted revenue increased from US$10,705 million in 2017 to US$13,376 million in 2019, coinciding with the improvement in the economic profit margin. However, adjusted revenue fell sharply to US$2,478 million in 2020, which correlated with the dramatic decline in the economic profit margin. The subsequent increase in adjusted revenue to US$11,173 million in 2021 was accompanied by a partial recovery in the economic profit margin.

The substantial negative economic profit margin in 2020 warrants further investigation to understand the underlying factors contributing to the significant decline in profitability relative to revenue. The recovery in 2021, while positive, indicates that the business has not yet returned to pre-2020 levels of economic profitability.