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. Invested capital generally increased over the five-year period, although a slight decrease was noted between 2019 and 2020. The cost of capital remained relatively stable, with a slight increase in 2018, a decrease in 2020, and returning to the 2017 level in 2021.

Economic Profit Trend

Economic profit consistently remained negative throughout the analyzed period. The largest negative economic profit occurred in 2020, reaching negative US$8,353 million. While negative economic profit was observed in all years, the magnitude decreased from 2017 to 2019 before the significant downturn in 2020. A moderate reduction in the negative economic profit was observed in 2021, but it remained substantial at negative US$851 million.

NOPAT and Economic Profit Relationship

The substantial decline in NOPAT in 2020 directly correlated with the largest negative economic profit for the period. The recovery in NOPAT in 2021 contributed to a lessened, though still negative, economic profit. This suggests a strong relationship between operational profitability and the generation of economic profit.

Cost of Capital and Invested Capital

Despite fluctuations in invested capital, the cost of capital remained relatively consistent. The increase in invested capital from 2017 to 2019, coupled with a stable cost of capital, did not result in positive economic profit, indicating that returns on the invested capital were insufficient to cover the cost of that capital. The slight decrease in cost of capital in 2020 did not offset the dramatic decline in NOPAT, leading to the most significant negative economic profit.

Overall, the analysis indicates a consistent failure to generate returns exceeding the cost of capital over the five-year period. While NOPAT and economic profit showed some recovery in 2021, substantial improvement is needed to achieve positive 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 partial recovery.

Economic Spread Ratio Trend

In 2017, the economic spread ratio was -12.50%. This figure improved slightly to -11.78% in 2018, and continued to improve to -7.82% 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 -52.99%. The ratio experienced a significant positive shift in 2021, recovering to -4.86%, though remaining negative.

The invested capital generally increased over the period. From 2017 to 2019, invested capital rose from US$14,039 million to US$16,161 million. A slight decrease was observed in 2020 to US$15,765 million, followed by a further increase to US$17,498 million in 2021.

Economic Profit and Economic Spread Relationship

The economic profit consistently remained negative throughout the analyzed period. The magnitude of the negative economic profit generally aligned with the economic spread ratio; the largest negative economic spread ratio in 2020 corresponded with the largest negative economic profit of -US$8,353 million. The improvement in the economic spread ratio in 2021 was accompanied by a reduction in the negative economic profit to -US$851 million.

The substantial decline in the economic spread ratio in 2020 warrants further investigation. While invested capital remained relatively stable, the significant deterioration in the ratio suggests a considerable increase in the cost of capital or a substantial decrease in the return generated from the invested capital during that year. The partial recovery in 2021 indicates some improvement in these factors, but the ratio remained negative, signifying that the company’s returns did not cover its cost of capital.

The economic profit margin exhibited considerable fluctuation between 2017 and 2021. Initially, the margin demonstrated a pattern of improvement, followed by a substantial decline and subsequent partial recovery.

Economic Profit Margin Trend

In 2017, the economic profit margin stood at -16.39%. This figure improved to -13.74% in 2018 and further to -9.45% in 2019, indicating a lessening of economic loss relative to revenue. However, 2020 witnessed a dramatic deterioration, with the margin plummeting to -337.09%. This represents a significant negative shift. The margin partially recovered in 2021, reaching -7.62%, though it remained negative.

The economic profit margin’s movement closely mirrors that of economic profit, though the margin provides a revenue-relative perspective. The substantial decline in 2020 is particularly noteworthy, coinciding with a significant reduction in adjusted revenue. While revenue rebounded in 2021, the economic profit margin did not fully recover to pre-2020 levels, suggesting that factors beyond revenue influenced economic profitability.

Relationship to Adjusted Revenue

Adjusted revenue increased from US$10,705 million in 2017 to US$13,376 million in 2019. The decrease to US$2,478 million in 2020 likely contributed heavily to the extreme negative economic profit margin observed that year. Revenue increased again in 2021 to US$11,173 million, but the economic profit margin remained considerably higher than in 2019.

The consistent negative economic profit margin across all observed years indicates that the company’s returns, even with revenue growth in some periods, have not consistently exceeded the cost of capital. The volatility of the margin suggests sensitivity to both revenue fluctuations and underlying cost of capital considerations.