Expedia, Inc. (EXPE)
Discount cash flow analysis
5% margin of safety What's this?
Sensitivity matrix
|
-1% |
Discount Rate % 0% |
1% |
||
|---|---|---|---|---|
| -1% | $23.44 | $23.12 | $22.82 | |
| Terminal Growth% | 0 | $23.53 | $23.21 | $22.91 |
| +1% | $23.63 | $23.31 | $22.99 |
How does a change in discount rate or terminal growth affect valuation?
This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate
Valuations and comments
- Valuecruncher created a new valuation of $11.32 (overvalued by 50.8%) - 10 hours ago
- SethWellbourne created a new valuation of $10.50 (undervalued by 17.85%) - 11 months ago
- GordonGekko created a new valuation of $9.50 (undervalued by 28.73%) - 12 months ago
- TheCrunchBlog created a new valuation of $23.21 (undervalued by 20.45%) - 1 year ago
Comments
The boring details
| All amounts in millions | Figures |
| Enterprise Value: | 7,063 |
| Net Debt (Long-term borrowings less cash): | 467 |
| Equity Value: | 5,523 |
| Number of Shares Outstanding: | 286,000,000 |
| Calculated value per share: | $23.21 |
Enterprise Value is the present value of the post-tax cash flows for a business into the future.
Where:
- C1, C2, C3 - the cash flow in period 1, 2, 3, ...
- r - the discount rate
To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.
Where:
- Cn - the cash flow in the final forecast period.
- LTG - the long-term growth rate
- r - the discount rate
- g - the terminal growth rate
The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.
Where:
- rt - the risk free rate
- t - the tax rate
- B - the beta of the company
- MRP - the Market Risk Premium
Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.
This valuation is part of this blog post:
http://blog.valuecruncher.com/2008/08/expedia-expe-the-on-line-travel-site-looks-a-buy/
EXPE grew revenues from US$1.8 billion in 2004 to US$2.7 billion in 2007 – a 14% compound annual growth rate. Our assumptions of revenues for the next three years are US$3.0 billion in 2008 growing to US$3.75 billion in 2010 – a 12% compound annual growth rate (2007-10). We have projected EBITDA margins to be flat at 25% to 2010. We have used a terminal growth rate of 3.75%. We calculated this terminal growth rate based on year three (2009-10) growth of 10% dropping to a 3.0% stable growth rate by year 10. We used a terminal capital expenditure number of US$150 million. We have used a WACC (discount rate) of 12.0%.
The key assumptions as we see them are:
EXPE Revenues for the next three years. We believe that 12% per annum growth (2007-10) is a reasonable estimate.
EXPE WACC. We view EXPE’s WACC in the 11-13% range. We took a mid-point. This discount rate is intended to reflect the potential uncertainties of the EXPE cash flows in the near term.