Expedia Heads For Calmer Waters

Tuesday’s session was another big day of buying for shares of Expedia Group NASDAQ: EXPE and investors will be breathing a little easier. Over the past couple of weeks, the stock has continued to bounce back from some harrowing losses following their Q3 results in early November. The travel tech company missed analyst estimates on both its EPS and revenue numbers and Wall Street wasn’t afraid to let them know it. Shares had gapped down 15% for the first open after the results and finished the day down almost double that, at -28%.

There was some followthrough selling in the days afterward but towards the end of last month, it was clear that the bears were running out of steam. Their momentum started to dwindle around the lower $90s, which is where the stock found buyers the past 2 times it’s been there, in February 2018 and February 2016. It bounced hard off those lows each time and it looks like it’s trying to do the same thing now.

Shares have rallied 20% in the past 3 weeks and closed Tuesday’s session as one of the top-performing stocks in the NASDAQ 100 index. And it’s not just a dead cat bounce that we’re seeing.

Internal Shakeup

Since last week, there’s been a lot of activity going on behind the scenes. Investors have been busy digesting the news of the company’s CEO and CFO’s resignations (effective immediately) while Expedia’s chairman and investor, Barry Diller, has stepped in to fill the void while the Board finds replacements. Diller lent his weight to the ongoing recovery rally by announcing yesterday a fresh buyback program to the tune of 20 million shares. This comes on top of the currently ongoing 9 million share repurchase plan. In addition to this, Diller said that he plans to buy more shares as a signal of his confidence in the company’s potential.

It seems that after months of misalignment, Diller is finally taking a more hands-on approach and investors like his style.

When asked about the latest shakeup, he remarked how "ultimately, senior management and the Board disagreed on strategy. Earlier this year, Expedia embarked on an ambitious reorganization plan with the goal of bringing our brands and technology together in a more efficient way. This reorganization, while sound in concept, resulting in a material loss of focus on our current operations, leading to disappointing third-quarter results and a lackluster near-term outlook. The Board disagreed with that outlook, as well as the departing leadership's vision for growth, strongly believing the Company can accelerate growth in 2020."

The company looks eager to draw a line in the sand after months of sideways action and missed targets. Wall Street is keen to put all this behind them and to get back to how they once were. Investors’ impatience is understandable; while the tech-heavy NASDAQ 100 index has tacked on 80% since the end of 2015, Expedia shares are down 10% in the same period.

The Long Case

The stock had rallied 400% in the 4 years prior to the end of 2015, but ever since shares have bounced in a fairly structured range of roughly $100-$135.

They have a somewhat reassuring tendency to trade in line with technical analysis based expectations. For example, a look at the weekly chart shows how they hugged their upwards trendlines as they recovered from both the January 2016 and the February 2018 selloffs. As RSI sunk under 30 last week and marked shares as oversold right as they came to long term support, the astute investor would have spotted the long opportunity. A bullish MACD crossover late last month confirmed the move (click on the links to read more about trading with the MACD and RSI).

With fundamental changes afoot in the company and one of its own announcing his plans to defend the stock personally, the bulls will feel confident in the company’s ability to translate all this positive energy into upward movement in the stock. Investors should look for shares to grind towards the $140 mark while a solid earnings report would give them cause to aim for the all-time high at $160. To the downside, there’s definitely comfort to be had with the tried and tested support around $95.

For now, this $95 level looks sacrosanct and shares are staying true to form as the gradually undo last month’s damage. It’s tough to drive a stock down when you have a multi-billionaire defending it as his own and this is a stock that knows how to sail if the captain’s on deck.