# Expedia Group (EXPE) Financial Model

Free Excel 3-statement financial model and company analysis for Expedia Group.

- Canonical: https://finamodel.com/companies/expedia-group
- Industry: Travel
- Downloadable model: Yes
- Excel download: https://finamodel.com/company-models/EXPE.xlsx

## Model Purpose

This model provides a comprehensive equity valuation and scenario planning tool for Expedia Group (EXPE), enabling analysts to forecast free cash flow generation by isolating the high-growth B2B segment from the mature B2C segment and quantifying the cash flow advantages of its negative working capital merchant model.

## Company Overview

Expedia Group is a leading global online travel agency (OTA) that provides travel products and services to leisure and corporate travellers. The company operates a comprehensive platform offering lodging, flights, rental cars, and activities through a portfolio of brands including Expedia, Hotels.com, and Vrbo.

The business is divided into three primary segments: B2C (Retail), which accounts for approximately 65% of revenue; B2B, which provides travel technology and supply to enterprise partners and accounts for roughly 30% of revenue; and trivago, a metasearch brand contributing the remainder. Geographically, the United States is the dominant market, generating approximately 63% of total revenue, with the rest of the world contributing 37%. Expedia operates an asset-light business model, generating revenue primarily through a Merchant model (where it is the merchant of record), an Agency model (commission-based), and Advertising.

Expedia holds a top-tier competitive position in the global OTA duopoly alongside Booking Holdings, though it faces intense competition from Airbnb and direct booking efforts by major hotel and airline suppliers. Recent major events include the appointment of Ariane Gorin as CEO in May 2024, the completion of a multi-year backend technology migration, the rollout of the One Key loyalty programme, and a significant 20% dividend increase to $0.48 per quarter in February 2026 alongside aggressive share repurchases.

## Revenue Deep Dive



### B2C (Retail)

- **Revenue driver formula:** `B2C Gross Bookings x B2C Revenue Margin`
- **Historical growth rate:** 4-6% CAGR.
- **Key growth levers and headwinds:** Growth is driven by the One Key loyalty programme and app-based bookings, which lower customer acquisition costs. Headwinds include intense performance marketing competition and macroeconomic pressure on leisure travel.
- **Pricing dynamics:** Highly competitive; revenue margin (take rate) is pressured by supplier negotiations and loyalty discounting (which is recorded as contra-revenue).
- **Revenue recognition notes:** Agency revenue is recognised at the time of booking. Merchant revenue is recognised when the travel occurs.
- **Seasonality:** Gross bookings peak in Q1 and Q2 as consumers plan summer holidays, generating massive cash inflows. Revenue recognition peaks in Q3 when the actual travel takes place.

### B2B

- **Revenue driver formula:** `B2B Gross Bookings x B2B Revenue Margin`
- **Historical growth rate:** 20-25% CAGR.
- **Key growth levers and headwinds:** Driven by expanding API partnerships with financial institutions, corporate travel managers, and offline travel agents. The primary lever is increasing wallet share with existing enterprise partners.
- **Pricing dynamics:** Contractual take rates negotiated with enterprise partners, typically slightly lower than B2C margins but with virtually zero direct marketing costs.
- **Revenue recognition notes:** Primarily recognised on a merchant basis when the partner's customer completes the stay.
- **Seasonality:** Similar to B2C, though slightly smoothed by corporate travel patterns.

### trivago

- **Revenue driver formula:** `Qualified Referrals x Revenue per Qualified Referral (RPQR)`
- **Historical growth rate:** Flat to negative (0% to -5% CAGR).
- **Key growth levers and headwinds:** Highly dependent on advertising spend from major OTAs (including Expedia itself and Booking Holdings). Headwinds include Google's dominance in top-of-funnel travel search.
- **Pricing dynamics:** Cost-per-click (CPC) auction model.
- **Revenue recognition notes:** Recognised when a user clicks on an advertiser's link.
- **Seasonality:** Mirrors broader leisure travel search trends (peaks in Q1/Q2).

## Cost Structure



### Variable Costs / COGS

- **Line-by-line breakdown:** Cost of Revenue includes customer service and call centre costs, credit card processing fees, cloud infrastructure, and data centre costs.
- **Gross margin range:** 86-88% over the last 5 years.
- **Key input costs and commodity exposures:** Payment processing fees are the largest component, scaling directly with Merchant Gross Bookings.
- **How COGS scales with revenue:** Highly linear. Gross margin remains relatively stable regardless of revenue scale.

### Operating Expenses

- **Selling and Marketing (S&M):** The largest expense, typically 48-52% of revenue. It includes direct performance marketing (search engine marketing, metasearch), brand advertising, and loyalty programme liabilities. It is highly variable but required to maintain top-line volume.
- **Technology and Content:** Typically 10-12% of revenue. Covers developer headcount, platform maintenance, and amortisation of capitalised software.
- **General and Administrative (G&A):** Typically 6-8% of revenue. Covers corporate functions, legal, and finance.
- **Depreciation and Amortisation:** Roughly 5-7% of revenue, heavily weighted towards amortisation of capitalised software and acquired intangibles.
- **Stock-Based Compensation:** Runs at approximately 3-4% of revenue.
- **Restructuring / one-time charges:** Historically frequent due to M&A integration, but have tapered off since the completion of the recent tech platform migration.

### Margin Profile

- **Gross margin:** 86-88%.
- **EBITDA margin:** Expanding from the high teens to 23.9% as of Q4 2025.
- **Operating margin:** 10-12%.
- **Net margin:** 6-8%.
- **Margin trend:** Expanding. The shift towards the B2B segment (which requires minimal S&M spend) and the completion of the tech migration have driven significant Adjusted EBITDA margin expansion (up 368 basis points in Q4 2025).

## Balance Sheet Structure

- **Total assets:** Approximately $22-24 billion.
- **Key asset categories:** Cash and short-term investments (~$5.7 billion), Accounts Receivable, and a massive base of Goodwill and Intangible Assets (~$10 billion) stemming from historical acquisitions (Vrbo, Orbitz, Travelocity).
- **Goodwill and intangibles:** Represents roughly 45% of total assets.
- **Working capital profile:**
  - **Days Sales Outstanding (DSO):** 25-30 days (primarily related to Agency receivables and B2B partner billing).
  - **Days Payable Outstanding (DPO):** 60-70 days.
  - **Net working capital as % of revenue:** Highly negative.
  - **Working capital advantage:** Expedia operates with structural negative working capital. Under the Merchant model, it collects cash from travellers at the time of booking but does not pay the hotel until the stay occurs. This creates a massive "Deferred Merchant Bookings" liability that funds the company's growth.
- **PP&E:** Minimal physical assets. PP&E is dominated by capitalised software development costs and leasehold improvements.
- **Right-of-use assets:** Material, representing corporate office leases (including the Seattle headquarters), typically around $400-500 million.

## Capital Expenditure & Investment

- **Capex as % of revenue:** 5-7%.
- **Maintenance vs. growth split:** The vast majority is growth-oriented, specifically capitalised software development for platform unification and AI/machine learning capabilities.
- **Major capex programmes:** The multi-year migration to a single tech stack is complete, meaning capex intensity is expected to remain stable or slightly decline as a percentage of revenue.
- **Capitalised software:** Highly material. It represents the bulk of cash capex and bridges the gap between EBITDA and Free Cash Flow.
- **M&A pattern:** Historically a transformational acquirer, but currently focused on organic growth, B2B partnerships, and returning capital to shareholders.

## Debt & Capital Structure

- **Total debt:** Approximately $6.2 billion.
- **Net debt:** Roughly $0.5 billion (given $5.7 billion in cash and short-term investments).
- **Debt/EBITDA ratio:** Current gross leverage is approximately 2.0x, well within target ranges.
- **Credit rating:** Investment grade (BBB- / Baa3).
- **Key debt instruments:** Senior unsecured notes with staggered maturities, and an undrawn revolving credit facility.
- **Interest rate profile:** Primarily fixed-rate bonds. Weighted average cost of debt is approximately 4.5-5.0%.
- **Share repurchase programme:** Highly active. The company repurchased $1.7 billion in stock (approx. 9 million shares) in 2025.
- **Dividend policy:** Reinstated in 2024 and raised by 20% in February 2026 to $0.48 per share quarterly (approx. 1.5% yield).

## Cash Flow Characteristics

- **Operating cash flow conversion:** OCF / Net Income is typically >1.5x due to the massive working capital float and high non-cash expenses (D&A, SBC).
- **Free cash flow margin:** 15-20% of revenue.
- **Major non-cash items:** Depreciation, amortisation of capitalised software, and stock-based compensation.
- **Working capital cash flow impact:** Deferred Merchant Bookings act as a massive source of cash in Q1/Q2 (booking season) and a use of cash in Q3 (travel season). On an annual basis, as long as gross bookings grow, working capital provides a net cash inflow.
- **Capex intensity:** Low physical capex, but capitalised software requires consistent cash outflows.
- **Cash tax rate:** Typically lower than the GAAP effective tax rate due to the tax treatment of stock-based compensation and historical net operating losses.

## Sheet Structure

1. **Assumptions**: Hardcoded drivers for macroeconomic inputs, segment growth rates, margin targets, and capital return policies.
2. **Bookings & Revenue**: Gross bookings broken out by B2C, B2B, and trivago. Calculates revenue margins and total revenue by business model (Merchant, Agency, Advertising & Media).
3. **Income Statement**: Standard P&L mirroring SEC filings. Revenue down to Net Income, detailing Cost of Revenue, Selling & Marketing, Technology & Content, and General & Administrative.
4. **Balance Sheet**: Assets, Liabilities, and Equity. Must explicitly break out Deferred Merchant Bookings as a distinct current liability.
5. **Cash Flow Statement**: Indirect method starting from Net Income. Must include a detailed working capital section to capture the merchant float dynamics.
6. **Working Capital Schedule**: Calculates Accounts Receivable, Prepaid Expenses, Accounts Payable, and Deferred Merchant Bookings based on days outstanding and bookings volume.
7. **Debt & Interest Schedule**: Tracks senior notes, revolving credit facility, interest expense, and debt maturities.
8. **PPE & Intangibles**: Capex schedule, capitalised software additions, and the D&A waterfall.
9. **Shareholders' Equity**: Tracks share count, aggressive share repurchases ($1.7B annual run-rate), and dividend payouts.
10. **DCF Valuation**: Unlevered Free Cash Flow calculation, WACC assumptions, terminal value, and implied share price.

## Key Financial Relationships

1. `B2C Gross Bookings = Prior Year B2C Gross Bookings * (1 + B2C Growth Rate)`
2. `B2B Gross Bookings = Prior Year B2B Gross Bookings * (1 + B2B Growth Rate)`
3. `B2C Revenue = B2C Gross Bookings * B2C Revenue Margin`
4. `B2B Revenue = B2B Gross Bookings * B2B Revenue Margin`
5. `Total Lodging Revenue = Total Lodging Gross Bookings * Lodging Take Rate`
6. `Cost of Revenue = Total Revenue * (1 - Gross Margin %)`
7. `Selling & Marketing Expense = Total Revenue * S&M % (historically ~48-50%)`
8. `Deferred Merchant Bookings (Liability) = Merchant Gross Bookings * (Average Days Between Booking and Travel / 365)`
9. `Adjusted EBITDA = Operating Income + Depreciation & Amortisation + Stock-Based Compensation + Restructuring Charges`
10. `Free Cash Flow = Cash Provided by Operating Activities - Capital Expenditures (including Capitalised Software)`
11. `Ending Basic Shares Outstanding = Beginning Shares - (Share Repurchase Amount / Average Share Price)`

## Cross-Sheet Dependencies

- The **Bookings & Revenue** sheet is the primary engine. It feeds the top line of the **Income Statement** and provides the Merchant Gross Bookings figure required by the **Working Capital Schedule** to calculate Deferred Merchant Bookings.
- The **Working Capital Schedule** feeds the changes in operating assets and liabilities on the **Cash Flow Statement**. This is the critical chain for modelling Expedia's cash generation.
- The **Cash Flow Statement** determines the cash available for the **Shareholders' Equity** sheet (to fund the $1.7B buyback and dividends) and the **Debt & Interest Schedule**.
- The **Debt & Interest Schedule** feeds Interest Expense back to the **Income Statement**. To prevent circularity, interest expense should be calculated on the beginning debt balance.

## Sign Convention

- **Revenue and Assets:** Positive.
- **Expenses:** Positive on the Income Statement schedules, subtracted in subtotal formulas (e.g., `Gross Profit = Revenue - Cost of Revenue`).
- **Liabilities and Equity:** Positive on the Balance Sheet.
- **Cash Flow:** Cash inflows are positive; cash outflows (including capex, dividends, and share repurchases) are negative.
- **Contra-accounts:** Accumulated depreciation and contra-revenue (loyalty discounts) are negative.

## Things Most Likely to Go Wrong

- **Ignoring the Merchant Float:** Failing to tie Deferred Merchant Bookings to Merchant Gross Bookings will completely break the operating cash flow forecast. This liability must grow as bookings grow.
- **Blending B2C and B2B:** The B2B segment is growing at ~24% while B2C is growing at ~4-5%. Modelling a single consolidated revenue growth rate will misrepresent the company's future margin profile, as B2B requires almost zero consumer marketing spend.
- **Misunderstanding Revenue Margin:** Revenue Margin (Revenue / Gross Bookings) is typically 10.5-11.5%. Do not confuse this with Gross Margin (Revenue - Cost of Revenue), which is ~87%.
- **Overlooking Capitalised Software:** Expedia capitalises a massive amount of developer headcount. If this is not deducted from operating cash flow to calculate Free Cash Flow, valuation will be artificially inflated.
- **Double-Counting SBC:** Stock-based compensation is added back to Adjusted EBITDA, but it represents real shareholder dilution. The model must account for this either by treating SBC as a cash expense in the DCF or by accurately forecasting the rising share count (offset by buybacks).
- **Seasonality Errors:** If building a quarterly model, applying a flat growth rate across quarters will fail. Q1/Q2 must show massive working capital inflows, and Q3 must show massive outflows.
- **Loyalty Programme Accounting:** The One Key loyalty programme issues rewards that are accounted for as a reduction to revenue (contra-revenue) rather than a marketing expense. This suppresses the reported Revenue Margin.

## Validation Checks

- "Revenue Margin should remain in the 10.5-11.5% range; flag if outside this band."
- "Gross margin should be between 86% and 88%; flag if it deviates significantly."
- "Selling & Marketing expense should not drop below 45% of revenue unless driven by a massive mix shift towards B2B."
- "Deferred Merchant Bookings must be a liability and must increase year-over-year if Merchant Gross Bookings increase."
- "OCF/Net Income conversion should be >1.2x due to working capital dynamics and non-cash add-backs."
- "Free Cash Flow margin should be in the 15-20% range."
- "Balance sheet must balance: Total Assets = Total Liabilities + Equity in every period."
- "Gross Debt / Adjusted EBITDA should remain below 3.0x to maintain investment-grade status."

## Key Assumptions (Default Values)

| Assumption | Default Value | Unit | Rationale |
|---|---|---|---|
| B2C Gross Bookings Growth | 5.0 | % | Reflects mature market growth and recent 2025 performance. |
| B2B Gross Bookings Growth | 22.0 | % | Aligns with the 24% growth seen in Q4 2025, assuming slight deceleration. |
| B2C Revenue Margin | 11.0 | % | Historical average, pressured slightly by One Key loyalty contra-revenue. |
| B2B Revenue Margin | 10.5 | % | Historically slightly lower than B2C due to enterprise revenue sharing. |
| Gross Margin | 87.0 | % | Stable historical average based on payment processing and server costs. |
| Selling & Marketing % of Rev | 48.0 | % | Blended rate; expected to trend down slightly as B2B mix increases. |
| Tech & Content % of Rev | 11.0 | % | Steady state following the completion of the tech platform migration. |
| G&A % of Rev | 7.0 | % | Historical average, demonstrating some operating leverage. |
| Effective Tax Rate | 18.0 | % | Based on recent historical averages and international tax structures. |
| Annual Share Repurchases | 1,700 | $ Millions | Matches the actual 2025 repurchase volume. |
| Quarterly Dividend per Share | 0.48 | $ | Actual declared dividend as of February 2026. |
| WACC | 9.5 | % | Standard cost of capital for a consumer discretionary tech platform. |
| Terminal Growth Rate | 2.5 | % | Long-term GDP growth proxy for global travel demand. |

## Data Sources & Benchmarks

- **Filings:** SEC EDGAR for Expedia Group (EXPE) 10-K and 10-Q filings.
- **Investor Relations:** ir.expediagroup.com for earnings releases, supplemental financial data, and management presentations.
- **Key Peers:** Booking Holdings (BKNG), Airbnb (ABNB), Tripadvisor (TRIP).
- **Industry Data:** Phocuswright for global OTA market share and travel booking trends; STR (Smith Travel Research) for global hotel ADR and occupancy data.
- **Alternative Data:** SimilarWeb for top-of-funnel web traffic trends across Expedia, Hotels.com, and Vrbo.

## Sources

- Expedia Group Q4 2025 and Full Year 2025 Earnings Release (February 12, 2026).
- Expedia Group 2024 Annual Report on Form 10-K.
- Expedia Group Q4 2024 and Full Year 2024 Earnings Release (February 6, 2025).
- AlphaStreet: Expedia Q4 2025 Revenue Up 11%, B2B Segment Surges (February 13, 2026).

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## Frequently asked questions

### What does Expedia Group do?

Expedia Group is a leading global online travel agency (OTA) that provides travel products and services to leisure and corporate travellers. The company operates a comprehensive platform offering lodging, flights, rental cars, and activities through a portfolio of brands including Expedia, Hotels.com, and Vrbo.

### How does Expedia Group generate revenue?

Expedia Group generates revenue primarily through a Merchant model, where it acts as the merchant of record, and an Agency model, which is commission-based. Advertising also contributes to its revenue streams, supporting its asset-light business model.

### What is Expedia Group's capital expenditure strategy?

Expedia Group's capital expenditure is primarily growth-oriented, specifically for capitalised software development aimed at platform unification and AI/machine learning capabilities. Capex intensity is expected to remain stable or slightly decline as a percentage of revenue, following the completion of its multi-year tech stack migration.

### What is the significance of Expedia Group's negative working capital in its financial model?

Expedia Group benefits from structural negative working capital, a key advantage under its Merchant model. This allows the company to collect cash from travellers at the time of booking but defer payment to hotels until the stay occurs, creating a significant 'Deferred Merchant Bookings' liability that funds growth.

### What is the purpose of the downloadable Excel financial model for Expedia Group?

The downloadable Excel model for Expedia Group provides a comprehensive equity valuation and scenario planning tool. It enables analysts to forecast free cash flow generation by isolating the high-growth B2B segment from the mature B2C segment and quantifying the cash flow advantages of its negative working capital merchant model.

### What are the main business segments of Expedia Group?

Expedia Group's business is divided into three primary segments: B2C (Retail), which accounts for approximately 65% of revenue, and B2B, which accounts for roughly 30%. The remaining revenue is contributed by its metasearch brand, trivago.

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