Citigroup Reiterates Hold On Orbitz After 3Q

From Analyst Mark Mahaney

• OWW Reported A Reasonable September Quarter - $240MM revenue beat CIR/Street @ $231MM/$226MM. And $43MM EBITDA exceeded our $35MM estimate. But 4% Y/Y reported Gross Bookings growth came in below our 8% estimate, with the miss even across Air, Non-Air, U.S. & International.
  

• Fundamentals Were Mixed - Gross Bookings growth of 4% was in-line with Q2's 4%, but ahead of Q1's 0%. Adjusted EBITDA margin of 15.8% was down 50 bps Y/Y. Adjusted EBITDA was flat Y/Y.
  

• The Issue (Not Surprisingly) Is Guidance - OWW stated that the economic and industry outlook has "deteriorated markedly" over past 6 weeks - consistent with comments by EXPE & PCLN. OWW said bookings and revenue would fall below its 9%-12% Y/Y growth goal in Q4 and '09. It also expressed less confidence in ability to meet mid-20's% EBITDA margin goal over next 4 years.

• Reducing Estimates and PT - '08 revenue reduced 4% to $929MM (4% Y/Y growth), with EBITDA reduced 5% to $160MM. PT reduced from $7.50 to $4.25 - 5.0X '09 EV/EBITDA. OWW currently trades at 4.6X '08 EV/EBITDA.
  

• We Are More Cautious, Reiterate Hold - We continue to view OWW as having the weakest strategic hand among the online travel agencies (EXPE & PCLN) due to its heavy reliance on Air and U.S. bookings. But OWW is slowly showing diversification, and execution appears to be incrementally improving. Macro & Structural trump all, however - consumer travel spend is weakening and airline/rental car capacity cuts are a negative.