Business seasonality.

Most companies have some seasonality in their business. This means the quarterly financial information will Peak or trough at certain times in the year. Typically the items most affected by seasonality are revenues margins and working capital. However, the seasonality in these items can be very different. Let's take for example Expedia grouping an online travel booking company based in the US. Travel companies are hugely seasonal as most travel will Peak during the summer months and trough in the winter months. If we look at expedia's revenues and margins these Peak and Q3 which includes the summer months and trough in q1, which includes the winter months if we wanted to analyze the trend in expedia's quarterly revenues. There are two ways to do this. Firstly we can compare each quarter's revenues with the previous quarter. This is referred to as quarter on quarter Revenue growth. However, this will reflect the seasonality in the business. So quarter-on-quarter Revenue growth peaks in Q3 and troughs in q1 an alternative is to compare each quarter's revenues with the same quarter in the previous year. This is referred to as year-on-year Revenue growth. This allows us to identify the underlying Trend in revenues ignoring the effects of seasonality. So if we compare Q3 revenues in the current year with Q3 revenues in the previous year and these have increased we know that this increase is not a result of seasonal fluctuations. If we compare the seasonality in revenues and margins for Expedia, we can see that margins are even more seasonal than revenues. This is because Expedia has a large fixed cost base. These fixed costs are incurred throughout the year and therefore magnify the effects of seasonality. Now that we've looked at quarterly revenues and margins. Let's have a look at quarterly working capital fluctuations.

Here. The first thing we should note is that Expedia has negative working capital throughout the year. This means that they're operating current liabilities exceed their operating current assets.

This is quite common for travel companies as customers typically pay some amount upfront when making their booking whilst the hotel and airline companies are usually paid at a later date. However, we can also see that expedia's working capital is very seasonal. But this time working capital liabilities and assets Peak and Q2 where most of the bookings are being made and trough in Q4 when most of the hotels and airlines are paid. The seasonality in working capital therefore differs slightly to the seasonality in revenue and margins. So if we were going to build quarterly forecast for Expedia Group Inc. We would need to take all of this into account.