Online travel stock Expedia (EXPE) crash-landed last week after earnings, featuring lower guidance thanks to increased competition.
So should investors sell Expedia stock, or buy the dip?
In the short-term, it’s safe to steer clear of Expedia amid tough competition for bookings. But longer-term there remains a decent chance of recovery in Expedia stock — as well as its sister site TripAdvisor (TRIP) and top online travel competitors Priceline.com (PCLN) and Orbitz (OWW) — if that booking war was just a short-lived speed bump for the industry.
If that’s the new normal, however, expect Expedia stock to fare even worse in the long-term.
Expedia cautioned investors in January that Booking.com, owned by Priceline, was pushing in to the U.S. at risk to EXPE. It has tried to mitigate this with the purchase of a majority stake in Trivago, a search engine specific to hotels and similar travel deals, but clearly there is limited growth for Expedia stock in the U.S. and an increasing competition for customers.
The big issue for investors is whether this dynamic is the “new normal” in the U.S. market. Smaller competitors are at a disadvantage in this feirce fight for dollars, and the big dog Priceline could take a serious bite out of Expedia stock if that holds true. After all, Priceline is about seven times the size of Expedia by market cap.
But it could take some time to see whether this is the case, and there could still be significant international opportunity. There is still risk of competition abroad, yes, but the pie seems to be growing even if Expedia’s slice may not be getting much larger.
With Expedia stock posting ugly earnings per share this quarter of just 64 cents vs. 81 cents forecast, it’s unlikely the short term will be anything but negative.
The question going forward is whether the shake-up is short lived or if the tough competition between Priceline, Expedia and others will continue.
If the latter situation proves true, EXPE could be in for deeper declines.
- Expedia earnings details. (CNBC)
- Priceline has more potential than Expedia. (Forbes)
- My bad… I was dead wrong in my optimism about online travel stocks. (The Slant)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.