Investors have sold shares in US travel sites, after downbeat quarterly results in the sector fuelled concerns over fading demand and competition from the likes of Airbnb.
Expedia and TripAdvisor cited weak online search and advertising trends when they widely missed third-quarter earnings forecasts on Tuesday evening. Expedia, whose portfolio includes Hotels.com and Trivago, said it spent more on advertising as links to its sites fell in the rankings of search results. TripAdvisor cautioned that its outlook for 2019 has been damped after recording softness in its business of auctioning off advertising to hotels.
Shares in Expedia tumbled 25 per cent on Wednesday, potentially its worst single-day loss in more than six years. TripAdvisor shed one-fifth of its value to near two-year lows. The sell-off also spread to Booking Holdings, which dropped more than 7 per cent ahead of its own earnings report due after the market closes. Yelp, the site known for its customer reviews of hotels and restaurants, was down 4.5 per cent.
Tom White, senior research analyst at DA Davidson, noted search engines such as Google are dedicating additional prominent space to their own paid travel products, which has forced Expedia to rely more on higher-cost ad clicks. Its selling and marketing expenses were up 11 per cent year-over-year in the September quarter.
“We think of it as how far down the page are we,” said Steve Kaufer, chief executive of TripAdvisor, during an earnings call. “And I think you’re seeing this across the industry as Google has gotten more aggressive.”
Mr Kaufer added that TripAdvisor is focused on boosting other streams of revenue beyond its ad auction business.
Hotel pricing has also come under pressure. Expedia said average daily rates slowed more than it anticipated in North America, while negative economic and geopolitical factors dragged on rates in Asia. “This is a potential warning sign” for Booking, TripAdvisor and Trivago, Mr White said.
It also may be a warning sign consumers who are eschewing hotel rooms in favour of Airbnb and short-term vacation rentals are putting a strain on pricing.
Expedia’s commentary on rates could “resurrect questions from investors about whether the growing popularity of alternative accommodations (which we estimate carries ~30% lower ADRs than a comparable hotel room on average) is starting to pressure ADRs for more traditional hotel inventory,” Mr White wrote in a note to clients.
Vrbo, Expedia’s burgeoning rental platform, booked 14 per cent revenue growth during the third quarter, down from an increase of 17 per cent in the prior quarter.
The company booked revenue of $3.56bn overall and earnings of $3.38 per share. Analysts were looking for earnings of $3.80 on revenue of $3.58bn.
TripAdvisor reported earnings of 58 cents, missing the consensus estimate of 69 cents. Revenue of $428m fell short against the $459m forecast.
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