Expedia Group shares fell by over 8.5% after it reported first quarter revenue below Wall Street’s expectations. This was a sign of a decline in US travel.
LSEG surveyed analysts and they expected $3.01billion in revenue.
This decline is a concern for the travel industry as a whole, who had hoped for a good summer.
The analysts attributed Expedia’s weaker than expected results to the economic pressures on consumers, especially in the United States where Expedia earns two thirds of its revenues.
After the announcement of earnings, at least 13 brokerages have reduced their target prices on the stock.
Inbound travel affected by the large US presence
Expedia’s performance is a reflection of the growing caution of consumers in light of rising interest rates, inflation and the geopolitical uncertainties, which include the ongoing impact of trade tensions.
Jake Fuller, BTIG analyst said: “It is just a little more pronounced for Expedia because it has a larger US presence.”
Barclays analysts believe that recent US travel results have confirmed a slowdown.
Piper Sandler described the commentary on US inbound tourism and B2C as “discourageing” and said that it would be a tough road ahead.
Stock was downgraded by the brokerage.
Wedbush stated in a note on Friday that “Expedia’s risk/reward will continue to be balanced due to its ‘outsized exposure’ to the US market, which accounts for around two thirds of its revenues.”
Wedbush analyst said that the US consumer has shown the most signs of insecurity of lower spending over the next few months. They lowered their price target from $180 to $165.
Low Canadian travel from Canada to the US may affect summer entertainment
The drop of nearly 30% in Canadian bookings for US destinations was one of the most notable data points.
Truist analysts have highlighted the fact that tensions may be preventing cross-border travel.
The decline is much greater than the overall 7% drop in inbound international bookings.
Analysts have warned that geopolitical tensions could dampen sentiment, particularly if diplomatic relations do not improve.
The report warned about Canadians traveling to the US from Canada, which was hit hard by geopolitical tensions that only began in the last weeks of the third quarter.
Travel demand is likely to remain weak despite a high core profit margin
According to Oppenheimer’s note on Friday, despite the grim outlook, Expedia Group will likely meet its targets for core profit margins despite weakening signs in travel demand.
Investment firm cited the disciplined cost control of the company as key to its resilience in margins.
Scott Schenkel, Chief Financial Officer of the Online Travel Platform, told investors on Thursday during a conference call that the company now expects to see its EBITDA margin increase by between 75 and 100 basis points for full year.
According to FactSet, this is an improvement from its previous forecast of a 50% increase.
Expedia has revised downward its guidance for revenue growth despite the better profitability outlook.
The management now anticipates that revenue will rise by between 2% and 4% for the entire year. This is compared to an earlier projection of 4%-6%.
The company expects to see revenue increase between 3% and 5% in the current quarter. EBITDA will also rise by 75-100 basis points.
The macroeconomic situation is crucial to the stock market’s performance
Expedia’s adjusted earnings (before interest, tax, depreciation and amortization) were above forecasts despite gross bookings falling short of expectations.
A wider global reach has helped the company to achieve a relatively better performance in its business-tobusiness segment.
The outlook is still tepid.
Expectations for the company’s full-year and second-quarter guidance were modestly lower than consensus.
In a recent research note, Benchmark analyst Daniel Kurnos said that while Expedia’s investors value the company’s profitable growth, a return to the focus of profitable growth may not be the message they want to hear at this time, even though it would make sense.
Analyst says that Expedia’s stock needs a stronger growth story to make it work.
It wouldn’t be difficult for the shares to rise as long as macroeconomic conditions don’t worsen.
The post Expedia’s cost control offers hope but analysts still see growth challenges ahead could be updated as new information is revealed.
