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Expedia Downgraded by UBS on Coronavirus-Led Weak Demand

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Expedia’s (EXPE - Free Report) stock’s rating has been recently downgraded to Hold from Buy by an investment firm, UBS.

Following the downgrade, Expedia was down 2.6% to $94.74. However, UBS’ analyst Eric Sheridan raised the price target by 38% to $116.

Why the Downgrade?

The analyst remains concerned about worsening travel trends owing to the coronavirus pandemic that has been wreaking havoc on the global travel industry. The travel restrictions imposed by governments all across the world to contain this pandemic have hurt online travel agencies.

The analyst believes that the pandemic could have a lasting impact on consumer demand. The fear of a second wave of coronavirus is looming large and it won’t come as a surprise if people once again start staying at home. According to the analyst, the second wave of coronavirus and a delay in COVID-19 vaccine could disrupt the demand cycle from coming back to normal over the near term.

The analyst further cited soft second-quarter earnings as one of the reasons behind the downgrade. The company posted revenues of $566 million, which declined 82% year over year and 74.4% sequentially. In addition, it posted adjusted loss of $4.09 per share versus the year-ago earnings of $1.77 per share.

Also, more-than-expected cancellation rate hurt the company’s gross bookings during the quarter. Expedia witnessed gross bookings of $2.7 billion, which decreased 90% year over year and 84.8% sequentially.

Bottom Line

Expedia Group, Inc. is one of the largest online travel companies in the world. The company’s strong supply acquisition efforts, strategic investments and product innovation are positives.

Gradual reopening of the economy post coronavirus-led lockdown, which is improving the global travel trend, is expected to benefit Expedia in the near term.

The company has started witnessing moderation in the cancellation of bookings. Further, improving performance of Vrbo remains a major positive. Growing bookings via Vrbo is also benefiting Expedia. Additionally, cost-saving initiatives of the company remain tailwinds.

Additionally, rising demand for whole-home and private accommodations amid the ongoing pandemic situation should aid its performance in the near term.

Zacks Rank & Stocks to Consider

Currently, Expedia carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the broader technology sector include Dropbox (DBX - Free Report) , Etsy, Inc. (ETSY - Free Report) and Maxim Integrated Products, Inc. , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate of Dropbox, Etsy and Maxim is projected at 34.4%, 26.5% and 10%, respectively.

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