Expedia (EXPE - Free Report) has been a solid travel stock to own this month, up over 8.5% through March 15. Shares are finally getting close to their pre-election highs near $133.
EXPE was even a Bull of the Day in early January because the outlook according to earnings estimate revisions was bright and sunny.
But the trend for EPS estimates in the past few weeks has taken a spring-break turn south that now puts Expedia in the cellar of the Zacks Rank. And this is not simply because of the Q4 adjusted earnings miss of 12% in early February.
While year-over-year revenue comparisons were strong, sequential revenues for the holiday quarter were down 18.9% as gross bookings decreased 13.4% sequentially.
The company has been making a large number of acquisitions and integration of these companies into its core platforms appears to be complete. Management noted that "room nights" improved throughout the quarter and are expected to remain healthy in the first quarter.
Yet analysts have been furiously taking down their profit projections for the current quarter and the entire year. In the past 90 days, estimates for the March quarter have reversed from a profit of 16-cents to a loss of 27-cents.
The June quarter has dropped from EPS of $1 to 62-cents and these changes take the full year down from $5.21 to $4.24 in the past 90 days.
The Trivago Triangle
Besides the typical competition, consolidation, and general disruption in online travel -- thanks to Airbnb -- there is a trio of other problems nagging Expedia.
First, Expedia expects revenue and profitability to be negatively impacted by the shift of Easter into the second quarter this year. And management sees pressure on margins early this year due to investments in selling & marketing ahead of the travel season.
Second, Expedia is a majority shareholder in Trivago (TRVG - Free Report) and that German-based travel portal has had its booking problems lately. In Q4, revenues decreased 33.7% sequentially.
Third, for the month of March, TRVG shares have been struggling to stay above their December IPO debut of $11.85 after the hotel search provider disclosed a self-identified weakness in its financial reporting. My colleague Ryan McQueeney explained the situation on March 9...
The revelation came within the company’s 20-F annual report, which was posted on the SEC’s website earlier today. In the filing, Trivago said that it identified an issue in its financial reporting practices that may cause even more issues in the future.
“We have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements,” the company said.
The company cited its IPO and the inexperience of its employees in dealing with U.S. general accounting practices as the primary reason for the weakness.
Don't Trip on This
Travel holds plenty of opportunities, even though the industry is ranked in the bottom third of all industries that Zacks tracks. And EXPE probably has a bright future with 15% projected top line growth this year and 22.6% projected EPS growth.
But right now, the analysts are in "big revision mode" about that growth story. So the chances of EXPE breaking through $133 to new highs are not as good as a trip back down to support near $120 and lower.
Unless of course the company pulls of a coup and buys TripAdvisor (TRIP - Free Report) before Priceline (PCLN - Free Report) does.
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