Travel from Canada to the U.S. dropped 30% in Q1.
It’s been a rollercoaster ride over the past few days for travel booking stock Expedia (NASDAQ:EXPE). On Monday, Expedia stock jumped 8% to $168 per share and was one of the day’s top gainers, but that followed a 13% plunge on Friday to below $150 per share.
The reason for the sharp decline last Friday was pretty clear – a subpar first quarter earnings report that fell short of revenue estimates. Monday’s bounce back is not as cut and dried, as there were likely several factors at play.
As far as where Expedia is headed — that is no simple answer either.
Revenue misses estimates
Expedia, which owns Expedia, Hotels.com, Trivago, and VRBO, among others, generated $2.99 billion in revenue in Q1, which was up 3% year-over-year, but below estimates of $3.01 billion.
The company posted a GAAP net loss of $200 million in the quarter, which was worse than the $135 million net loss in the same quarter a year ago. But when adjusted to exclude one-time items, acquisitions, foreign exchange or other adjustments, net income was up 81% to $53 million. Adjusted earnings were 40 cents per share, up 90%, and topping estimates of 32 cents per share.
Booked room nights on its sites were 108 million, up 6%, while booked airfare rose 4% to 14.8 million. The average daily rate (ADR) of booked rooms dropped 1% to $213.9 per room.
Lodging revenue rose 3% to $2.3 billion, but airfare revenue fell 7% to $107 million. Advertising revenue was strong, with Expedia ads seeing a 20% revenue increase to $174 million while Trivago ad revenue rose 22% to $85 million.
Weak U.S. travel demand
Revenue from U.S. points of sale rose 2% year-over-year to $1.83 billion, but that was down 3.5% from Q4.
CEO Ariane Gorin said Expedia came in at the low end of its guidance range for the quarter because of weaker-than-expected travel demand in the US and into the US.
On the earnings call, CFO Scott Schenkel elaborated on the slowdown in U.S. travel.
“In particular, demand in the US was softer than expected, which was a headwind given two-thirds of our business comes from the US point of sale,” Schenkel. “We also noticed softness in demand for inbound travel into the US which was down 7%. As part of that, inbound bookings from Canada fell nearly 30%.”
Part of the decline may stem from the weaker U.S. economy in Q1, as the GDP shrank in Q1 by 0.3%. But the U.S. tariffs are likely another significant factor, particularly for travel from Canada, as Canadians boycotted travel to the U.S. over tariffs, while other nations issued advisories for traveling to the U.S.
In April, Gorin said travel to the U.S., as well as domestic travel, was even softer than March, so the trend is continuing.
“Yes, we’re still continuing to see pressure on travel into the US, but we’ve also seen some rebalancing. So Europeans are traveling less to the US, but more to Latin America,” Gorin said.
It caused Expedia to lower its guidance for Q2 and the full fiscal year. In Q2, Expedia anticipates 2% to 4% gross booking growth, down from previous guidance of 4% to 6% growth. Revenue growth of 3% to 5% remains the same for Q2. But for the full year, gross bookings and revenue growth were lowered to 2% to 4%, from 4% to 6%.
Why was Expedia stock rising on Monday?
Expedia stock got several price target downgrades after it released earnings on Friday, including Susquehanna, which dropped it $30 to $175. Overall, Expedia has a median price target of $181.50 per share, which would suggest a 9% increase over the current price.
Two factors likely played a role in Monday’s surge for Expedia stock. One, it rode the momentum of the overall gains in the market, as stocks were up big on Monday on the U.S.-China trade deal. Also, the trade deal may have alleviated concerns about an economic slowdown among some investors, and eased tensions with trading partners – although both of those remain to be seen. Investors may perceive both as good for travel.
Also, there were likely investors buying the dip after Friday’s dramatic selloff, fueled further by the trade deal. Expedia is trading at its lowest valuation in more than a year with a P/E of 18.
It remains to be seen to what extent travel conditions improve, so investors should remain cautious.
