Watch Out Travel Investors: Stifel Is Selling Expedia And TripAdvisor Because Of This

Stifel’s Scott W. Devitt said that a weakening macro-environment for the online travel sector is likely to disproportionally impact Expedia Inc EXPE and Tripadvisor Inc TRIP. He downgraded the ratings for both companies to Sell, while establishing a price target of $95 for Expedia and of $53 for TripAdvisor.

Following better-than-feared 4Q15 results and 2016 guidance by online travel companies sent shares higher, with alleviating investor concerns related to “the global consumer, the health of the travel industry, and the 2016 outlook,” analyst Scott Devitt said. He added, however, that the macro-environment for the online travel sector could weaken due to:

1. The moderating macroeconomic outlook in the US and globally
2. Maturing US online bookings penetration
3. Increasing efforts by hotels to drive direct bookings
4. Consolidation of the US hotel market

“We are downgrading shares of EXPE and TRIP from Hold to Sell as we believe the weakening U.S. travel and global macroeconomic backdrops will disproportionately impact their intermediate/long-term growth potential,” Devitt wrote.

Expedia

The booking estimates for 2016 and 2017 have been reduced to $76.5B and $85.8B, respectively, to reflect decelerating bookings growth due to a shifting macroeconomic backdrop.

The adj. EBITDA estimates for 2016 and 2017 have been reduced to $1.57B and $1.87B, respectively, based on “potential integration delays and increasing reinvestments into the platform to maintain organic growth,” the Stifel report noted.

TripAdvisor

The revenue estimates for 2016 and 2017 have been reduced to $1.61B and $1.89B, respectively, to reflect higher execution risk as the company accelerates its global Instant Booking expansion efforts.

The adj. EBITDA estimates for 2016 and 2017 have been reduced to $454mm and $543mm, respectively, to incorporate “a more gradual rate of margin expansion as intermediate-term average user monetization sees limited upside during the transition,” Devitt said.

Disclosure: Javier Hasse holds no stakes in any of the securities mentioned.