Over the past week, two of the most prominent companies in the online travel booking industry have reported second-quarter financial results. These reports sent one stock soaring 16%, and another plummeting almost 30%. With mixed signals coming from different companies, which perspective of the industry should investors trust?
On July 24, Tripadvisor Inc (NASDAQ:TRIP) reported second-quarter financial results, posting earnings of $0.46 per share, up 24% year over year, and revenue of $246.9 million, up 25% year over year. The results blew away estimates, and in response the stock soared 16% the next day.
On July 25, Expedia Inc (NASDAQ:EXPE) reported second-quarter financial results, reporting earnings of $0.51 a share, down 33% year over year, and revenue of $1.21 billion, up 16% year over year. These disappointing results sent the stock tumbling nearly 30% the next day of trading.
These reports clearly tell different stories, as is apparent through the reaction in their stock prices. With two more titans in the space, Priceline.com Inc (NASDAQ:PCLN) and Orbitz Worldwide, Inc. (NYSE:OWW), set to report in the near future, who are investors to trust for an accurate portrayal of the condition of the online travel booking industry?
Why It Matters
It’s rare for two companies operating in the same industry to post financial results that are interpreted so differently by investors. However, the reports presented certain similarities. Both companies reported costs and expenses outpacing revenue growth and robust overall booking and traffic statistics.
Ramped-up marketing by the companies to attract consumers accounted for expanding expenses. Year over year, selling and marketing expenses grew 28% for Tripadvisor Inc (NASDAQ:TRIP) and 33% for Expedia Inc (NASDAQ:EXPE).
Robust growth in overall booking and traffic statistics from both companies is an encouraging sign for the overall industry, suggesting improving conditions. This trend is reaffirmed by strengthening consumer confidence numbers in the United States and Europe.
China, another key market for Tripadvisor Inc (NASDAQ:TRIP), Expedia Inc (NASDAQ:EXPE), Priceline.com Inc (NASDAQ:PCLN), and Orbitz Worldwide, Inc. (NYSE:OWW), hosts one of the fastest growing travel markets in the world. Even in an environment where consumer confidence is falling, Chinese travel volumes are increasing as a result of increasing Chinese incomes. Based on a recent report released by Euromonitor International, a 15% annual growth rate is anticipated in the number of outbound Chinese travelers between 2012 and 2017.
A Flat Tire For Car Rental Services
If the overall market is healthy, why were Expedia Inc (NASDAQ:EXPE)’s numbers so horrid? For one, Expedia Inc (NASDAQ:EXPE) is having trouble maintaining its market share of the US market, and ramped up spending in a bid to attract consumers, which ate into margins.
Disappointing results in the company’s Hotwire segment were the primary culprit. Consolidation in the US car rental industry has driven up rental rates, making it difficult for Hotwire to offer cars cheaply. This change is unlikely to be reversed anytime in the near future, as the car rental companies push for higher margins.
Both Orbitz Worldwide, Inc. (NYSE:OWW) and Priceline.com Inc (NASDAQ:PCLN) also possess exposure to the rental car industry, and should be affected negatively from the consolidation in the market. Car services account for nearly 5% of overall revenue for Expedia Inc (NASDAQ:EXPE), 1% for Priceline.com Inc (NASDAQ:PCLN), and car services, destination services, and travel insurance account for 13% of overall revenue for Orbitz.