Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Tripadvisor Inc (TRIP), Expedia Inc (EXPE), Inc (PCLN): Who Should Investors Trust in the Scattered Online Travel Booking Industry?

Tripadvisor IncOver 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?

What Happened

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, 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), 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 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 Inc (NASDAQ:PCLN), and car services, destination services, and travel insurance account for 13% of overall revenue for Orbitz.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.