Morgan Stanley cut Expedia Group, Inc. (NASDAQ:EXPE) to Underweight from Equal Weight on September 16 as a new analyst took over coverage, with a $235 price target about 20% below where the stock had been trading. Analyst Matthew Cost’s argument is that Expedia is losing the race for users. By Morgan Stanley’s count, its monthly active users were flat year over year in the second quarter while Booking.com grew about 6% and Airbnb about 10%. Marketing is Expedia’s highest cost, so flat users mean paying to win back the same traveler every year while rivals add new ones.
Its bookings also lean toward airfare and chain hotels, which a traveler can compare in seconds through a search engine or an AI assistant, and the bank doubts Expedia can turn those tools to its advantage as well as its rivals. The shares fell on the day and have slipped since.
Expedia’s Growth is Coming From Businesses, Not Travelers:
The bull case rests on what the user numbers do not capture. Total gross bookings grew 12% in the second quarter, but the business-to-business segment, which supplies inventory to banks, airlines and other sellers, grew bookings 21% and revenue 23%, its twentieth straight quarter of double-digit bookings growth. A traveler who books through a partner’s app never appears in Expedia’s user count, yet Expedia still earns on the transaction.
Management raised its full-year revenue and margin outlook on the back of that quarter. Advertising grows with traffic rather than sign-ups, and the company has bought back $900 million of stock this year, which supports earnings per share even when user growth stalls. Evercore ISI, BTIG, and Oppenheimer all raised their view after the same quarter.
Flat Users is a Problem That Buybacks Cannot Fix:
The user gap is the core of Cost’s case, and every year it persists; Expedia’s cost of winning a booking rises relative to Booking and Airbnb. Much of Expedia’s inventory is available elsewhere, which is why the bank sees it as more exposed than its rivals to whatever AI does to travel search.
Conclusion:
Morgan Stanley’s call revives an old concern that Expedia distributes undifferentiated inventory while its rivals own their customers. However, its B2B business is growing at more than twice the rate of the consumer side, guidance was raised in August, and Morgan Stanley is the only bank with a sell-equivalent rating on the stock. The next read is third-quarter results in early November. If consumer bookings keep growing while Morgan Stanley’s user count stays flat, the user count is measuring the wrong thing. If consumer bookings slow too, the downgrade will look early rather than wrong.
Market Sentiment:
Expedia Group, Inc. was held by 55 hedge funds with a combined stake value of about $4.1 billion at the end of Q2 2026 in the Insider Monkey database. This is down from 62 hedge fund holders with a cumulative investment value of around $3.5 billion in the previous quarter.
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This article is originally published at Insider Monkey.
