Why Expedia Inc. Stock Dropped 18% Last Month

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What happened

Shares of Expedia Inc. (NASDAQ: EXPE) tumbled last month as the online travel agency posted a disappointing fourth-quarter earnings report. The company missed analyst estimates on all accounts and issued weak guidance for 2018. According to data from S&P Global Market Intelligence, the stock finished February down 18%.

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As the chart below shows, the decline came essentially in one session after the travel specialist reported earnings.

So what

The parent of brands including Orbtiz, Travelocity, and HomeAway fell 15% on February 9 as the company said gross bookings increased 14% to $19.8 billion, driving an 11% increase in revenue to $2.32 billion, but that was below expectations of $2.36 billion. Growth at home-sharing site HomeAway was particularly strong for the year, increasing 46%, and room nights at its core brands, including Expedia and Hotels.com, were up 17%. Still, competition has been weighing on the online travel industry as a number of Expedia's peers posted disappointing results. For Expedia, that increased competition manifested itself in the form of a 16% increase in marketing expense, and operating income dropped 23% to $113.4 million. On the bottom line, adjusted earnings per share dropped from $1.17 to $0.84, well short of estimates at $1.15.

CEO Mark Okerstrom said:

Now what

Looking ahead, Expedia did not offer detailed guidance, saying only that it expected adjusted EBITDA growth of 6% to 11% as the company spends on migrating to a cloud platform, but that was better than 2017's 6% adjusted EBITDA growth. Still, the heavy spending that OTAs like Expedia, Trivago, and TripAdvisor have been forced to commit should pressure earnings for the foreseeable future. Investors have a right to be disappointed after last month's report as a stock with a P/E of 26 should be able to deliver better earnings growth than single digits.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends TripAdvisor. The Motley Fool recommends Expedia and Trivago. The Motley Fool has a disclosure policy.