Shares of Expedia Group fell sharply by more than 8.5% on Friday after the company reported first-quarter revenue that came in below Wall Street expectations, signalling a slowdown in US travel demand.
The online travel platform posted revenue of $2.98 billion, falling short of the $3.01 billion expected by analysts surveyed by LSEG.
The decline marks a concerning signal for the broader travel industry, which had been hoping for a strong summer season.
Analysts attributed the weaker-than-expected results to economic pressures weighing on consumer spending, particularly in the United States, where Expedia generates about two-thirds of its revenue.
At least 13 brokerages reduced their price targets on the stock post the earnings announcement.
Large US presence adds to the drag as inbound travel is affected
Expedia’s performance reflects growing consumer caution in the face of elevated interest rates, lingering inflation, and geopolitical uncertainty, including the impact of ongoing trade tensions.
“It’s all just a bit more pronounced in the case of Expedia, with a bigger US presence than peers,” said BTIG analyst Jake Fuller.
According to Barclays analysts, the recent results confirm that US travel has entered a slower phase.
Piper Sandler said commentary around US inbound travel and the B2C business was “discouraging”, and suggested a “tough slog from here”.
The brokerage downgraded the stock.
“Expedia will continued to have balanced risk/reward profile due to its ‘outsized exposure’ to the US demand environment, which makes up around two-thirds of its revenue,” Wedbush said in a Friday note.
US demand has demonstrated the greatest signs of uncertainty of softer consumer spending in the near term, Wedbush analysts said, lowering its price target to $165 from $180.
Analysts caution that low Canadian inbound travel to the US could dent summer play
One of the most striking data points was a nearly 30% drop in bookings to the US from Canada.
Analysts at Truist highlighted that tensions between the two countries may have begun discouraging cross-border travel.
This slump is significantly steeper than the 7% overall decline in international inbound bookings.
Analysts warned that the geopolitical strain could further dent sentiment during the summer season, especially if diplomatic ties do not stabilize.
They particularly cautioned about Canadian inbound travel to the US, which took a hit even though souring geopolitics only took hold in the final weeks of the quarter.
Core profit margin likely to be met despite weakening travel demand
Despite the gloom, Expedia Group is expected to stay on course to meet its core profit margin targets despite signs of weakening travel demand, according to a note from Oppenheimer on Friday.
The investment firm pointed to the company’s disciplined cost controls as a key factor supporting its margin resilience.
Chief Financial Officer Scott Schenkel told investors during an earnings call on Thursday that the online travel platform now anticipates its full-year EBITDA margin will expand by 75 to 100 basis points.
That marks an improvement over its earlier forecast of a 50-basis-point increase, according to a transcript from FactSet.
Despite the improved profitability outlook, Expedia revised its revenue growth guidance downward.
Management now expects revenue to rise by 2% to 4% over the full year, compared with a prior projection of 4% to 6%.
For the current quarter, the company forecasts revenue growth in the range of 3% to 5%, along with a similar 75 to 100 basis point increase in EBITDA margin.
Stock performance hinges on the macroeconomic picture
While gross bookings missed forecasts, Expedia managed to deliver adjusted earnings before interest, taxes, depreciation, and amortization above expectations.
The company’s business-to-business segment showed relatively stronger performance thanks to its wider international reach.
Still, the outlook remains tepid.
The company’s second-quarter and full-year guidance fell modestly below consensus expectations.
“While Expedia investors do value profitable growth, returning to a focus on profitable growth isn’t the messaging those investors want to hear right now, even if it is the right move,” Benchmark analyst Daniel Kurnos says in a research note.
There needs to be a better growth component to the Expedia story for the stock to really work, the analyst says.
“That said, it probably wouldn’t take much for shares to pick up some low-hanging fruit as long as the broader macroeconomic picture doesn’t get worse.”
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