Today has not been a good day to be a shareholder in some Internet-based businesses. While the S&P 500 is currently up around 0.27%, shares of several Internet companies are down considerably on adverse news. Just to get a picture of what the situation is like, let's look at four specific companies whose shares have fallen precipitously today:
(table made by author with data derived from finance.yahoo.com)
Down the most today among the companies listed above is Travelzoo (NASDAQ: TZOO ) , which has lost over 12% of its market capitalization following the company's announcement that it lost $19 million (or $1.24 per share) for its most recent fiscal quarter. Although $19 million may not sound astronomical, when compared to the company's revenue of $37.3 million and earnings of $3.4 million (or $0.21 per share) in the same quarter a year ago, it is understandable why investors would be unhappy.
Digging deeper into the company's numbers we find that this loss was due to a one-time charge in the amount of $22 million as a result of the settlement of a legal dispute over what management calls "unclaimed property audits". According to the terms of the settlement, which involves 700,000 shares following the 2002 merger between Travelzoo and Travelzoo.com Corporation, that the company said were never claimed, it will pay $22 million between 34 states so as to avoid additional legal action. However, there exist another 15 states that may still file charges in regards to 400,000 shares, so further charges in the future might arise.
However, Travelzoo isn't the only provider of travel services to face a declining share price lately. As detailed in another article, Expedia (NASDAQ: EXPE ) has been having a difficult time lately, seeing shares drop a few days ago after Deutsche Bank lowered their forecast for the company as a result of increasing competition. The deterioration of the company's fundamentals are evident as its net profit margin has fallen for the past few years, driven primarily by an increase in its selling, general and administrative expenses rising as a percentage of revenue.
Shares of Overstock.com (NASDAQ: OSTK ) fell more than 11% following its earnings announcement as well. However, as opposed to Travelzoo's quarterly loss, Overstock.com reported an increase in its revenue of 18% to $301.4 million, which was approximately in line with analyst's estimates. On top of this, the company reported an increase in its net income, which rose by 31% to $3.5 million from the $2.7 million it reported during the same quarter a year ago.
The bad news that investors reacted negatively to pertaining to the company had nothing to do with its growth or earnings being bad, per se. Rather, Mr. Market was disappointed by the fact that it missed analyst's earnings per share expectations by $0.01 after it had three quarters of consecutive earnings outperformance, a sign that its future growth may not be as strong as it was in the past.
Shares of eBay (NASDAQ: EBAY ) fell more than 4% today even after the company beat earnings expectations of $0.63 per share by a penny and approximately matched revenue expectations of $3.9 billion. The reason behind this share price decline can be attributed to the company's lower-than-expected fourth quarter forecast of between $4.5 and $4.6 billion, which is slightly below analyst's expectations of $4.64 billion. Due to the lowered forecast, the company said that investors should prepare for both revenue and net income to come in around the bottom of their full-year forecast.
In spite of these shortcomings, the company has been performing reasonably well. According to this article, eBay saw commerce activity increase by 21% during the quarter, with mobile commerce rising by 75% as 3.2 million new mobile app users came to the market. This has proven to be very beneficial for the company and will likely continue as its footprint grows.
Along with the other companies discussed in detail above, TripAdvisor (NASDAQ: TRIP ) saw its share price decline by over 3.5% earlier today. Interestingly, the only significant news that was released by the company today was an announcement that it was launching a new service that would allow independent hotels and B&B's (bed and breakfasts) the ability to generate bookings for their individual locations, something the company said is a "first for the hospitality sector". In essence, the company's service, coined TripConnect, will allow hotel owners the option to participate in hotel price comparisons.
Due to this news, which I would imagine the market would perceive to be good, not bad, I believe that the company's decline in share price today is likely due to investors fearing that problems at companies like Travelzoo and Expedia will imply problems for larger companies like TripAdvisor.
As I stated at the beginning of this article, today is not a good day to be invested in online businesses (or at least these ones!). However, this does not mean that the companies in question that have fallen today are necessarily bad investments. Instead, it is possible that the market is overreacting to negative news, which could allow the Foolish investor the opportunity to pick up one of these service providers at a discount to their intrinsic value. As such, I suggest that you look at each company in depth before buying as they all present opportunities, but also entail risks; risks that investors were on the wrong side of today.
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