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What’s Happening to Travel Stocks?

By Nicholas Rossolillo – Oct 5, 2017 at 3:04PM

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The year started off strong, but then August and September challenged the industry. Should investors be worried?

Travel stocks have faltered since late summer. Some blame has been laid on terror attacks and hurricanes, and there's no doubt that those horrible events have affected the industry.

But there's more to the story though, as some companies have given softer than anticipated projections for the rest of the year. Here's what investors need to know.

A pile of luggage sitting by a window with an airplane taking off in the background.

Image source: Getty Images.

Tragedy disrupts the travel industry

August was chock-full of bad news for tourists. Late summer, usually one of the busiest vacation times of the year, was full of negative press that kept people at home.

A string of terror attacks in Europe over the summer was followed by natural disasters, including Hurricane Harvey. The storm battered Houston, shutting down one of the busiest airline hubs in the world and flooding the city. On the heels of Harvey was Hurricane Irma, devastating the Caribbean and South Florida.

The Caribbean and Southeast U.S. are popular tourist destinations, and the storms had a negative impact on everything from cruise lines, flights, and hotels, not to mention the livelihoods of millions of people. It's no wonder investors were nervous about travel booking stocks in the wake of these events. However, the pain actually started even earlier than that.

Disappointing on guidance

During second quarter earnings season, travel companies Priceline Group (BKNG 0.36%), Expedia (EXPE 0.21%), and Trivago (TRVG 2.74%) issued guidance that showed business growth slowing down in the third quarter. Notable among them was online booking leader Priceline, which said it expects travel booking growth in the next quarter between 11% and 16%. That compares to 25% growth the same period last year, and 24% and 16% growth in quarters one and two of 2017, respectively.

Trivago also dealt investors a blow in August with a slowdown in expectations. Total revenue was up 67% in the first six months of the year, but full-year revenue is now anticipated to be up only 40%. While that is still an impressive annual number, it implies that growth in the back half of 2017 will barely be in the double digits.

Expedia had different issues as investors fretted over the departure of CEO Dara Khosrowshahi for ride hailing company Uber. Paired with the poor guidance from peers and bad weather, Expedia shares declined as well.

A woman on a chair on a white sand beach.

Image source: Getty Images.

What investors should do

While it may be overwhelming to digest it all, now could be a great time to invest in technology travel booking companies. According to Expedia's comments on its last quarterly call, the lower guidance for the second half of the year factors in an exceptionally busy 2016 travel season. As the 2016 numbers are lapped, comparable figures could get easier again.

It's also important to bear in mind that while guidance is showing a slowdown, online travel booking is still growing at a double digit pace. There is plenty of runway for that trend to continue, too. According to Priceline's investor presentation and data pulled from Euromonitor, a market research company, online accommodation booking is still shy of 40% of global market share.

That ultimately bodes well for these travel companies. While share prices have been weighed down by a slew of bad news in the last couple of months, the long-term case for sticking with companies like Priceline, Expedia, and Trivago remains intact.

Nicholas Rossolillo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Priceline Group. The Motley Fool recommends Trivago. The Motley Fool has a disclosure policy.

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