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Why TripAdvisor Stock Dropped 5% on Monday

By Rich Smith - Aug 12, 2019 at 7:13PM

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The stock was tripped up by an earnings miss, and analysts are losing confidence.

What happened

Last week was a bit of a roller coaster for shareholders of travel information website TripAdvisor (TRIP 4.83%), which dropped after earnings last Wednesday only to rebound sharply on Thursday. By Friday, Wall Street analysts had had a bit of time to digest the news and come to a firm conclusion on the stock.

They didn't like what they saw.

Four analysts in a row cut their price targets on TripAdvisor shares Friday, sending the stock down once more to close out last week. Today, the momentum continued to drive TripAdvisor lower, and shares ended the day down another 5.4%.

Man in suit trips on stairs next to a caution sign

Image source: Getty Images.

So what

So what's everyone so upset about?

Sales declined 3% year over year in fiscal Q2, although profits grew by a penny a share. Both sales and earnings fell short of analyst expectations. Management insisted that it's still on track "to deliver double-digit consolidated adjusted EBITDA growth this year." However, TripAdvisor warned that its "adjusted EBITDA growth in the second half [will] step down from the 15% growth we delivered in the first half."

So slower sales in Q2, and slowing earnings in H2. Responding to both the results and the guidance, analysts at Barclays Capital, at Cowen & Co., at Credit Suisse, and at DA Davidson all cut their price targets on the stock.  

Now what

With new guidance factored in, analysts have cut their earnings expectations by about 4% for Q3, which is currently under way, while leaving Q4 targets unchanged. This could prove problematic for TripAdvisor.

On one hand, the latest price targets call for TripAdvisor pro forma earnings to decline 4% in Q3 -- not great news, but at least an easier target to hit. On the other hand, analysts want to see TripAdvisor deliver $0.37 per share in Q4 -- 37% growth year over year -- which should be much trickier to accomplish.  

If this current quarter's results contain another guidance warning similar to what we saw in Q2's results last week, TripAdvisor's declines may have only begun.

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