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Why Shares of Expedia Tumbled Today

By Timothy Green - Feb 24, 2020 at 2:12PM

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The coronavirus outbreak is not good news for the travel industry.

What happened

Shares of online travel company Expedia (EXPE -0.30%) slumped on Monday as the coronavirus outbreak that originated in China accelerated its spread to other countries, raising fears about a downturn in demand for travel. As of 12:45 p.m. EST, Expedia stock was down 7%.

So what

The death toll from the coronavirus outbreak has surpassed 2,400 in China, and supply chains and travel have been severely disrupted. Outside of China, the situation is escalating. South Korea has confirmed 750 cases of the virus, with the government warning that its economy could take a hit from the outbreak. In Italy, at least 140 cases and three deaths have been confirmed, and the Italian government has imposed a quarantine on certain towns.

An airplane.

Image source: Getty Images.

These developments bode poorly for the global travel industry. Even in areas where the virus hasn't yet taken hold, people may opt to avoid any unnecessary travel to reduce risk. And with governments having trouble containing the virus, there's no telling how long the outbreak will last.

Now what

The coronavirus is a short-term problem for travel companies like Expedia, but it could lead to a severe drop in demand. Expedia generated $5.2 billion in revenue from international markets in 2019, about 43% of its total revenue. A big chunk of the company's sales are at risk.

The big drop in Expedia shares may seem like an overreaction, but it could end up being an underreaction if the outbreak isn't contained soon.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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