What happened
Shares of TripAdvisor (TRIP -0.25%) were heading again today as the travel-recommendation specialist once again got hammered by coronavirus fears. This morning, California declared a state of emergency after it reported its first death from the coronavirus, and Italy said yesterday it would close all of its schools until at least March 15 as part of an effort to contain the spread of the virus in what has been one of the countries most racked by the disease. Both are popular travel destinations.
TripAdvisor was one of many travel stocks to fall today as the sector continued to react to concern about the virus. TripAdvisor stock was down 8.5% as of 11:41 a.m. EST, while the S&P 500 was off 2.1% at that time.
Image source: Getty Images.
So what
TripAdvisor makes most of its money by selling ads to travel-related businesses like hotels, restaurants, and tourism-focused activities. Not surprisingly, that kind of business is likely to take a hit when there's a pullback in the overall travel economy. Hotels, for example, are less likely to spend money on advertising if fewer people are looking to book rooms.
As further evidence that a travel recession is afoot, United Airlines said yesterday that it would cut 10% if its domestic flights and 20% of its international flights next month due to falling demand caused by the coronavirus, and it expects a similar reduction in May. JetBlue also said it would cut capacity by 5% in the near term.
Now what
TripAdvisor was already struggling before the coronavirus hit as it's made little headway with its bookings platform, and has been challenged by Google, which has made efforts to penetrate the travel industry in recent years. In its February earnings report, which was before the coronavirus outbreak had spread beyond Asia, the company called for adjusted EBITDA growth of at least flat for 2020, and sees revenue continuing to decline in its hotel segment.
TripAdvisor shares hit an all-time low today, but the search-based company is solidly profitable, and is starting to look cheap with its P/E ratio at just 12 now. Still, considering its lack of growth and the challenges from the coronavirus, that seems like a fair valuation.
