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Why TripAdvisor Stock Fell 14.2% in February

By Keith Noonan - Mar 9, 2020 at 8:20AM

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The coronavirus is casting a cloud of uncertainty over the travel industry.

What happened

Shares of TripAdvisor (TRIP 1.07%) slipped 14.2% in February, according to data from S&P Global Market Intelligence.

Concerns about the novel coronavirus officially known as SARS-CoV-2 hit the market late in the month, and the travel company's stock got caught up in the sell-off despite solid quarterly results a couple of weeks earlier.

TRIP Chart

TRIP data by YCharts.

TripAdvisor reported fourth-quarter quarter results on Feb. 12, delivering sales and earnings results that topped the market's expectations. Revenue tumbled roughly 3% year over year to come in at $335 million, but non-GAAP (adjusted) earnings per share rose roughly 41% to $0.38 and surpassed the average analyst estimate's call for earnings of $0.34. Despite the substantial earnings beat, the spread of the coronavirus dampened the outlook for the travel industry, and TripAdvisor stock slid at the end of the month.

A miniature plane next to a person using a laptop.

Image source: Getty Images.

So what

Mounting fears that COVID-19 will weaken the global economy prompted a week of record sell-offs at the end of February, and companies in the travel and tourism industries were particularly hit hard. TripAdvisor's core business revolves around selling ads to hotels, restaurants, and tourist destinations, and there's a good chance that these businesses will be doing less advertising amid weakened demand. 

Now what

TripAdvisor stock has continued to stumble in March. Shares are down roughly 6% in the month's trading as concerns about the novel coronavirus have continued to weigh on global markets. 

ESTC Chart

ESTC data by YCharts.

With the virus still spreading and many countries implementing travel restrictions or other precautions and some health agencies advising people to avoid large gatherings, it's reasonable to expect that the tourism industry will have a tough year. 

TripAdvisor projected that its EBITDA would be at least flat in 2020 when it held its fourth-quarter conference call in February, but this target seems to have been based on the assumption that the virus wouldn't have much of an impact outside of Asia. With the number of confirmed cases now climbing at an alarming rate across the globe, it's likely that the business will see a greater adverse impact than initially expected. 

The sell-offs in March have pushed TripAdvisor's stock to an all-time low, and shares now trade at roughly 12.5 times expected forward earnings and 1.85 times expected sales.

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