TripAdvisor (TRIP 0.06%) shareholders endured a brutal trading week this week. The stock fell 17% through Thursday trading compared to a 6% slump in the S&P 500, according to data provided by S&P Global Market Intelligence. The drop pushed the vacation travel platform's stock deeper into the red for 2022, down 33% so far.
It was sparked by rising worries on Wall Street that travel demand, after rebounding this summer, will decline over the coming quarters.
TripAdvisor didn't make any corporate announcements this week. In fact, its last earnings update in early May had investors feeling better about its prospects heading into the seasonally strong summer months.
But investors today are highly focused on the potential for a recession as inflation remains high and interest rates rise. There are early signs of slowing consumer spending in areas like retail sales, to be sure. And rising interest rates are sure to reduce economic growth.
The good news is that TripAdvisor entered the summer period with solid momentum, putting it in position to capitalize on rising demand in the second quarter for hotels, restaurants, and other experiences as consumers prioritize in-person entertainment following nearly two years of reduced spending in that area due to the pandemic.
The key question going forward is to what extent that growth rebound will give way to weaker demand ahead. Management has been talking for several quarters now about an impending spike in travel volumes that reflects pent-up demand that accumulated over earlier phases of the pandemic.
It makes sense that consumers would prioritize spending in the travel niche, just as they have in recent months on experiences like restaurants and family get-togethers. Unemployment remains near historic lows, after all, and wages have been rising. These factors all point to improving results for TripAdvisor's niche.
But investors are choosing to take a wait-and-see approach as they look for confirmation that a recession is not on the way. Look for more clarity on this point when TripAdvisor, and peers like Expedia, release Q2 results in late July and early August.