Piper Sandler downgrades Expedia as Q1 results show weak B2C trends

Investing.com -- Piper Sandler on Thursday downgraded Expedia (NASDAQ:EXPE) shares to Underweight from Neutral and slashed its price target to $135 from $174 following the travel technology company’s latest earnings report.

The company’s shares plummeted nearly 10% in premarket trading Friday as investors reacted to the print.

The brokerage described Expedia’s first-quarter results as “mixed,” highlighting the 1% miss in bookings and revenues, while EBITDA was better than anticipated.

The company’s bookings for the first quarter amounted to $31.4 billion, a modest year-over-year growth of 4%, which is a slowdown from the 13% growth observed in the previous quarter.

The business-to-consumer (B2C) segment was noted as the primary factor for this deceleration, with consumer business growing only 1% year-over-year compared to 9% in the fourth quarter.

In contrast, the business-to-business (B2B) segment showed resilience with 14% growth, helped by geographic and product diversity.

Revenue for the quarter was reported at $3 billion, up 3% year-over-year but 1% below Street forecasts. Meanwhile, EBITDA of $296 million exceeded the street’s expectation of $270 million.

Piper Sandler voiced concerns regarding weaker consumer demand and a decline in U.S. inbound travel, with inbound travel to the U.S. down by 7% and travel from Canada falling 30%.

Among Expedia’s properties, Hotels.com faced pressure due to its international mix and foreign exchange factors, while Vrbo bookings remained positive, growing in line with the market.

“Brand Expedia remained the strongest,” analysts Thomas Champion and James Callahan noted.

Looking ahead, management’s guidance for the second quarter anticipates bookings and revenue growth of 2-4% and 3-5% year-over-year, respectively. However, forecasts for fiscal year 2025 now call for bookings growth of 2-4%, a drop from the previously projected 4-6%, and revenue growth of 3-5%, down from the earlier 4-6% estimate.

On a positive note, EBITDA margins are expected to expand by 75-100 basis points, an improvement from the prior estimate of 50 basis points, partly due to recent headcount reductions.

“Comments suggest that full-year guidance extrapolates the trends in April through the balance of the year,” analysts said.

“We hope that’s the case, but the compares get steadily more challenging with 2024 B2C growth acceleration from -3% in 1Q24 to 1%, 4%, and 9% through the balance of the year,” they added. “Lower government spend doesn’t help, nor does the possibility of a weakening U.S. consumer.”

Piper Sandler’s updated thesis reflects concerns over the top-line performance and the vulnerability of Expedia’s stock due to its heavy concentration in the U.S. market, which could be affected by a potential decline in travel demand.

This article first appeared in Investing.com