Weaker Macro, Operational Issues and SEO Headwinds Lower Profit Estimates
Expedia analysts drastically cut estimates for adjusted EBITDA growth following a disappointing 3Q earnings report that caused shares to fall by over 40%. The company cited SEO challenges, weaker macro trends and operational issues for the lackluster performance. As a result, the company lowered FY19 adj. EBITDA growth guidance down to 5-8% from 12-15%, which caught analysts by surprise and prompted them to lower their forecast for the next few quarters.
Hong Kong and Vrgo Rebranding Slow Bookings Growth
Expedia said weaker macro trends and lower average daily booking rates (ADR) in the third quarter negatively impacted lodging and air travel. Tensions in Hong Kong contributed to lower ADR in Asia, and the company believes this weakness will persist for the next several quarters. Analysts are now estimating ADR will fall by nearly 6% year-over-year in FY19 and continue falling through FY21. Rebranding efforts on Expedia’s vacation rental platform Vrgo (formally HomeAway) also slowed bookings, but analysts believe growth will rebound next year as they expand into markets.
Analysts Revise Marketing Expenses Lower Despite SEO Headwinds
Google’s increasing usage of top-of-page hotel ads has once again stirred concern for Expedia and online travel agency peers as they reportedly saw organic SEO traffic volume decrease over the last quarter. Google’s hotel ad module inserts itself above search results and displaces links farther down the page, making them harder to discover. To make up for lost traffic, Expedia purchased more Google ad placements than they otherwise would have during the quarter – which largely contributed to their lackluster results. Even though Expedia believes SEO headwinds will persist for several quarters, analysts have revised estimates down for marketing expenses at online travel agencies. In the case of Expedia, several analysts cited improved ad conversion rates from optimization efforts that began a year ago.
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