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The global travel industry took a hit last year due to the COVID-19 pandemic.
According to a U.S. Travel Association report from earlier this year, travel spend declined 42% year-over-year to $679 billion last year. Expenditure on international and business travel fell sharply by 76% and 70%, respectively.
Let’s compare two such travel companies, Airbnb and Expedia, using the TipRanks Stock Comparison tool, and see how Wall Street analysts feel about these stocks.
Airbnb, Inc. is an online marketplace that connects hosts and guests for booking travel services and accommodation facilities worldwide. Last week, the company reported strong Q2 results, boosted by the relaxation of travel restrictions and increased vaccinations.
Airbnb posted revenues of $1.33 billion, a whopping 299% jump year-over-year that surpassed the Street’s estimates of $1.23 billion. The company reported a quarterly loss of $0.11 per share, much lower than analysts’ estimated loss of $0.48 per share and much better than the prior-year quarter’s loss of $2.18 per share.
The second quarter showed significant growth of 320% year-over-year in gross booking volumes (GBV) to $13.42 billion, while Nights & Experiences Booked grew 197% year-over-year to 83.1 million.
That being said, Airbnb expects the third quarter to be the strongest revenue-generating quarter, backed by a strong GBV backlog created in the peak travel season. However, the company cautioned that the new variants of the virus, such as the Delta variant, will continue to affect travel behavior. (See Airbnb stock chart on TipRanks)
Furthermore, ABNB said in its letter to shareholders, “As a result, year-over-year comparisons for Nights and Experiences Booked and GBV will continue to be more volatile and non-linear.”
However, Evercore ISI analyst Mark Mahaney expects that “the magnitude of this deterioration could be very modest” as the company said that it “saw a record-high number of Nights Booked during one day in July.”
The analyst reiterated a Buy and a price target of $195 (35.5% upside) on the stock.
Analyst Mahaney also pointed out that the company is addressing supply challenges effectively. According to the analyst, in May this year, ABNB had hosted a product event, where the company announced more than 100 updates to its core service.
These updates seem to be working, as the company indicated in its letter to shareholders that active listings in non-urban destinations in Europe and North America grew 8% quarter-on-quarter.
Interestingly, ABNB’s long-term stays, which are defined by the company as stays of at least 28 nights, was its “fastest-growing category by trip length.” In addition, a company survey indicated that 81% of its long-term stay guests in Q2 plan to book another long-term stay in the coming year.
Mahaney is of the opinion that this indicates that “Airbnb’s TAM [total addressable market] may be larger than the Leisure Lodging market previously assumed.”
ABNB expects that its Q3 adjusted EBITDA margin will be “substantially higher” than its margin in Q3 of FY19, as the company has made fundamental changes to its cost structure. Over the long term, Airbnb expects to achieve EBITDA margins of 30% or more.
Mahaney believes that this shows that the company is achieving profitability “faster than expected.”
Turning to the rest of the Street, consensus is that Airbnb is a Moderate Buy, based on 13 Buys and 8 Holds. The average Airbnb price target of $179.95 implies an approximately 25.1% upside potential from current levels.
Expedia Group (EXPE)
Expedia Group leverages its travel platform and technology across the company’s extensive portfolio of business and brands including Expedia, Hotels.com, trivago, and VacationRentals.com.
Earlier this month, the company announced mixed Q2 results. Revenues ballooned 273% year-over-year to $2.11 billion, versus the consensus estimate of $2 billion. Adjusted loss per share came in at $1.13, narrowing from a loss of $4.09 per share in the same quarter last year. However, analysts were expecting a loss of $0.65 per share in Q2.
While Expedia’s gross bookings jumped 667% year-over-year to $20.8 billion, they declined by 26% versus the second quarter of FY19. Wells Fargo analyst Brian Fitzgerald pointed out that EXPE’s gross bookings fell short of the high bar set by its competitor, Booking Holdings (BKNG), whose gross bookings fell only 13% versus Q2 FY19.
However, the analyst still viewed Expedia’s progress “favorably." Fitzgerald reiterated a Buy on the stock following the Q2 results but lowered the price target from $235 to $215 (50.8% upside) on the stock.
The analyst remained concerned regarding the “softening of demand in July” that management noted at its earnings call, due to COVID-19 variants.
At the same time, Fitzgerald noted some key positives for the stock, including continued strength at EXPE’s online marketplace for alternative accommodations, Vrbo. The other positive for the stock was the company’s more even mix of 50% each between merchants and agency gross bookings “vs. a 30/70 merchant/agency split for BKNG.”
The company’s management noted on its earnings call that it has seen cancellation rates growing slightly, due to new variants of the virus, while performance marketing remained volatile. Performance marketing is online marketing wherein advertisers pay only if a specific action takes place. (See Expedia stock chart on TipRanks)
Expedia decided to reduce its focus on marketing, and instead focus on brand building by providing excellent service to its customers. Analyst Fitzgerald noted EXPE was justified in taking this risk-averse approach “to customer/bookings acquisition given uncertainty around cancellations and EXPE's relatively constrained financial capacity; however, we'll be looking for EXPE to not cede too much competitive ground to BKNG as the pandemic runs its course.”
Turning to the rest of the Street, consensus is that Expedia is a Moderate Buy, based on 6 Buys and 10 Holds. The average Expedia price target of $184.20 implies an approximately 29.2% upside potential from current levels.
While analysts are cautiously optimistic about both stocks, based on the upside potential over the next 12 months, Expedia seems to be a better Buy.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.