Excellence in Execution
Last week, investors kicked it into high-gear after Expedia (Nasdaq:EXPE) reported better-than-expected Q2 earnings despite a sharp drop in adjusted EPS. The online travel booking company managed to post a 4% increase in operating income and a 20% increase in free cash flow on a year-over-year basis.
Expedia has seen lower airfare and room rates offset by a growth in the volume of the number of transactions that it processes. The company´s hotels.com business is continuing to expand as evidenced by its recent partnership with eLong (Nasdaq:LONG), which will significantly add to Expedia´s international presence. Expedia currently trades close to its 52-week high and is up 159% year-to-date.
The online travel industry continues to prosper in China as Ctrip.com (Nasdaq:CTRP) beat Q2 estimates with diluted earnings per ADS growth of 32% on a 26% increase in quarterly sales. The company saw a huge increase in air-ticketing revenue; Ctrip´s air-ticketing segment is now equal to its hotel reservation segment in terms of total revenue. CTRP has climbed over 110% so far this year.
Stay Tuned
Priceline.com (Nasdaq:PCLN) will report its Q2 earnings on Monday before the opening bell and analysts are looking for continued growth. EPS is expected to rise 13% on an 11% pop in sales when compared to the company´s year-ago quarter. These projections might even be on the conservative side as Priceline has built a track record of topping Wall Street estimates.
The company is coming off of a Q1 in which both EPS and revenue experienced double-digit growth despite poor macroeconomic conditions for the industry as a whole. The online travel service provider continues to wrest market share away from the competition with aggressive pricing and a growing international network. Priceline is also trading near a 52-week high and has seen its stock price soar about 80% in 2009.
Orbitz Worldwide (NYSE:OWW), another formidable player in the online travel industry, was already off to the races on Tuesday, one day before it was set to report its own quarterly results. Shares of OWW closed up 16.6% as the company benefited from Expedia´s results and an analyst upgrade. On Wednesday, the stock popped about 25% in early morning trading action as Orbitz crushed analysts´ estimates with the help of increased booking transactions.
The Bottom Line
The online travel stocks that were left for dead just months ago are now far from it. Depressed air and hotel prices that would normally weigh on these stocks have been mitigated by rising reservation volumes. Investors in these companies have seen their stock prices run up a great deal in the past couple of weeks, but it seems that this trend is merely a correction of an overly pessimistic outlook rather than being driven by speculation.
