Despite the fact that long-term trends in the massive travel market shifting online have not changed, travel stocks have not participated in the rally this year. The industry’s fundamentals are intact, but even the tech companies have underperformed indices.
Global wealth continues to increase. Baby boomers continue to travel abroad and select countries like Japan are seeing a huge surge in tourism. Phocuswright Research estimates for 2019 include alternative accommodations and tours and activities reaching $1.7 trillion, so the global travel market opportunity is growing.
Bookings shifting online is a secular trend that’s here to stay, and ad dollars will follow, boosting profits for these three travel stocks to buy.
Tripadvisor Inc (NASDAQ:TRIP) had an earnings beat but saw a 1% revenue decline. Shares have sold off dramatically, and TRIP stock is down almost 20% in the last few months.
A closer look at the financials shows that this selloff is overdone. At worst, the first quarter was an investment period for the Company. While revenue took a slight hit, total adjusted EBITDA grew 11% and the margin increased by 3% year-over-year. And TRIP is still on track to deliver full-year double-digit consolidated adjusted EBITDA growth. Cash flow from operating activities was up 5% as well.
It’s important to remember that TRIP still has a very influential platform with 490 million average monthly unique visitors. It’s not an easily replicated asset. So while TRIP hasn’t quite figured out how to monetize in the most efficient way, they aren’t going anywhere.
The flywheel is at play, and there is simply lots of potential for the stock to bounce back. TripAdvisor’s vast community drives content (free), which drives traffic, which drives travel partners and ad revenue.
TRIP is more focused than ever on making product improvements. This will pay dividends down the line. In particular, the Experiences and Restaurants businesses should help drive more traffic and create an even more engaged customer base.
Booking Holdings (BKNG)
Booking Holdings Inc (NASDAQ:BKNG), the undisputed leader in online travel and owner of major online travel brands like Booking.com, KAYAK, priceline.com, agoda.com and Rentalcars.com, got rocked after a slight miss in the first quarter. The market pulled shares down high single digits, bringing three-month performance into negative territory. This is just one example of a leading travel technology company that has been oversold given that the full-year targets are still achievable.
BKNG is making a big push on markets outside of the U.S. and Canada, which may hurt near-term profits as expenses will be elevated to accomplish the task. Their efforts have resulted in 200,000 new hotel properties over the past year. Management has pleased investors with the underlying metrics and repeat customers and conversion.
The company has also been investing heavily on the tech infrastructure side, which includes solidifying its presence in the cloud. This is significant because it allows BKNG to deploy code significantly faster, to allow them to do more things on the marketing front in terms of optimization. In short, these AI-oriented investments will pay off across a multi-year period.
With BKNG, it behooves investors to buy the leader. With six major travel and experience brands under its umbrella, this is a strong buy on the current pullback.
Trivago (NASDAQ:TRVG), like TRIP, has had a tough year, down over 20% over the past three months.
While total revenue had a double-digit quarterly decline, net income swung positive year-over-year. Many were concerned about the ballooning in advertising and related expenditures, but the numbers show that TRVG is becoming more efficient. Any company that is able to improve its bottom line in a dramatic fashion after a big hit to the top line is worth a look.
By recalibrating its Advertising Spend and improving the quality of the traffic referred to advertisers, Trivago was able to turn the business from the largest loss in its history to its most profitable first quarter. So despite what seemed like a stumble due to the revenue decline, Trivago is actually starting the year off on track.
A lot of operational improvements are underway as well, and the first quarter profit improvement is a clear positive sign that Trivago is reaching a stabilized base. The next step will be for Trivago to deliver profitable growth. As product optimization leads to higher engagement and retention, TRVG stock will regain some confidence and improve instep.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.