Booking/Expedia: travel stocks grounded by marketing spend

Sun’s out, wallets out. Summer travel season is fast approaching and it will be a busy one. After two years of pandemic-related restrictions that scythed non-essential travel, millions are expected to take to the roads and skies in the coming weeks. The World Travel & Tourism Council (WTTC) reckons US travel and tourism will exceed pre-pandemic levels by more than 6 per cent this year.

Online travel sites will be heaving a collective sigh of relief. The two biggest — Booking Holdings and Expedia — predict this could be their busiest summer travel season ever. Yet despite the bold forecasts, share price performance is lagging.

Expedia, which owns Airbnb rival Vrbo, has shed 27 per cent of its value this year. Booking, a much larger competitor with a market cap of $96bn, is down about 4 per cent.

Revenue growth is not the problem. Booking, whose properties include Priceline and Kayak, reported $27bn in gross bookings during the first quarter. That is more than double the year-ago period and is the best quarter on record. At Expedia, both bookings and revenue have bounced back despite inflationary pressure on consumers’ spending. Would-be globetrotters have no qualms about paying more for flights and hotels to visit tourist spots.

Instead, the issue is costs; specifically, heavy spending on marketing and advertising. Expedia spent nearly 60 per cent of its revenue on selling and marketing during the first quarter, up from 53 per cent a year ago. At Booking, the figure rose from 40 to 43 per cent. Despite top-line growth, both companies reported a net loss for the quarter.

Google is partly to blame. The search giant’s push into the travel sector means it now features services such as Google Flights more prominently. This has reduced travel agent visibility in search results. With so-called free links pushed further down the page, both Expedia and Booking are forced to spend more on click ads. Shares will remain grounded until expenses come down to earth.