Shares of Airbnb (ABNB) and Expedia (EXPE) fell on Tuesday after Barclays downgraded the stocks on concerns that pent-up demand for travel will slow next year.
Barclays downgraded ABNB shares from equal-weight to underweight, its lowest rating. It also downgraded EXPE to neutral equal weight from positive overweight.
Online travel booking stocks have thrived this year as consumers have embraced so-called revenge travel following the pandemic. But in a note to clients on Tuesday, Barclays analysts said they are more cautious on the category for 2024.
“We see online travel growth slowing from here as ‘pent-up’ travel demand is eventually exhausted – particularly as consumer wallets come under increasing pressure,” Barclays analyst Trevor Young wrote in the client note.
Barclays analysts reiterated their Overweight rating on Booking Holdings (BKNG).
On the stock market today, ABNB shares fell 1.7% to 140.55. EXPE lost 2.3% to close at 144.88. BKNG gained 1.7% to close at 3,402.50.
ABNB share: Hotel competition
Barclays expects Airbnb’s earnings growth to slow or normalise next year and its trading multiple could be lower.
Barclays’ data suggests that demand for short-term rentals is “plateauing/perhaps even flattening, and (in the meantime) competitive pressure from hotel peers is intensifying,” Young wrote.
The company is also likely to face further regulatory pressure and consumer frustration with its fee structure, the report said.
Helped by earnings growth, Airbnb has gained more than 60% this year and was added to the S&P 500 in September.
Recession risk
The biggest threat to all travel stocks is an economic slowdown. The report notes that EXPE and BKNG lost more than 60% in 2008 and 2009.
“While it’s unclear whether a recession is imminent, spending on leisure travel would be the first to be cut from consumer budgets,” the Barclays note said.
Both Airbnb and Booking Holdings gave strong forecasts for bookings in the final quarter of the year. But Barclays sees some signs of softer demand heading into the new year, including “softening employment, the consumer showing early signs of being financially stretched and less available credit”.
In this environment, Barclays says it is best to “stick with the scale leader” in Booking Holdings. On the other hand, it could be a good time to “lock in profits” on Expedia shares, as booking growth could remain subdued next year, Young wrote.
BKNG shares are up about 67% this year, while EXPE is up 66%.
Strong industry performance in 2023
Meanwhile, the 19 stocks in the MarketSmith Leisure-Travel Booking industry group have gained a cumulative 64% this year. The group ranks 19th out of 197 industry groups tracked by MarketSmith.
According to IBD Stock Checkup, ABNB and BKNG are the first and second best performing stocks in the group. EXPE ranks fifth.
Another factor to watch in travel next year, according to the Barclays report, is artificial intelligence. Online travel companies are racing to offer AI assistants that can help connect all aspects of travel booking and drive sales. The larger companies with “cash/talent/data” are likely to be best positioned in this environment, the note said.
