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Is the market maturing? Is mobile all it’s cracked up to be? Sally White takes a look back on how the market moved in 2014

2014 may have been a great time for travel, but the travel companies have not exactly wowed the stock market. Spoilt by years of stratospheric growth figures share traders have been unimpressed by this year’s more sober numbers. While a few stocks have put in star performances, en bloc the on-line travel shares did less well than main market indices.

True, enthusiasm for travel was probably a little muted by Europe’s economic problems, Ebola, the Malaysian Airline disappearance and oil price fluctuations.

Even the hectic pace of consolidation, with mergers, acquisitions and forecasts of more bids to come, failed to excite the punters for long. It’s said that stock markets usually reflect companies' profits a year or more ahead – (well, analysts guesses!) Traders don’t seem to see that many new customers out there! The widely held view is that the $400 bn-500bn digital travel industry sector is maturing. Most of us are ‘already hooked’ on booking on line! Even the move to mobiles, it is being said, is unlikely to add that many to the numbers of ‘netizens’.

That said, since travel growth correlates with GDP, the economic recovery in the US should augur well for profits. The jaundiced view may not even apply to North America, and prospects for growth in China, India and South America are looking better, according to World Travel Monitor. So, maybe the market has lost its way in the information overload. There are plenty of complaints that, in such a rapidly changing, huge and diverse industry, collecting and evaluating hard data are a challenge. Too much comment on the macro picture is based merely on industry samples and surveys.  

Or maybe investors have defected to other sectors of ecommerce and m-commerce that are looking commercially sexier. Travel’s 34% share of US ecommerce sales is expected, by the likes of US broker Trefis, to fall to 26.2% by 2018.

A barrier for investors is that travel-booking companies can come on hi-tech share price ratings. Prices that are 40 times-plus historic earnings and more make investors cautious.

Tough times ahead  

The real turn-off has been evidence that the already tough competition is going to get tougher, screwing margins and pulling down profit forecasts. The world’s digital heavies – Google, YouTube, Yahoo, Facebook, et al - either are, or are supposed to be, pushing for chunks of the industry.

As those giants enter the market they find a battle ground in which M&A have left four specialists dominating the quoted sector – TripAdvisor, Priceline, Expedia and Orbitz Worldwide. (Other contenders were, Australia’s Wotif, a 2014’s M&A targets which has fallen to Expedia, and Travelocity, picked up by travel Texas-based travel technology giant Sabre.) Up-and-coming are China’s well-established Ctrip.com International and newcomer Qunar, and India’s Makemytrip, (all Western stock market quoted). TripAdvisor is visited for its travel content by around 60% of Americans, but Google’s YouTube has come up fast.

Proof that there is money to be made comes with Makemytrip, a 2014 NASDAQ star. The shares are up over 40% (outperforming the main US market by 30%). Currently around $27 they are mid-way 2014’s $36 and $16.50 range. Scope for growth in India is vast, as Makemytrip has indicated to analysts – it expects to improve 2015’s financial performance by around 20-30%.

The Chinese contingent is being held back by their heavy development spending – money is going out as fast as they are pulling it in. That’s bringing disappointing bottom lines even though sales are soaring. Qunar is back around $26 a share having been up to $36.7. Shares of former star Ctrip’s have fallen 13% on the year, being now $43 against 2014’s $36-$69 range, and 21% lower against the main market. Growth prospects look excellent, but traders don’t like the 57 times price earnings rating! Especially with falling margins and the company’s stated wish to plough profits back into the business.

Expedia has put in a good performance this year, waking up to the fact that, while it may be the largest travel company by bookings, it has badly lagged rival Priceline in share price gains. So, it has shaken up its strategies and produced some real good performances and growth rates. The shares are up 30%, 17% against the main market.

Extraordinarily profitable it may be, but Priceline could be slowing down, for a bit, anyway. Latest reported figures, though excellent, have been less so than in 2013. Traders, used to strong double digit growth figures for years, don’t like it that management has been pulling back forecasts. Or that it paid 46% above the market price in June to buy OpenTable!

Lower profit guidance has hit Orbitz, too, and as a result traders are testing out take-over stories. 

TripAdvisor has also fallen from grace - down from its 2014 peak, although its figures have been excellent. If your historic rating is around 50 times earnings even a promise of earnings growth of over 20% is not enough!

So, 2014’s story for the on-line travel sector has been mainly about profits delivery underperforming expectations - we won’t know it actually made for a few weeks yet. Companies are having to spend to spend to keep up with their customers’ migration to mobiles and smartphones. But there’s a lot going for it in 2015, and not just lower airfares.

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