Expedia shares sink after disappointing 2018 forecast

© Reuters. The logo of global online travel brand Expedia is pictured at the International Tourism Trade Fair in Berlin

By Ankit Ajmera and Sanjana Shivdas

(Reuters) - Shares of U.S. online travel services company Expedia (O:EXPE) fell 16 percent in premarket trading on Friday, after forecasting 2018 selling and marketing costs would outpace revenue growth as it battles rivals for market share.

The company, which owns Expedia.com and Hotels.com, reported equally disappointing previous quarter results partly due to underperformance at its Trivago (O:TRVG) hotel-search website.

The latest quarter was the first full quarter under Expedia's new Chief Executive Officer Mark Okerstrom, who succeeded Dara Khosrowshahi after he left to take the top job at car-ride provider Uber Technologies Inc.

"Under the new management, Expedia is more aggressively investing in tech and marketing to scale its global footprint and catch up to industry leader Priceline Group Inc (O:PCLN), which currently has approximately 2x the inventory and room nights sold as Expedia," RBC Capital Markets analyst Mark Mahaney said.

Mahaney lowered his price target to $141 from $155, while maintaining an "outperform" rating.

Concerns that the apparent inventory war brewing between Priceline and Expedia after the management transition could weigh on the sector in a similar manner to what happened in China with online travel company Qunar, said Benchmark Co analyst Daniel Kurnos.

Profitability at Qunar and rival Ctrip (O:CTRP) were hurt a few years ago after a costly price war involving discount coupons to gain a bigger pie of the booming Chinese online travel sector.

"We don't envision a pleasant end to the apparent pricing war any time soon, noting that the Qunar situation took nearly 18 months to fully resolve itself," Kurnos said, downgrading the stock to "hold" from "buy" and suspending a price target for the stock.

Bellevue, Washington-based Expedia said on Thursday that investments in its core business and in vacation rental site HomeAway, which competes with Airbnb, as well as higher cloud spending will hurt the first quarter of 2018.

Yet some analysts were optimistic about the long term prospects of Expedia as investments including increased hiring at its lodging business would drive faster earnings before interest, taxes, depreciation and amortization and free cash flow growth in 2019.

"We acknowledge Expedia is now likely to be a show-me story until the second and the third quarter... but we remain "over weight" and are buyers of (the stock)," Morgan Stanley (NYSE:MS) analyst Brian Nowak said, lowering his price target to $150 from $160.

Up to Thursday's close of $123.03, Expedia's shares had risen about 0.2 percent in the past 12 months, underperforming a 13.6 percent increase in the Dow Jones U.S. Travel and Leisure index (DJUSCG).