Although Expedia and Priceline.comshares have surged this year, Europe presents a big question mark for travel stock analysts.
In the short term, Jake Fuller, an analyst at Lazard Capital Markets, has seen European travel trends hold up, but he emphasized that travel is a lagging rather than a leading economic indicator.
“If indeed the weakness in Europe continues to gain steam, we’re going to see that show up in travel. It’s not going to show up in (the second quarter) — it’ll be in the back half of the year,” Fuller told CNBC’s “Squawk on the Street.”
Last month, Fuller downgraded Expedia’s stock to a “neutral” rating from a “buy,” since he thought its expectations had become too aggressive.
“All of my data is showing me their business is actually slowing down a little bit,” he said. “I think their margins are coming under pressure, but importantly not because of Europe.”
He predicted that Priceline , which has more exposure than Expedia to Europe, would have a “very strong second quarter,” and that any concern for the company is more of a third-quarter or fourth-quarter issue.
“I’m not particularly worried about Europe today, but in the back half of the year, I am,” he said.
Investors will be able to get a better gauge of Europe’s impact on travel during upcoming company earnings calls.
“My general sense is we are indeed starting to see on the margin some erosion or deceleration in forward booking patterns, but there isn’t a lot of public data we’re going to be able to look at before the company reports,” he said.
While Andre Sequin, an analyst at RBC Capital Markets, agreed that Europe is the big question for investors, he still has an “outperform” rating on both companies’ shares.
“Just from anecdotal checks that we’ve done ourselves, what we’ve seeing is that the European traveler may be taking shorter trips in distance so they’re not flying there, but they’re still making those hotel stays,” Sequin said.
Since hotel stays generate greater profits for the companies, analysts are more concerned with those sales. Still, Sequin said Expedia’s performance could outweigh any potential macro slowing in trade if it posts improvement in its conversion rates.
“What we’re looking for more with Expedia and what our outperform is still based on is the fact that this company is on the cusp of a turnaround really or reacceleration if you will,” Sequin said.
—BY CNBC.com’s Katie Little
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RBC Capital Markets is currently providing Expedia with nonsecurities services. Lazard Capital Markets makes a market in these securities.
Follow Katie Little on Twitter @katie_little.