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Priceline, TripAdvisor shares crater after weak profit outlooks from competition with Airbnb

  • As hotels become better at incentivizing guests to book directly and companies like Airbnb compete for vacation customers, online bookings have been under pressure.
  • Priceline expects fourth-quarter room-night growth to 8 to 13 percent and earnings per share 10 percent below Street consensus, according to Piper Jaffray's Mike Olson.
  • TripAdvisor missed revenue expectations in its own third-quarter report and saw key growth metrics like revenue per hotel shopper fall 11 percent year over year.
The TripAdvisor Inc. application is seen in the App Store on an Apple Inc. iPhone.
Andrew Harrer | Bloomberg | Getty Images
The TripAdvisor Inc. application is seen in the App Store on an Apple Inc. iPhone.

Priceline and TripAdvisor shares both plunged Tuesday after the online travel firms warned about future results because of in increase in spending in response to mounting competition.

Shares of TripAdvisor closed more than 23 percent lower, its worst day since Nov. 2016. Priceline shares fell 14 percent.

As hotels become better at incentivizing guests to book directly and companies like Airbnb compete for vacation customers, online bookings have been under pressure to define their role. Hoping to tackle the issue head-on, Priceline issued conservative fourth-quarter guidance as it embarks on new branding investments to help accelerate volume.

"Like its closest competitor, Expedia, Priceline has entered a period of increased spend, combined with a shift in customer acquisition strategy (towards more direct traffic flow)," wrote Piper Jaffray analyst Michael Olson in a note to clients. ­­"While this is likely the right long-term strategy to drive higher repeat traffic rates and an improving overall advertising return on investment, we expect some degree of ongoing negative impact into 2018."

The company now expects fourth-quarter room-night growth to 8 to 13 percent and earnings per share 10 percent below Street consensus, according to Olson's Tuesday note. The analyst reiterated his buy rating but lowered his 12-month price target to $2,000, representing 5 percent upside from Monday's close.

TripAdvisor missed revenue expectations in its own third-quarter report and saw key growth metrics like revenue per hotel shopper fall 11 percent year over year. The analyst highlighted that TripAdvisor maintained guidance for 2017 of "flat to down" year over year to earnings, adding to the stock's downturn.

Though analyst Olson reiterated his neutral rating, he also cut his price target on TripAdvisor, even after the company's 15 percent decline year to date.

"The decline [in revenue] was attributed to advertising partners reducing spend on TripAdvisor, along with the company's decision to 'manage to greater efficiency on performance-based marketing channels,'" wrote Olson. "We anticipate the trajectory of TripAdvisor Click & Transaction revenue growth will continue its downward run through 2017, as the company absorbs the negative effects of weaker spend from advertising partners and a growing mix of lower monetizing mobile users."

Olson's new $40 price target represents 1 percent upside from Monday's close.

CNBC's Gina Francolla contributed to this report.