What Is Fueling the Boom in Online Travel Stocks?

Up, Up and Away for
Online Travel Stocks

As you shook the sand out of your flip-flops this summer, did you notice more space to spread your beach towels? Were there fewer lines at the ice
cream stores, in the airports or at the amusement parks? Has the summer travel season — and travel stocks — been affected by this tough
economy?

You’d think the answer would almost certainly be yes. But it turns out Americans are still hitting the road, albeit slightly less than they have
in the past.

Proving that travel is still alive and well despite the recession are the bottom lines of companies dedicated to helping consumers save money on
all things travel. Moreover, Wall Street certainly seems to like these companies, as we’ve seen a sharp rise in share prices of leading online travel
agencies Expedia (EXPE[1]), Orbitz Worldwide (OWW[2]) and Priceline.com (PCLN[3]).

Let’s take a closer look at each of these stocks, including their technical picture, and then we’ll take a look at one unexpected reason why it’s
been up, up and away for online travel stocks.

Next – The Street Likes Expedia

The Street Likes Expedia (EXPE[1])

In July, online travel agency Expedia (EXPE[1]) posted a drop in its second-quarter profit. However,
the company’s adjusted earnings blew past consensus Street estimates.

Expedia earned 38 cents per share in Q2, easily topping analysts’ forecasts for a profit of 31 cents per share. The earnings beat sent the stock
soaring, and the flight into EXPE shares also was felt by other online travel stocks.

Impressively, Expedia saw a 13% increase in the number of air tickets sold in the second quarter, a number which flies in the face of conventional
wisdom suggesting that travel would come to a screeching halt as a result of the recession.

In the price chart here of EXPE shares, we see the stock trading above both its short-term, 50-day moving average (blue line), as well as its long-term,
200-day moving average (red line), two technically bullish signs for Expedia going forward. We also see that the shares now are trading at a new 52-week
high. Year-to-date, EXPE shares are up an incredible 171%.

Next – Orbitz Makes Money Despite the Recession

Orbitz (OWW[2]) Makes Money Despite the Recession

Proving that Expedia isn’t just a fluke among online travel companies, on Aug. 6, shares of Orbitz Worldwide (OWW[2])
blasted 23% higher after the company reported a profit of 10 cents per share. That number trounced the consensus forecast for a loss — yes,
a loss — of 6 cents per share. Orbitz said that although gross bookings were down 12% year over year, they were up 22% from the first quarter.
The quarterly increase in bookings, along with an aggressive cost-cutting campaign, helped to offset a net revenue decline of 19% year-over-year.

This phenomenon of beating bottom-line earnings even though top-line numbers are down has been ubiquitous in the second quarter, so to see this
in Orbitz’s report is really nothing too unusual. That’s not to say that I wouldn’t have rather seen Orbitz post strong top- and bottom-line numbers,
but the point here is that the company is making money despite the wider recession.

In the price chart here of OWW shares, we see the stock trading above both the short-term, as well as its long-term moving averages in much the
same way as Expedia shares are. Once again, these are two technically bullish signs for Orbitz going forward. One point of worry here, however, is
that OWW shares spiked so high after that Aug. 6 announcement that they may be way overdue for a pullback. Year-to-date, OWW shares are up 70%, with
much of those gains coming since mid-July.

Next – Priceline Continues to Wow the Street

Priceline (PCLN[3]) Continues to Wow the Street

Perhaps the most well-known online travel stock out there is Priceline.com (PCLN[3]). The company continues
to be the leader in the online travel segment, and a look at its recent quarterly numbers tells us why.

In early August, the company reported earnings of $2.02 per share, a whopping 30% increase from the year-ago quarter. Wall Street had expected the
company to come in with earnings of 75 cents per share, and a revenue increase of just 17%. The company credited its strong performance to an increase
in leisure travel, once again a finding contrary to the popular notion that folks would pare down their travel in a recession.

Remarkably, Priceline.com has now beat earnings by at least 10 cents for 11 consecutive quarters, and the company has posted six straight years
of earnings growth

In the price chart here of PCLN, we see the stock making a steady, yet very strong ascent that’s taken the shares above both the 50- and 200-day
moving averages. As we’ve said already, this is certainly good news from a technical perspective. But the really good news here is that unlike OWW
or even EXPE shares, PCLN shares are nowhere near as overextended. Year-to-date PCLN shares are up 104%, but those gains have been building up since
the shares hit their year-to-date low in January.

Next – Why Online Travel Stocks Are Doing So Well

Business Travelers Help Boost Online Travel Stocks

So, why are online travel stocks doing so well in terms of both earnings and share price performance?

I think the most obvious answer is that despite the recession, many people (not all) still are trying to travel the way they have in the past.

Now to be certain, there has been a decline in both airline traffic and hotel occupancy rates in the first half of the year. But the fact that these
online travel agencies are doing so well despite this overall decline tells me that the migration toward getting the best price for airfare and hotels
is in full effect.

Besides the move on the part of consumers to seek out the lowest possible prices for their vacation travel, there is one other key reason why I
think companies like Expedia, Priceline and Orbitz are doing so well, and why they may continue doing well for the remainder of 2009 and beyond. That
reason has to do with the mandate to cut cost in the corporate world. If you look at the huge numbers of companies reporting earnings, you see that
many managed to best estimates based largely on cost cutting. Part of that cost cutting effort involves using online travel agencies.

According to an article in the July 24 edition of Investor’s Business Daily, many corporate travel managers have been forced to cut the cost
of basic travel expenses due to the recession. According to the piece, “Firms are telling execs to move their seats from the front to the back of
the plane — and to find budget-class hotel rooms.” In tough economic times, both corporations and consumers look to save every dime, and great
way to do this is to book travel via these online travel agencies.

Next – More Good News for Online Travel Stocks Ahead

More Good News Ahead for
Online Travel Stocks

I think the future is bright for Expedia (EXPE[1]), Orbitz Worldwide (OWW[2])
and Priceline.com (PCLN[3]), as I think the budget-minded zeitgeist will remain in effect for both consumers
and corporations for some time to come. Gone are the days of the “money is no object” mindset, and that is good news for these companies going forward.

I also think that despite their massive gains so far this year, you can still make money in all three of these stocks, as I don’t think their run
is over yet. However, a word of caution is in order here. If you are going to buy these travel stocks now, make sure you have a stop loss in place
in case these high-flyers take a nosedive. The last thing you want to do is book a trip to lost money.

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