Shares of Airbnb and Expedia fell Tuesday after Barclays downgraded the stocks on worries about pent-up travel demand fading next year.
Barclays downgraded ABNB stock to underweight, its lowest rating, from an equal-weight rating. It also lowered EXPE stock from a positive overweight rating to a neutral equal-weight.
Online travel booking stocks have flourished this year, with consumers embracing so-called revenge travel following the pandemic. But in a Tuesday note to clients, Barclays analysts said they are more cautious on the category for 2024.
"We think online travel growth slows from here as eventually the 'pent-up' travel demand will get exhausted — particularly as consumers' wallets are increasingly under pressure," Barclays analyst Trevor Young wrote in the client note.
Barclays analysts maintained an overweight rating on Booking Holdings.
On the stock market today, ABNB stock fell 1.7% to 140.55. EXPE lost 2.3% to close at 144.88. BKNG gained 1.7% to close at 3,402.50.
ABNB Stock: Hotel Competition
Barclays expects Airbnb's earnings growth will slow or normalize next year and its trading multiple could be lower.
Barclays data points to short-term rental demand "plateauing/perhaps even rolling over, and (meanwhile) competitive pressures from hotel peers is picking up," Young wrote.
The company is also likely to face further regulatory pressure and hear consumer frustration about its fee structure, the report said.
Helped by earnings growth, Airbnb has gained more than 60% this year, booking a spot in the S&P 500 in September.
Recession Risk
The biggest threat to all travel stocks is an economic slowdown. The report noted that EXPE and BKNG lost more than 60% in 2008 and 2009.
"While it's unclear if a recession is imminent, leisure travel spend would be first to get cut from consumers' budgets," the Barclays note said.
Both Airbnb and Booking Holdings gave strong forecasts for bookings in the final quarter of the year. But Barclays sees some signs of softer demand heading into the new year, including "softening employment, the consumer showing early signs of being tapped out financially, and less available credit."
In that environment, Barclays said its best to "stick with the scale leader" in Booking Holdings. On the other hand, it could be a good time to "lock in profits" from Expedia stock as booking growth could remain subdued next year, Young wrote.
BKNG stock has gained about 67% this year, while EXPE is up 66%.
Strong Industry Performance In 2023
Meanwhile, the 19 stocks in the MarketSmith Leisure-Travel Booking industry group have gained a cumulative 64% this year. The group ranks a lofty 19 among the 197 industry groups tracked by MarketSmith.
ABNB stock and BKNG stock are the No. 1 and No. 2 ranked stocks in that group, according to IBD Stock Checkup. EXPE ranks fifth.
One other factor to watch next year for travel, according to the Barclays report, is artificial intelligence. Online travel companies are racing to offer AI assistants that can help connect all aspects of travel booking and boost sales. The bigger companies with "cash/talent/data" are likely to be best positioned in that environment, the note said.
