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TheStreet Open House

Why Orbitz (OWW) was Crushed Today

Stocks in this article: OWWEXPETZOO

NEW YORK (TheStreet) -- Orbitz Worldwide  (OWW) was crushed 19.7% to $7.69 in Tuesday trading after reporting disappointing third-quarter earnings before the bell.

Earnings of 11 cents a share were 2 cents lower than analysts surveyed by Thomson Reuters expected. Revenue of $220.9 million was 11% higher than a year earlier.

Also depressing prices, the online travel agent revised its full-year revenue guidance down to $840 million from its earlier forecast between $840 and $850 million. Analysts had hoped for around $849.4 million in revenue over the year.

"Air volumes are lower in the U.S. and in Europe as we focus marketing investments on hotel," said CFO Mike Randolfi during a conference call. "This is reflected in our slightly lowered revenue guidance," The former has a large bearing on the company as domestic sales account for 72% of total revenue.

Orbitz's losses are in stark contrast to the 36.7% gains achieved after reporting a 12% year-over-year second-quarter revenue hike.

Rival Expedia (EXPE) reported third-quarter earnings after market close last Wednesday which propelled shares 18% higher during the following day's trading. Third-quarter earnings of $1.43 a share beat the $1.35 a share forecast by analysts surveyed by Yahoo! Finance. Revenue of $1.4 billion surpassed expectations by $30 million and grew 17% year over year.

Expedia and Travelzoo (TZOO) were off 1.1% and 1.5%, respectively, during Tuesday's trading.

TheStreet Ratings team rates Orbitz Worldwide Inc as a Sell with a ratings score of D. The team has this to say about its recommendation:

"We rate Orbitz Worldwide INC (OWW) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity and feeble growth in its earnings per share."

TheStreet Ratings team rates Expedia Inc as a Hold with a ratings score of C+. The team has this to say about its recommendation:

"We rate Expedia Inc (EXPE) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, attractive valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 17.4%. Since the same quarter one year prior, revenues rose by 16.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Expedia Inc's earnings per share improvement from the most recent quarter was slightly positive. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, Expedia Inc reported lower earnings of $2.16 a share vs. $2.34 a share in the prior year. This year, the market expects an improvement in earnings ($3.05 a share vs. $2.16 a share).
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. When compared to other companies in the Internet & Catalog Retail industry and the overall market, Expedia Inc's return on equity is below that of both the industry average and the S&P 500.
  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Internet & Catalog Retail industry average. The net income has decreased by 0.4% when compared to the same quarter one year ago, dropping from $171.48 million to $170.86 million.

TheStreet Ratings team rates Travelzoo INC as a Hold with a ratings score of C-. The team has this to say about its  recommendation:

"We rate Travelzoo INC (TZOO) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.4%. Since the same quarter one year prior, revenues slightly increased by 5.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • TZOO has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.47, which illustrates the ability to avoid short-term cash problems.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, TRAVELZOO INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to $2.19 million or 68.07% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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