Why Expedia (EXPE) Is Falling Today

NEW YORK (TheStreet) -- Expedia (EXPE) lost 6.9% to $65.84 Tuesday after a report showed the online travel company doesn't show up in Google (GOOG) search results as often as it once did.

According to SearchEngineLandExpedia recently lost 25% of its "search visibility" on the largest search engine on the Internet. The drop in visibility is likely due to an "unnatural link penalty." The penalty punishes Web sites that pay for links on article sites in an effort to get higher in Google search results. Expedia saw significant declines in keywords such as hotels, airline, tickets, car rentals, and vacation.

Other recent companies to be penalized for "unnatural links" (assuming Expedia did pay for links) include startup Rap Genius. Rap Genius saw big hits to its Web traffic when its linking scheme was uncovered.

TheStreet Ratings team rates EXPEDIA INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about its recommendation:

"We rate EXPEDIA INC (EXPE) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, attractive valuation levels, expanding profit margins, increase in stock price during the past year and growth in earnings per share. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

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

  • EXPE's revenue growth has slightly outpaced the industry average of 8.0%. 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.
  • The gross profit margin for EXPEDIA INC is currently very high, coming in at 84.07%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 12.18% is above that of the industry average.
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • 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 versus $2.34 in the prior year. This year, the market expects an improvement in earnings ($3.15 versus $2.16).

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