Scott Devitt, an analyst at research firm Stifel, downgraded his ratings on online travel agencies, or OTAs, Expedia (EXPE - Get Report) and Tripadvisor (TRIP - Get Report) to Sell from Hold. As reasons for the downgrades, Devitt cited moderating economic trends in the U.S. and globally, along with increased efforts by hotels to cut out the OTAs and the consolidation of the U.S. hotel sector.
WHAT'S NEW: Economic growth in the U.S. and overseas appears to be slowing and the occupancy rates and revenue of hotels seem to be peaking, Devitt wrote. Moreover, citing Hilton's (HLT - Get Report) decision to offer discounts to consumers who book their stays directly with the hotel, Devitt thinks that hotel chains will increasingly look to cut the OTAs out of the action. The consolidation of the sector, as shown by Marriott's (MAR - Get Report) proposed acquisition of Starwood (HOT , could accelerate this trend, wrote the analyst, adding that Marriott would probably launch a similar campaign to that of Hilton if its takeover of Starwood closes. Within the OTA sector, Expedia and Tripadvisor are most vulnerable to these trends, since 65% of Expedia's bookings will be within the U.S. this year, while 56% of Tripadvisor's revenue will be generated within the U.S. this year, according to Devitt. The analyst kept his Hold rating on Priceline, which has less U.S. exposure.
PRICE ACTION: In late morning trading, Expedia lost 1.7% to $106.79 and TripAdvisor slipped 0.4% to $63.17.