Buying Internet Retail Travel stocks ahead of their third quarter earnings announcements was not a good strategy this year, but short sellers were able to upgrade to first class accommodations after earning $881 million of mark-to-market profits the day after their earnings releases. Priceline Group Inc. (PCLN) and TripAdvisor Inc. (TRIP) reported disappointing earnings reports and lowered guidance, joining Expedia Inc. (EXPE) who reported disappointing numbers two weeks ago.
All three companies reported slowing revenue per click and revenue per customer growth, lower monetization rates on mobile platforms and higher marketing and customer acquisition costs. Investors punished all three stocks with EXPE falling -16%, PCLN -13% and TRIP -22% the day after their announcements.
All three stocks are in the top five most shorted stocks in the Internet Retail Sector, following only Amazon.com and Netflix and although the short interest of all three stocks is down over the last month, we’ve seen short interest growing over the last week.
Prior to earnings, short sellers of the three internet retail travel stocks were down $873 million in year-to-date mark-to-market losses, but with all three reporting disappointing earnings they are now up $69 million in aggregate year-to-date mark-to-market profits.
We saw increased short selling in EXPE after its earnings announcement, almost 900,000 additional shares shorted in less than two weeks, and can expect continued accumulation of short exposure in both PCLN and TRIP. With more short selling expected, and acting as a tailwind for further downward price action, we should see price weakness continue in all three stocks as traders treat the Travel sub-sector as one of the weakest sectors in the overall Internet Retail Sector.
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Managing Director Predictive Analytics, S3 Partners, LLC
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