Orbitz (OWW) lost $0.18 on sales of $219 million yesterday, beating topline estimates of $213.9 million but missing EPS estimates of $0.04. Ballooning opex expenditures and a decline in bookings in the U.S. business contributed to the earnings miss. Goldman reacts by speaking out of both sides of its mouth: raising its revenue estimates and target price–but stressing caution:
We are raising our top-line forecasts but lowering our profit expectations to reflect Orbitz’s continued investment in building out its hotel sourcing team, beefing up its internal operations, and marketing to sustain strong international growth rates. We expect these trends to continue in addition to new product and marketing introductions in the US, where bookings declined 6% yoy due to fewer transactions. Management pointed to company-specific issues as opposed to the economy for the US weakness.
The testing of higher US booking fees by some competitors has alleviated some concerns that fees would be eliminated. Thus, we are marginally raising our price target to $6.80 from $6.00 based on our DCF… We maintain a Neutral rating on Orbitz shares given limited visibility in the long-term growth profile due to both competitive pressures and a slowing US economy.