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Investing.com - Bernstein has outlined a potential bull case for online travel agencies (OTAs) despite recent stock declines triggered by concerns over AI-powered travel search disruption.
Bernstein notes that Booking and Airbnb shares have fallen 21% from their six-month peak, while Expedia (NASDAQ:EXPE) has dropped 16% in just ten days as investors worry about large language models (LLMs) creating "existential questions" for the OTA business model. Despite this recent pullback, InvestingPro data shows Expedia remains undervalued compared to its Fair Value, with a strong 56.6% price return over the past six months.
The research firm suggests several potential positive outcomes, including AI expanding the total addressable market by shifting offline bookings online, improving marketing efficiency by disrupting Google’s performance marketing dominance, and fragmenting top-of-funnel traffic to potentially reduce acquisition costs. This optimism aligns with Expedia’s impressive 89.9% gross profit margin and perfect Piotroski Score of 9 according to InvestingPro, indicating strong financial health.
Bernstein also points out that major hotel chains might restrain AI-direct booking capabilities to avoid turning free organic traffic into paid referrals, while OTAs provide value beyond simple booking platforms through yield management assistance, verified reviews, and fraud protection.
For the bull case to materialize, Bernstein says clear revenue models from major LLMs would need to emerge, particularly cost-per-click models with favorable terms for OTAs, though the firm maintains an Outperform rating only on Airbnb, with Market-Perform ratings for Booking and Expedia.
In other recent news, Expedia’s third-quarter earnings report has prompted several analysts to raise their price targets for the company. DA Davidson increased its price target to $294, citing stronger-than-expected performance across all key brands. Mizuho also raised its target to $270, noting the strong quarterly earnings and guidance for mid-to-high single-digit topline growth in the fourth quarter, with further margin expansion projected for 2026. BMO Capital adjusted its price target to $250, highlighting a "solid quarter" with booked room nights and bookings exceeding expectations. Susquehanna raised its target to $265, pointing to robust results in both the B2B and B2C segments. Meanwhile, Bernstein reiterated its Market Perform rating and $210 price target, acknowledging the company’s 4% growth in the B2C segment and stable VRBO market share in the U.S. These developments reflect a positive response from analysts following Expedia’s recent performance.
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