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Why TripAdvisor Stock Dropped 5.5% on Wednesday

What happened

Travel information specialist TripAdvisor (NASDAQ: TRIP) continued its latest tour -- south -- on Wednesday, with shares falling a further 5.5%.

Granted, there was quite a lot of falling going on in the markets today, as investors worried about a possible recession. What's special about TripAdvisor's decline is that the company actually seemed to confirm a few days ago that things aren't going so great for it.

Image source: Getty Images.

So what

On Wednesday, TripAdvisor reported a decline in second-quarter sales, and missed analyst expectations for both sales and earnings.

Making matters worse, investment banker Jefferies published a note on Tuesday warning investors away from the stock. Arguing that online travel agencies such as Expedia are "better positioned," Jefferies said that it could be years before TripAdvisor -- largely a travel information website -- begins earning the kind of profit margins from its fast-growing Experiences business that a true online travel agency like Expedia earns from selling tours.

Now what

In Jefferies' opinion, the stock, which is now down a total of 9% from its pre-earnings price, still has farther to fall. The analyst cut its price target on the shares to $36 on Tuesday. With everybody else seemingly selling off today -- dumping stocks doing well and those doing poorly -- investors aren't waiting around to find out if Jefferies is wrong about that.

The earnings miss and the negative commentary from analysts are turning into a self-fulfilling prophecy for TripAdvisor stock.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends TripAdvisor. The Motley Fool has a disclosure policy.


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