By Janel Forte
Shares of Orbitz Worldwide Inc. tumbled Thursday after the online travel site, pinched by rising marketing costs and the impact of a rising U.S. dollar, reported third quarter earnings that were well short of analysts’ forecast.
In the latest quarter, net income at the Chicago-based company fell 30 percent to $9 million, or 8 cents per diluted share, from $13 million, or 11 cents per diluted share in the year-ago quarter.
Revenue increased 15 percent to $253.1 million from $220.9 million a year ago, thanks to increased gross bookings driven by higher hotel, car, air and vacation package transaction volume.
Analysts polled by Zacks Investment Research had been expecting per share earnings of 14 cents, and the 6 cent-a-share shortfall displeased Wall Street: in mid-afternoon NASDAQ trading Thursday, Orbitz shares were trading down 70 cents, or 8.3 percent, at $7.78.
Orbitz Worldwide includes the online travel brands Orbitz.com, CheapTickets.com, ebookers.com and HotelClub.com among others, and it seeks to leisure and business travelers plan and book travel and related services.
Orbitz and rivals such as Priceline.com, continue to battle for share in the online market, but Orbitz has made progress in expanding its customer base and its offerings.
“Orbitz has undergone significant fundamental improvements over the past few years, as it has focused on shifting its business mix toward Hotels, expanding Internationally, taking advantage of the fast-growing Mobile channel, and attempting to establish a differentiated market position with loyalty rewards programs,” RBC Capital Markets managing director Mark Malaney said in a note to clients.
“Unfortunately,” he added, “these haven’t yet translated into robust top-line growth rates.”
Recent weakness in the European economy has added to profit pressures, because international sales decline in value when converted back to U.S. currency. “The primary headwind that we’re seeing is with regards to the currency, with the dollar running up relative to other currencies, particularly in Europe,” Chief Financial Officer Mike Randolfi said on a conference call with analysts.
Operating costs for Orbitz increased 18 percent to $227.5 million from $193.5 a year ago. A higher tax rate played a role: Orbitz made an $8.6 million provision for income taxes in the most recent quarter, much higher than the $2.5 million provision in the year-ago period.
Marketing costs also played a huge role in lowering the company’s earnings, jumping 26 percent to $92.4 million. That increase was largely due to the August launch of the company’s its ebookers.com Bonus+ loyalty program, which gives customers points when they book flights, hotels and vacation packages on its ebookers website.
“We see a disruptive opportunity to use loyalty to significantly differentiate our consumer value proposition, rewarding customers for giving us an increased share of their travel spend,” said Chief Executive Officer Barney Harford.
Orbitz also on Thursday lowered its forecast for 2014 revenues to a range of 9 to 10 percent from the earlier 10 to 11 percent, noting the strong U.S. dollar impact.