Investors wiped out about $20 billion worth of market capitalization of publicly held online travel companies since Expedia, Priceline, TripAdvisor, and Trivago posted their third quarter earnings results in the past few weeks.

The selloff was sector-specific to the online travel companies, with hotels, airlines, cruise companies, and other travel and non-travel companies not seeing the same drops.

Investment analysts have issued a flurry of reports in response. Most cited uncertainty about how to forecast the pace of revenue growth at the companies and how to model the trajectory of the rising costs it will take those companies to maintain that growth. A few noted that the new CEOs who have taken over Priceline and Expedia this year are untested in the top role, adding to investor uncertainty.

Was the crash in share prices an investor over-reaction as company executives claim? Or has the sector hit the doldrums and seen the wind taken out of its sails?

The established online travel giants may have a “new normal” of a lowered pace of growth over the next few quarters, according to a panel of investment analysts speaking on-stage at the Phocuswright Conference in Florida this week.

Rachael Rothman, senior analyst, gaming, lodging, and leisure at Susquehanna Financial Group, said the travel companies couldn’t legitimately blame their woes on a fall-off in demand for hotels, their biggest and most profitable product. The major hotel chains reported strong consumer demand for rooms in the third quarter, partly thanks to the strength of direct booking campaigns such as Hilton’s “Stop Clicking Around.”

Marketing Budget Shifts

Mark Mahaney — managing director, RBC Capital Markets and someone who has watched the sector for roughly two decades — said that one factor in the recent selloff appeared to be a major debate within the companies about what’s the best mix of marketing channels to acquire customers.

That debate led Priceline to pull back a little, at least for now, on advertising in metasearch channels TripAdvisor and Trivago.

Lloyd Walmsley, director at Deutsche Bank Securities, said Booking.com is not the household name that parent Priceline Group thinks it should be in the U.S. and other markets. So investors should assume Group CEO Glenn Fogel will shift some of its marketing spend into TV brand advertising for awhile. Actually, Fogel pledged that he would tilt toward TV and reconsider certain digital channels.

Walmsley said that TV advertising could bring a secondary benefit of making online advertising more cost-effective.

“Google has a quality score and the higher your click-through-rate is, the lower you pay for ads,” Walmsley said. “Kayak, when it went public, gave investors a peek at its data that revealed that when they started ramping up their TV spend, the cost they had to pay for digitally acquired clicks was cut in half within two years.”

Jake Fuller, managing director, Guggenheim Securities, noted that today’s shift in advertising spend by Priceline Group and Expedia is modest from the perspective of those companies. Roughly speaking, between two-thirds and three-fourths of Priceline and Expedia’s overall ad spend will remain online.

Mahaney said, “They’re just toggling back, and there is a bit of them being pissed off at what some of the vertical metasearch players are doing by trying to compete with them.”

The shift is much more dramatic for Trivago and TripAdvisor, two of those “vertical metasearch players” that have lost large market value this year.

Trivago has said it hopes to fill the temporary gap left by the reduced spending by Priceline and Expedia partly with advertisements by hotels themselves.

But Rothman was skeptical of Trivago’s ambition. She said that hotels traditionally view the traffic on metasearch channels as sometimes not worth the marketing cost because those customers tend to be brand-agnostic and shopping only on price. She thought they would be more likely to invest instead in new channels like Facebook and Instagram that give a direct, targeted offer.

OTA Direct Campaigns

Walmsley said both Priceline and Expedia need to generate demand and would be likely to return to metasearch over time.

Eric Sheridan, managing director at UBS, said that they would likely expand their loyalty programs into multiple tiers — and that Airbnb would likely create a loyalty program — to drive repeat visitors to come direct to their channels and skip having to re-market to them.

Rothman said hotel chains would always be able to outgun the online travel agencies in loyalty. “The OTAs may be able to offer you a free night at a resort, but they can’t offer you is 9 a.m. check-in, 4 p.m. checkout, free breakfast, a premier beach chair by the pool — all things that could drive repeat business.”

The Airbnb Factor

Mahaney said that some of the blame for the destruction of value in online travel can be laid on the doorstep of Airbnb, on the theory that the fast-rising company is eating into hotel bookings by shifting consumers into private accommodation instead. But Mahaney believed that Priceline and Booking.com are catching up in rental inventory.

Rothman was more skeptical of that premise. She said there are signs that Airbnb reduces the ability of hotels to charge peak rates on traditional high demand nights by adding supply.

She said that Hilton, Marriott, and similar chain balance sheets are built to weather the inevitable recession. But she said many property managers on Airbnb have over-extended their credit to try to cash in on the rental gold rush.

Rothman expected that many will receive the same “balance sheet lesson” that many indebted homeowners discovered in the 2008 financial crisis, and that a reduction in supply would also cushion the hotel chains during a recession.

If true, Airbnb’s pace of growth could be vulnerable during a recession.

Mahaney said that, among its peers, Priceline is the best-positioned to reap future growth in international markets that are still under-penetrated. “I’m just struck by the fact that Priceline has a stronger base of room nights than Expedia but they still grow faster than Expedia percentage-wise,” he said.

A real game-changer could be if Amazon re-entered travel. “I would never bet against Amazon being disruptive, which tends to be a very bad long-term bet to make,” Mahaney said.

Meanwhile, if investors are uncertain about how to value future growth projections by the new management of the two giants of online travel, it may take up to a year before investors see the results that restore their confidence broadly, the analysts said.

Photo Credit: A Wall Street sign in front of the New York Stock Exchange. Some investment analysts believe the tepid response to third quarter earnings is likely to stay for a few quarters. Mark Lennihan / Associated Press