Expedia is undergoing a 'painful but necessary transition' (EXPE)

Shares of
The company has invested heavily in marketing and technology, leading one analyst to believe that it is making a "painful but necessary transition" in order to improve its profits.
This was the first full quarter for CEO Mark Okerstrom.

Though shares of Expedia are plummeting following a quarterly earnings report that missed expectations, the company is undergoing a "painful but necessary transition" to higher earnings growth, according to a Jefferies analyst.

Expedia's stock fell 14.29% on Friday morning to $105.45 a share.

"We believe that [management] is making the right investments to ensure [Expedia] grows its competitive moats," wrote Brent Thill of Jefferies.

The travel-booking company's margins have been pressured this quarter because it is making significant investments in several areas of its business, Thill said.

Expedia is investing in new hotel inventory in hot markets, new products with improved customer support, and accelerated "execution and innovation" across the organization as it migrates over to the cloud.

The company said it expects to double its property additions to roughly 180,000 in 2018. The wave of new inventory will also require the company to increase its sales force. It has already hired 95% of its intended workforce.

Additionally, the company is raising its marketing spending to leverage its global growth.

"Over the past several months, we have made key organizational changes, aligned our company around common objectives and began executing on a new direction aimed at accelerating the geographic expansion of our global travel platform," CEO Mark Okerstrom said in a release.

This past quarter was Okerstrom's first full one at the company since as he replaced former CEO Dara Khosrowshahi, who moved to car-hailing provider Uber.

Thill maintained a price target of $170 per share and kept a "Buy" rating on Expedia.

Expedia's stock was down 13.07% for the year.