UPDATE 1-Spain's eDreams shares fall by a third after it warns of rising competition

Mon Jun 23, 2014 11:39am EDT

(Adds analyst, details of listing, updates share price)

By Sarah Morris

MADRID, June 23 (Reuters) - Shares in online travel agency Edreams Odigeo lost a third of their value on Monday after the company said late last week that rising competition would hurt its business, prompting analysts to cut profit forecasts.

The company, which offers travel deals in 42 countries through websites such as Go Voyages and Opodo, said on Friday the search business was becoming more competitive, particularly in its biggest markets of France, Italy and Spain.

Its shares were down 35.8 percent at 5.65 euros ($8.0) by 1405 GMT. They had fallen 8 percent on Friday when the company had reported its first results since listing on the stock exchange in April, becoming the first company to float in Spain in three years.

A company spokeswoman said she was not aware of any factor behind the fall in the share price.

JP Morgan and Societe Generale were among the brokers which cut their target price for the shares.

"The company will need to invest more in this context than previously anticipated to attract clients," Societe Generale analyst Sabrina Blanc said in a note.

Societe Generale, which has a "buy" rating, cut its target price to 11 euros from 13 euros, and downgraded profit estimates by 6 to 10 percent for the next three years.

Analysts also said changes in May to Google's algorithm - the formula and process used for online searches - was likely to have hit eDreams' model since it gets a lot of its business via the Internet.

"eDreams are able to manage the natural search impact but as around previous algo updates, this is a probably a 12 month exercise," David Reynolds, analyst at brokerage Jefferies, said in a note.

Over the past few years, Google has made several changes to its search algorithm.

eDreams' outlook for next year was now for high single digit revenue growth, rather than double digit, and core earnings margins may reduce, he said.

"Dropping the first guidance following IPO is clearly disappointing and we sense how and what the team communicate over the coming days will be key to investor perception," said Reynolds who has a "buy" recommendation on the stock.

Edreams on Friday reported a 14 percent fall in 2013 earnings before interest, tax, depreciation and amortisation (EBITDA) to 83.5 million euros, hit by one-off costs such as its listing.

Its net loss for the period ending March shrank by 10 percent to 21.1 million euros.

It said its net debt was 354 million euros, putting its debt to EBITDA ratio at 2.98 times.

Edreams raised 433 million euros from its April listing, valuing the company at 1.5 billion euros including debt of 390 million euros.

But the stock, which opened up at 10.25 euros, fell 7 percent in its first day of trade.

($1 = 0.7366 Euros) (Additional reporting by Robert Hetz. Editing by Fiona Ortiz and Jane Merriman)