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Investment Overview for TripAdvisor (NASDAQ:TRIP)
WHAT HAS CHANGED?
TripAdvisor’s revenues for fiscal year 2015 were up by 20% to almost $1.5 billion. On account of the ongoing investments by the company, its adjusted EBITDA remained almost flat at $466 million, and its GAAP net income declined by 12% to $198 million. Though the company is facing financial hurdles currently on account of its ongoing investments to expand the presence of its Instant Booking platform across the globe, it believes that these investments will lead to long-term growth. Given Instant Booking’s popularity across top hotel chains, and now also with the world’s largest OTA, Priceline, we believe TripAdvisor is on the right track. The company is also investing in its restaurant booking platform, TheFork, and its entertainment platform, Marketplace, and aims to carve out huge portions of the market from those segments, as well. Over the years since 2011, the user contribution on TripAdvisor has increased from 30 contributions per minute to over 200 per minute. There were 82 million contributions added on TripAdvisor in 2015 alone, making the website’s reviews expand to 320 million in total, spanning across 6.2 million businesses around the world.
- Instant Booking platform is currently a major hit
- TripAdvisor's metasearch engine was complemented with an Instant Booking platform in the first half of 2014. Instant Booking gives users the freedom to book directly from the TripAdvisor platform, instead of being directed to the hotel website. It requires partners to pay a commission for each completed transaction. This commission-based model is similar to most of the OTAs’ pricing process of a fee per transaction, charged after the completion of a stay.
- After an initial lukewarm response, Instant Booking has been growing steadily since the latter half of 2015. Till now, TripAdvisor’s Instant Booking has entered partnerships with eight of the top 10 hotel chains in the world. Prior to its Booking.com deal, Instant Booking was available for almost one-third of the e-commerce enabled properties (roughly, 235,000 properties) on the TripAdvisor platform.
- However, the biggest development for Instant Booking came in October 2015 when Priceline's Booking.com agreed to display its accommodations on the Instant booking platform. Consequently, TripAdvisor now boasts of 450,000 bookable properties on its platform. Priceline’s other websites such as Agoda.com and Priceline.com might also display properties on Instant Booking in the future. Priceline, the world’s largest OTA, featuring on Instant Booking spelled a possible bright future for TripAdvisor.
- Post the full launch of Instant Booking in the U.S. and the U.K. in September 2015, in January this year the platform was launched in all English language speaking countries.
- In February 2016, the launch was completed in major European markets and in March it was launched in Asia Pacific and the Latin American markets.
- TripAdvisor’s management has decided to give its television (TV) advertising a rest for 2016. Instead, the money would be channeled towards the early global rollout of the Instant Booking platform. Along with the significantly increased inventory base, the presence of Booking.com provides TripAdvisor with added features which would be attractive internationally, such as rich content in non-English languages, competitive rates, and the ability of users to book hotels through local currency or credit cards.
- TripAdvisor grows in the tours and activities space with Viator
- TripAdvisor acquired Viator in September 2014 in order to extend its reach in the entertainment sector, which is TripAdvisor's third largest source of demand, after hotels and restaurants. Viator is a leading online service provider of over 20,000 tours and attractions.
- In February 2015, TripAdvisor and Viator announced the launch of a new tours and activities supplier platform called Marketplace. Marketplace enables more partners to list their business on, and more users to book tours and activities through, Viator.
- TripAdvisor believes that attractions can be its next billion dollar revenue generating segment. The market is in a fragmented state and it provides for an $80 billion market potential in the U.S. and the U.K. alone. After the launch of Marketplace in 2015, Viator’s bookable properties has almost tripled from 11,000 to 32,000.
- TripAdvisor’s restaurant platform, TheFork, now spans across 12 countries
- Since 2014, TripAdvisor has been on a shopping spree when it comes to restaurant reservation websites. It acquired LaFourchette, the leading online restaurant reservation systems in France and Spain, in May 2014. In Q4 2014, TripAdvisor acquired mytable and restopolis in Italy, and Iens in The Netherlands. It also acquired Portugal-based Best Tables in April 2015. Best Tables also operates in Brazil and has a database of 1,200 bookable restaurants. In May 2015, the company acquired the largest Australian restaurant reservation booking website, Dimmi.
- As a result of its restaurant reservation platform acquisitions, the company has expanded the restaurant booking business into 12 countries, in less than a year's time. TripAdvisor rebranded its restaurant platform as TheFork and its reach was expanded to Portugal and Australia in Q2 2015 and in Denmark in Q4 2015. TheFork now caters to reservations in over 33,000 restaurants.
- TripAdvisor EBITDA Margin: TripAdvisor EBITDA Margins declined from 57% in 2009 to 28% in 2015. We expect margins to revert to over 30% by the end of our forecast horizon. Adjusted EBITDA in the Hotel segment for 2015, was flat when compared to 2014, due to an increase in revenue, offset primarily by increased personnel and overhead costs, search engine marketing, or SEM costs, and other online traffic acquisition costs, and TV advertising. The Hotel segment adjusted EBITDA margin decelerated slightly year-on-year during 2015, primarily due to the deceleration in revenue growth year over year. For the rest of the segments, the adjusted EBITDA decreased $2 million during 2015 when compared to 2014 due to investments to fund growth initiatives in the Attractions, Restaurants, and Vacation Rentals businesses, which are all at earlier stages of their growth and business life cycle, and is a contributing factor to this reportable segment operating at a loss.
Click & Display Advertising
- Unique Visitors To TripAdvisor Sites (per month): We currently expect Unique Visitors To TripAdvisor Sites (per month) to increase to over 600 million users by the end of our forecast period. However, if competition weighs on TripAdvisor’s traffic and the growth of Unique Visitors To TripAdvisor Sites (per month) moderates, reaching around 500 million by the end of our forecast period, it will lead to around 15% downside to our price estimate for the company. On the other hand, TripAdvisor has a major opportunity to bolster traffic by tapping growth in the mobile and social media platforms. If TripAdvisor is able to grow the number of unique visitors to TripAdvisor sites (per month) to over 1 billion by the end of our forecast horizon, there could be around 50% upside to the current Trefis price estimate.
TripAdvisor is a leading online platform for travel related reviews, aggregating over 300 million reviews and opinions about destinations, accommodations, restaurants, and activities. TripAdvisor is easily among one of the fastest growing internet businesses at present. According to the third annual Access America Vacation Confidence Index, 60% of American consumers say they factor other travelers' online reviews into their plans when booking a vacation. Benefiting from the trend and capitalizing on the traction gained from users, TripAdvisor continues to introduce travel planning tools on its websites to act as a definitive resource for travelers.
TripAdvisor branded websites include tripadvisor.com in the United States and localized versions of the website in 46 countries. TripAdvisor branded websites globally averaged more than 350 million monthly unique visitors in 2015 and have built a marketable base of over 320 million reviews and opinions.
With rich user-generated content, TripAdvisor has valuable monetization opportunities. Travel businesses can advertise on TripAdvisor's platform and benefit from its large audience and global reach. TripAdvisor derives most of its revenue from the sale of advertising, primarily through click-based advertising and to a lesser extent, display-based advertising. The remainder of TripAdvisor’s revenue is generated through a combination of subscription based offerings, content licensing, and its recently launched private sale site, SniqueAway. It also offers deals on top hotels at lucrative discounts. TripAdvisor has diversified its geographical mix in the past few years with the contribution of its US operations declining from 82% in 2008 to approximately 50% in 2015. Long-term revenue growth is expected to be driven by expanding traffic and user generated content.
TripAdvisor's global reach is highly attractive to advertisers
TripAdvisor maintains a global presence both through the reach of its global portfolio of ~30 websites and through its in-market staffing in more than ten countries. The flagship TripAdvisor brand operates websites in 46 countries in 28 languages. Its core TripAdvisor platform and many of its other brands are uniquely positioned to appeal to travelers globally and strive to provide universally relevant content and community. Since 2013, the company focused on enhancing its brand image in the emerging markets by incorporating more local language content to drive higher user engagement.
The sheer scale and reach of TripAdvisor should help it command attractive rates from advertisers seeking placements on TripAdvisor websites.
TripAdvisor Business Listings are delivering excellent return on investment
TripAdvisor launched Business Listings in January 2010, which allows property managers to directly connect to TripAdvisor's community of people.
As part of a Business Listings subscription, accommodation businesses may display any combination of contact information on their TripAdvisor listing, including their URL, email address, and phone number. Subscribers also gain access to TripAdvisor's special offers feature, enabling properties to attract travelers with customized offers.
TripAdvisor reveals that Sabre Hospitality Solutions, a global provider of technology, marketing, and distribution tools for the hotel industry, is seeing strong results from TripAdvisor Business Listings.
In Q1 2013, TripAdvisor introduced a new transaction-based model for business listing. The new model is different from the old subscription model under which properties paid a subscription fee to TripAdvisor for business listing. Now, properties are free to list but they pay on a per transaction basis, which has resulted in a greater number of business listings.
TripAdvisor launched the Instant Booking platform in 2014
In Q1 2014, TripAdvisor rolled out its Instant Booking feature which aimed at reducing the friction related to mobile bookings. The user experience is enhanced by allowing users to complete all booking related steps from selecting a room to inputting personal and credit details on the TripAdvisor platform itself. With its Instant Booking Platform, TripAdvisor plays the role of an intermediary between a traditional online travel agent (OTA) and a travel advertising website.
Facebook partnership continues to boost traffic as travelers increasingly use social media to access travel information
Consumers are increasingly leveraging social networks for research before making purchases for any product including travel. Trefis sees social media, such as Facebook, being used heavily as a means to communicate and exchange travel information and opinions. The trend can create strategic growth opportunities, allowing TripAdvisor to attract new consumers and develop unique and effective advertising solutions.
To capitalize on the social media boom, TripAdvisor entered into a partnership with Facebook in 2010 and launched a setup that allowed users to receive “Instant Personalization” when visiting the site with an active Facebook account. Using the system, TripAdvisor users can check out their friends' travel experiences before planning their own trip. Under the system, users who are already logged into Facebook can view friend reviews of various locations while checking out places their friends visited during their travels. Users are also treated to a “most popular” destinations screen based on their friends' cumulative travel information.
TripAdvisor’s Facebook app reached the number one spot in terms of monthly active users in Q4 2012, and was the only travel app in the top 20 applications. It now has over 38 million logged-in Facebook users. Presently, 35% of TripAdvisor’s new reviews are derived from its Facebook connected members.
Growing global travel market and online penetration
Recent historical trends show that, each year, an increasing percentage of global travel spending has been conducted online through supplier websites and online travel agencies. The trend is expected to continue as online penetration continues, mobile smartphone and other devices continue to proliferate, and as travel grows along with an expanding middle class in certain developing countries like China and India.
The internet is expected to become increasingly integral to the travel planning process due to increasing worldwide online penetration, particularly given the capability that the internet provides travelers to refine searches, compare destinations, and view real-time pricing. With internet penetration currently estimated at 40% globally (88.5% in North America, over 80% in Europe, ~ 60% in Latin America and ~ 30% in Asia), TripAdvisor has the potential to grow in all markets.Link
Increasing online advertising spend
The global online advertising market is growing and was projected to grow from $135.42 billion in 2014 to $239.87 in 2019, a CAGR of 12.1%, as advertisers continue to shift their spending from offline to online channels, mirroring the trend in consumer media consumption, generally.
PhocusWright estimates the global travel spending to cross $1.3 trillion in 2016. Given the size of the travel market, travel providers and travel related advertisers will continue to be motivated to devote significant resources to advertise their travel products and services. In addition, as more travel dollars are spent online generally, an increasing amount of travel advertising spending is expected to migrate from traditional offline advertising channels to online advertising opportunities.
Growing mobile travel spend
Consumers are increasingly using mobiles and tablets to access the internet. Mobile is expected to exceed the growth of display by 2018. Display Internet advertising revenue was the second-largest component of Internet advertising revenue in 2014 and is expected to maintain a solid 7.9% CAGR to 2019. However, mobile Internet advertising revenue is growing at the rate of 23.1% CAGR and is expected to overtake display in the future. Link
TripAdvisor has been investing heavily in its mobile platforms such as GateGuru mobile and tablet applications. The company introduced the Facebook log-in functionality and launched its new iPad application a few years back.
TripAdvisor has around 290 million cumulative mobile application downloads and approximately 53% of TripAdvisor traffic visited was via tablets or smartphones in 2015.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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