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Investment Overview for TripAdvisor (NASDAQ:TRIP)
WHAT HAS CHANGED
TripAdvisor ended 2014 on a healthy note, riding on its host of acquisitions, upgrades, and its newly introduced Instant Booking Platform. The world’s largest travel review company posted revenues of $1.25 billion in 2014, up by 32% year on year. All three divisions posted strong top line growth — click-based advertising revenue grew by 25% year on year to $870 million, display-based advertising increased by 18% year on year to $140 million, and subscription and transaction revenue was up by 82% year on year to $236 million.
- 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 gradually growing. In Q2 2015, it partnered with 10 leading hotel chains, the most prominent among them being Marriott International. It presently has 7 out of the top 10 global hotel brands on its platform. 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. 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.
- 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 will enable more partners to list their business on, and more users to book tours and activities through, Viator.
- 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 has been re-branding its restaurant platform as TheFork and its reach was expanded to Portugal and Australia in Q2 2015. TheFork now caters to reservations in over 28,000 restaurants.
- TripAdvisor EBITDA Margin: TripAdvisor EBITDA Margins declined from 57% in 2009 to 39% in 2014. We expect margins to revert to around 46% by the end of our forecast horizon. TripAdvisor’s profit margins are likely to be pressured in the near term due to a fall in the per-click commission fee paid by Expedia, the transition to meta display, the launch of the new offline ad campaign, and additional costs associated with being a publicly traded company. If TripAdvisor is not able to compensate for the loss of revenue from Expedia and the switch to meta search with higher advertising revenue from other customers, margins could fall to 40% by the end of our forecast period, thereby leading to an over 10% downside to our current valuation for the company.
Click & Display Advertising
- Unique Visitors To TripAdvisor Sites (per month): We currently expect Unique Visitors To TripAdvisor Sites (per month) to increase to over 800 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 only 500 million by the end of our forecast period, it will lead to a more than 30% 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 an over 20% upside to the current Trefis price estimate.
TripAdvisor is a leading online platform for travel related reviews, aggregating over 200 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 45 countries including China, where it operates under the daodao.com brand. TripAdvisor branded websites globally averaged more than 315 million monthly unique visitors in 2014 and have built a marketable base of over 200 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 48% in 2014, with the UK now accounting for a notable 15% of revenues. 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 45 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. In 2013 and 2014, 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 (87% in North America, over 80% in Europe, ~ 50% 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 exceed $100 billion by 2014 as advertisers continue to shift their spending from offline to online channels, mirroring the trend in consumer media consumption, generally. For travel specifically, International Data Corporation estimated that annual expenditures for global online travel advertising will grow at a compound annual rate of 15% through 2014.
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. Research firm IDC estimated the mobile travel spend to have crossed $2 billion by 2014, growing 40+% year-over-year.
TripAdvisor has been investing heavily in its mobile platforms such as SeatGuru mobile and tablet applications. The company introduced the Facebook log-in functionality and launched its new iPad application a few years back. It launched 20 free City Guides across iOS and Android during Q4 2012, which increased its coverage to 80 cities.
TripAdvisor has around 175 million cumulative mobile application downloads and approximately 50% of TripAdvisor traffic visited was via tablets or smartphones in 2014. Average monthly unique visitors via tablets and smartphones grew over 60% year-over-year to approximately 140 million for the year ended December 31, 2014, according to company logs.
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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