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Investment Overview for TripAdvisor (NASDAQ:TRIP)
- TripAdvisor EBITDA Margin: EBITDA Margins at TripAdvisor declined from 57% in 2009 to 41% in 2013. We expect the margins to revert to around 57% by the end of our forecast horizon. TripAdvisor’s profit margins are likely to be pressurized 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 50% by the end of our forecast period, thereby leading to a 5% downside to our current price estimate for the stock.
Click & Display Advertising
- Unique Visitors To TripAdvisor Sites (per month): We currently expect Unique Visitors To TripAdvisor Sites (per month) to increase to over 750 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 2020, there could be a 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 unique visitors to TripAdvisor sites (per month) to over 800 million by the end of our forecast horizon, there could be a 5% upside to the current Trefis price estimate.
TripAdvisor is a leading online platform for travel related reviews, aggregating over 100 million reviews and opinions about destinations, accommodations, restaurants and activities. With a robust annualized top-line growth of over 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 29 countries including China, where it operates under the daodao.com brand. TripAdvisor branded websites globally averaged more than 210 unique visitors in the first half of 2013 and have built a marketable base of over 100 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 51% in 2012, and UK now accounting for a notable 14% 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 30 countries in 21 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, 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.
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
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 33% globally (79% in North America, 61% in Europe, 40% in Latin America and 26% in Asia), TripAdvisor has the potential to grow in all markets.
Increasing online advertising spend
The global online advertising market is growing and is 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 estimates 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 mobile and tablet computing devices to access the internet. Research firm IDC estimates the mobile travel spend cross $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. Recently, the company introduced the Facebook log-in functionality and launched its new iPad application. It launched 20 news free City Guides across iOS and Android during Q4 2012, which increases its coverage to 80 cities.
TripAdvisor has around 79 million unique mobile device visitors and, at the end of Q2 2013, it reached over 50 million cumulative smartphone and tablet application downloads for the TripAdvisor applications.
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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