TripAdvisor Is Good For $27 On Social And Mobile Growth

by Trefis Team
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TripAdvisor (NASDAQ:TRIP), a leading online platform for travel reviews, is expected to report its Q2 2012 earnings on Tuesday, July 24. Post its spin-off from online travel agency Expedia (NSDQ:EXPE) in December 2011, the company’s stock has registered a phenomenal growth rate, rising from $27 at the time of listing to the current level of around $46.

Though TripAdvisor’s margins took a slight hit post the spin-off, the company posted a 23% rise in revenues in Q1 2012. While we expect the downward pressure on margins to persist in Q2 as well, we believe that by tapping social media and the mobile space, the company will continue to see an upside in revenues.

See our complete analysis for TripAdvisor’s stock

Short-Term Downward Pressure on Margins

Last quarter, TripAdvisor’s operating expenses increased by 45% to $110 million and, as a result, operating margins fell y-o-y from 49% to 40%. This was mainly on account of two reasons:

Fall in per click commission fee by Expedia: TripAdvisor’s profit margins are likely to be under pressure in the near term due to a fall in per-click commission fee paid by Expedia, which is TripAdvisor’s most significant advertising customer in terms of revenue. Expedia plans to reduce the percentage of gross profit (on bookings generated from TripAdvisor-sourced visitors) that it pays to the company in the future,  which is likely to reduce Expedia’s marketing spend on TripAdvisor.

Increase in general expenses post spin-off : These expenses include costs related to services previously obtained from Expedia, such as accounting, legal, tax, corporate development, real estate, and additional costs associated with being a publicly traded company. General and administrative expenses almost doubled y-o-y last quarter.

However, over time, we expect these expenses to come down and predict a marginal increase in gross margins by the end of our forecast period.

Growth in Social Media & the Mobile Space

Since TripAdvisor’s business model is primarily driven by the number of unique visitors to its websites, the company has been focusing on expanding its avenues to increase penetration and making its platforms more accessible to users. We believe that tapping growth opportunities in alternate platforms such as social media and mobile devices is a good long-term strategy to increase unique visitors on its websites and staying abreast of changing consumer trends.

Consumers are increasingly using online social media, such as Facebook, as a means to communicate and exchange information, including travel information and opinions. According to PhoCusWright, Facebook users who are referred to travel booking sites are more likely to book travel than those referred via search engines such as Google (NASDAQ:GOOG).

TripAdvisor entered into a partnership with Facebook (NASDAQ:FB) in December 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. TripAdvisor took the partnership a step further by launching “Local Picks” last quarter, a Facebook application which provides restaurant recommendation from locals and friends. (Read: TripAdvisor.Com Launches Local Picks, A Facebook Apps For Social Recommendations)

With increasing Internet penetration on mobile devices, TripAdvisor’s page views on mobile and tablet devices were up 2.5 to 3 times last quarter. To leverage the rising growth opportunities in mobile space, TripAdvisor is investing heavily in its mobile platforms such as SeatGuru mobile and tablet applications.

Further, the company is also pursuing opportunities to increase hotel bookings traffic, which remains a key driver for its click-based stream. The launch of a hotel booking site, Tingo, is yet another step to boost revenues from hotel booking.

We will update our current price estimate of $27.37 for TripAdvisor post the Q2 2012 earnings release.

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  • commented 2 years ago
  • tags: KYAK FB TRIP EXPE GOOG
  • Be careful when it comes to Trip Advisor - the group has driven off good users - and kept bullies
    It selectively publishes some reviews and not others.....
    So beware of this animal who has grown too fast and refused to be kind to its users who are friendly and top contributors.
    Trip Advisor allows bullies to reign the day on its forums now - and they do nothing about it.
    If you report being harrassed, Trip Advisor does nothing....
    Other users then have to come in and call the cyber bully out.....
    which happens frequenlty
    unfortunately some of our more knowledgeable people we love to follow and read their reviews
    have decided no longer to participate with Trip Advisor
    due to the constant badgering done by others on the web site.
    Be ware when you invest - if they d not fix these polices; many younger people are now going to other social media outlets like Yelp which are far more impartial and have better information to share.
    TA has not done a good job with it user base.
    So beware....
    Invest knowledgeably but beware.....
    TripAdvisor Logo
  • commented 2 years ago
  • tags: KYAK FB TRIP EXPE GOOG
  • Trip Advisor was fined by the Federal Government for not being truthful on its web site.
    Users beware - the feds think some of the things the web site is doing is illegal.

    http://consumerist.com/2012/07/tripadvisor-smacked-with-80k-fine-for-violating-fare-advertising-rule.html
    TripAdvisor Logo
  • commented 2 years ago
  • tags: KYAK FB TRIP EXPE GOOG
  • Trip Advisor allows bullies to be on their web sites. They drive off other good users. As such, the information on some of the web sites is no longer reliable. They allow for harrassment reporting - but Trip Advisor does nothing about it. They allow the bully to continue to attack others in words. One bully is a senile senior who no longer has good knowledge to share; she has 20 year olds for example in her city going to places which are only good for 60 years old. The users input is not reliable. What the bully then does is to drive off other users on site who are more knowledgeable and friendlier than she is. She tracks them down and writes horrible things about them on line. Trip Advisor allows this. As such, can you really trust their input any longer? You should not. They have driven off friendly good users and replaced them with a group of seniors, who while friendly no longer travel or know the cities they live in.