Amid macroeconomic headwinds, TripAdvisor (NASDAQ:TRIP), a leading online platform for travel-related reviews, registered a 7% sequential increase in revenues and adjusted EBITDA of $97 million for Q2 2012. Despite weakness in the global economy and volatile exchange rates, the non-US revenue constituted 49% of total revenues, a marginal increase from Q1 2012 but almost a 5% increase from Q2 2011. However, despite reporting $197 million in revenues, the company’s stock plunged by 24% in late trading on Tuesday as its net profit fell to $53 million from $54.1 million a year ago. 
The decrease in profit was on account of TripAdvisors’ traffic quality improvement initiative this quarter, which led to over 30% increase in total costs. Instead of reinvesting the cost savings in sales marketing, the company reallocated some of it toward traffic diversification efforts, including the marketing campaign on Facebook (NASDAQ:FB). The change in strategy this quarter also negatively impacted hotel shopper growth, which would have been higher otherwise.
We feel that the traffic quality improvement initiative, which aims to increase the conversion rate for TripAdvisor’s clients, is a good long term business strategy, although it might come at the expense of the near-term growth rate.
Overall, we feel that TripAdvisor had a strong Q2 with an average 54 million unique visitors worldwide, a 31% y-o-y increase. Also, by the end of the quarter, the company crossed the 75 million reviews and opinions milestone and continues to witness accelerated growth in contributions per minute.
We remain optimistic about TripAdvisor’s performance for the rest of the year, estimating strong double digit growth in revenues. With a growing focus on social and mobile initiatives, we feel that the company will be able to further drive up user adoption, registering an increase in the number of unique visitors to its website.
We are in the process of updating our current price estimate of $27.37 for TripAdvisor post the Q2 2012 earnings release.
Growth in Social Media
Since the inception of its partnership with Facebook in 2010, TripAdvisor has been looking for new ways to leverage the same. In April this year, the company merged its TripAdvisor and “Cities I’ve Visited” applications into one to better integrate Facebook users’ activity within TripAdvisor. With over 32 million logged-in Facebook users using the TripAdvisor application, it is the second most popular application on Facebook, as per AppData.
Consumers are increasingly using online social media as means to communicate and exchange information, including travel information and opinions. Thus, growing visibility on this forum will help TripAdvisor build brand awareness, leading to an increase in its member base.
Increasing Mobile Initiatives
With an exponential increase in smartphone and tablet users and higher Internet penetration on mobile devices, TripAdvisor has been investing heavily in its mobile platforms such as SeatGuru mobile and tablet applications. This quarter, the company introduced the Facebook log-in functionality and launched it new iPad application. The launch of 30 new free city guides across iOS and Android takes the total coverage to 50 cities.
Currently, the company has around 27 million unique mobile device visitors and, as of June 30, it reached over 22 million cumulative mobile application downloads for TripAdvisor. The company plans to continue with the effort to increase its presence in the mobile space, which will help create an even more loyal user community.Notes:
- TripAdvisor Falls After Second-Quarter Revenue Misses Estimates, Bloomberg, July 25, 2012 [↩]