Backed by robust growth in hotel shoppers and an expanding international user base, leading online platform for travel reviews TripAdvisor (NASDAQ:TRIP) marked a 20% increase in its 2012 revenues. Despite macro headwinds and increasing long-term investment, TripAdvisor’s Q4 2012 revenue and net income witnessed 23% and 40% y-o-y growth, respectively.
Following its spin-off from online travel agency Expedia (NSDQ:EXPE) in December 2011, TripAdvisor witnessed rapid top-line growth every quarter. Rising traffic, a strong member base and increasing content across its growing global footprint have helped the company perform well.
While there are certain factors that can limit growth in 2013 such as a mix shift towards international markets, increasing hotel shoppers on mobile devices and lower click-based pricing, we believe that TripAdvisor is well-positioned to continue expanding its business in the future.
TripAdvisor’s business model is primarily driven by the number of unique visitors to its website and thus an increase in the number of visitors in an important indicator of its future growth. According to comScore, TripAdvisor’s travel community averaged more than 57 million monthly unique visitors in Q3 2o12 and the number increased by approximately 45% in Q4 2012. 
As TripAdvisor continues to develop its social and mobile platforms, focuses on international expansion and targets higher hotel shopper growth, we believe it will continue to register growth in its user base for years to come.
Increasing Hotel Shoppers Fuel Click-Based Revenue
The number of hotel shoppers on TripAdvisor’s websites and mobile platforms increased by more than 30% y-o-y, which led to a 24% y-o-y increase in click-based advertising in Q4 2012. For the full year 2012, an increase in hotel searches contributed to 20% revenue growth, 18% click-based revenue growth, and 9% adjusted EBITDA growth.
Advertising revenue, which primarily consists of click-based advertising, contributes over 84% to TripAdvisor’s valuation, as per our estimates. As TripAdvisor targets growth outside the US, we feel that it can witness higher growth in hotel shoppers as the hotel industry in the international markets offer better growth opportunities compared to the US market which is nearing saturation.
TripAdvisor claims to be witnessing continuous growth in international hotel shoppers and better y-o-y pricing. We estimate the trend to continue in 2013 as well.
Strong Growth In Global Traffic
Increasing international expansion was an important factor leading to a robust increase in traffic on TripAdvisor’s website. With more than 75% increase in traffic, Asia-Pacific was one of the fastest growing markets for the company. Though the US and the UK are relatively mature markets, TripAdvisor claims to be witnessing healthy growth from these regions which implies that there is still room left to grow here.
Over 60% of TripAdvisor’s traffic originates from outside its core markets of the US and the UK. In 2013, the company intends to focus on enhancing the TripAdvisor brand image in the emerging markets by incorporating more local language content to drive higher user engagement.
TripAdvisor offers its content in 21 different languages with more than 60 contributions per minute, which equates to over 30 million contributions in a single year.
Increasing Investment In Social & Mobile Platforms To Enhance Brand Awareness
With the rapid changes in global technology, it is important for online travel companies to stay in line with changing consumer preferences. Leveraging growth in social platforms and the rapidly expanding mobile user base remain key priorities for TripAdvisor’s long-term growth strategy.
In 2012, TripAdvisor managed to more than double the members acquired through Facebook (NASDAQ:FB). At 44 million, its marketable members increased by almost 100% y-o-y. With over 32 million logged-in Facebook users, 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. Presently, 35% of TripAdvisor’s new reviews are derived from its Facebook connected members.
As of Q4 2012, TripAdvisor had around 45 million monthly unique mobile device visitors, a y-o-y increase of 190%. At the end of the quarter, it reached over 31 million cumulative smartphone and tablet application downloads for the TripAdvisor application. Additionally, the company launched 20 news free City Guides across iOS and Android which increases its coverage to 80 cities.
During Q4, TripAdvisor worked on improving its smartphone user interface and introduced a new meta-display for smartphone traffic. While smartphones currently account for less than 5% of TripAdvisor’s click-based revenues, tablet accounts for approximately 10%-15% of revenues. We expect the proportion to increase in the future.
Targeting the mobile space and social media, TripAdvisor has been focusing on expanding its avenues to increase penetration and making its platform more accessible to users. We expect both media to contribute significantly toward increasing traffic on TripAdvisor.
- Total revenue and click-based revenue to increase by more than 20% (lower 20s).
- D&A and capex to be in line with 2012 figures.
- Stock-based compensation to increase marginally: 6% of revenue.
- Effective tax rate to be in the mid-to-high 20s range on account of increasing benefit from international reorganization.
We will update our price estimate of $37.89 for TripAdvisor soon to incorporate the Q4 2012 earnings results.Notes: