TripAdvisor (NASDAQ:TRIP) is a leading online platform for travel-related reviews. With a database of over 100 million user reviews and opinions, it is one of the most popular travel review websites. TripAdvisor’s business model is primarily driven by the number of unique visitors to its website and thus an increase in its user base is 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 figure increased by approximately 45% in Q4 2012. 
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The total number of unique visitors per month on TripAdvisor’s websites increased from 32 million in 2008 to 74 million in 2012, as per our estimate. In this article we list the factors/ potential threat that support/mitigate our rationale of TripAdvisor’s user base increasing to ~130 million over our review period.
1. Increasing Investment In The Mobile Platform To Leverage Growth In Mobile Devices
With the rapid adoption of smartphones and tablets, mobile devices are increasingly becoming a preferred and more convenient option for online searches and shopping. According to research firm IDC, mobile travel spend is expected to cross $2 billion by 2014, registering y-o-y growth of above 40%. Additionally, mobile ad spending in the U.S. alone is expected to grow from $1.5 billion in 2011 to close to $10.8 billion by 2016.
As per a study last year, commissioned by Expedia and conducted by comScore, around 48% of users use a tablet or smartphone to plan their trips while 44% use a mobile device to search for their next trip, 44% out of which prefer using an application to do the same.
TripAdvisor announced the launch of its mobile website in March 2010 and has since added apps for the iPhone, Android, Nokia, Windows phone, as well as the iPad. As of Q4 2012, it 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, TripAdvisor launched 20 news free City Guides across iOS and Android which increased its coverage to 80 cities.
2. Tapping Growth In Social Media
According to PhoCusWright, Facebook users who are referred to travel booking sites are more likely to make bookings than those referred via search engines such as Google (NASDAQ:GOOG). It also reports that more than 75% of the travelers use social networking sites to look for shopping-related deals and 30% specifically look out for travel deals.
In 2012, TripAdvisor more than doubled the members acquired through Facebook. 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.
TripAdvisor entered into a partnership with Facebook (NASDAQ:FB) in 2010 and since then has introduced a number of ways to leverage the collaboration. Facebook remains a meaningful channel for TripAdvisor to grow its brand awareness and increase the number of visitors on its websites.
3. International Expansion To Fuel Global Traffic
TripAdvisor’s increasing international footprint has been an important factor for the robust increase in its user base. TripAdvisor’s revenue contribution from international markets, excluding the US and UK, grew from 18% in 2009 to 35% in 2012. With more than a 75% increase in traffic, Asia-Pacific was one of the fastest growing markets for the company in 2012.
With a rising per capita income and low internet penetration (~28%), there is immense growth potential for the online travel market in the Asia-Pacific region. 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.
- Fake Review Concerns: Time and again, TripAdvisor has come under scrutiny for authenticity of the reviews on its websites. It has even been investigated by the Advertising Standards Agency (ASA) in September 2011 following growing criticism of its apparent failure to monitor fake comments posted on its website. As a result of the investigation, in February 2012, ASA banned the company from claiming or implying that the reviews on its website were from real travelers.
If the issue of fake review crops up again then it could lead to a potential decline in TripAdvisor’s user base. However, the company claims that it has been dealing with the issue of fake review for over 10 years now, and thus has good expertise at catching people who are trying to spam the system. Additionally, according to a survey conducted by TripAdvisor in 2011, around 98% of its audience trust the reviews on its website. 
- Increasing Competition: TripAdvisor faces competition in the travel review space from sites such as TravelPost, Yelp and HolidayCheck and from online travel agencies such as Expedia and Priceline, which solicit reviews from travelers who book on their websites. In addition, Google Places, that provides reviews and listings of local businesses, remains a major threat for TripAdvisor. Google has the majority market share in internet searches which gives it an unfair advantage to place its results higher in the search results. This in turn undermines TripAdvisor’s ability to obtain prominent placement in paid or unpaid search results which can impact its traffic growth.
- Low Entry-Barrier: Due to the low entry barrier in the industry, Tripadvisor faces competition not only from existing players but also potential new entrants in the travel review market.
If TripAdvisor’s user base increases to over 150 million by 2019 then there will be a 10% upside to our current price estimate for the company. On the other hand, if the user base increases to only 100 million by 2019, there will be a 20% downside in our price estimate for TripAdvisor.
Our price estimate of $38.34 for TripAdvisor is at a discount of over 10% to the current market price.Notes:
- TripAdvisor Reports Third Quarter 2012 Financial Results, TripAdvisor’s Events & Presentations, November 1, 2012 [↩]
- TripAdvisor CEO discusses fake reviews, Google, HotelNewsNow.com, November 17, 2011 [↩]