TripAdvisor Improves Ad Effectiveness By Making Sure They Are Viewed

by Trefis Team
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Earlier this month, TripAdvisor (NASDAQ:TRIP), a leading online platform for travel related reviews, introduced a first of its kind initiative to make display advertising on its website more effective for its customers. The “Delayed Ad Call” initiative changes the way online advertising is measured by charging advertisers only when a user scrolls to the part of the page where the ad is displayed. TripAdvisor has implemented a tracking technology for this making it the first company in the travel industry to adopt the standard.

As per a study by AdSafe Media, around 50% of ads bought on publisher sites were never seen by the user. A similar study conducted by ComScore states that ads in view longer perform much better, indicating that there is a strong positive correlation between viewability and conversion rates. [1] By increasing customer confidence in generating higher returns from their investment, the move can significantly increase the number of display ads on TripAdvisor’s websites. On the flip side, since the company will only make an ad call when a user reaches the page where the ad is displayed, it might impact its display ad revenue in the short term.

See our complete analysis for TripAdvisor’s stock

Nevertheless, we believe that TripAdvisor’s proactive move can help it increase its advertising revenue in the long run by making ads on its website more meaningful and effective. The company derives approximately 90% of its revenue from advertising, with only 12% coming from display advertising. The display advertising market is expected to continue to grow for years to come and we believe that by continuously innovating its offerings, TripAdvisor can leverage future growth in the display online ad market.

As per research firm eMarketer, the online display ad market in the US was worth $14.98 billion in 2012, a 21.5% increase compared to 2011. The firm forecasts the market to expand to $17.7 billion this year and reach $25 billion by 2016. [2] Though the online display ad market in Europe is much smaller compared to the U.S., it is expected to grow at a rate of 13% through 2017. [3] TripAdvisor derives 51% and 14% of its revenue from the U.S. and European markets respectively. We expect the company to benefit from the above trend.

Our price estimate of $43.89 for TripAdvisor is at a discount of over 10% to the current market price.

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Notes:
  1. TripAdvisor launches a first in online display advertising, Travel Daily News, April 8, 2013 []
  2. U.S. online display ad spending soars, Internet Retailer, April 2, 2013 []
  3. Forrester: US Online Display Ad Spend $12.7B In 2012, Rich Media + Video Leading The Charge, Tech Crunch, October 9, 2012 []
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