Leading travel review website TripAdvisor (NASDAQ:TRIP) started its fiscal 2013 on a strong note with a 25% and 30% increase in its Q1 2013 revenues and EBITDA respectively, compared to Q1 2012. While the robust growth in hotel shoppers and better pricing across all geographies contributed to a 24% annual increase in click based revenues, the y-o-y display advertising revenue growth re-accelerated to 14% due to rising traffic, better sell-through rates and slightly higher prices. Additionally, backed by recent acquisitions, TripAdvisor’s subscription, transaction and other revenues grew by 51% y-o-y.
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International expansion, increasing investment in developing its mobile platform and the transition to meta-search display are some of the key factors that we believe will drive TripAdvisor’s growth in the future. However, aiming to rollout its meta display feature across its products and platforms by the end of this year TripAdvisor expects lower revenue growth for the next two quarters.
Witnessing a 54% annual increase in the number of unique monthly users in Q1 2013, we believe that TripAdvisor is well positioned to continue expanding its business in the future. Despite the temporary slowdown, we think that the rising traffic, a strong member base and increasing content across its growing global footprint will help TripAdvisor regain its growth momentum in the future.
Full Rollout To Meta Display To Limit Short Term Growth
During Q4 2012, TripAdvisor rolled out the meta display feature to 100% of its smartphone traffic and started testing it on desktops and tablets in Q1 2013. In TripAdvisor’s earlier feature, its partner pages appeared behind the main browser window when a user entered a travel query. However, the company has started integrating all the search query results on the main page, known as meta-search. When users execute a query on TripAdvisor, they get the results on the page along with a map, which pinpoints locations in users search results. This enhancement allows users to see hotel pricing options and availability from booking partners on a single page.
Additionally, TripAdvisor redesigned its page last year by adding filters that make the search function more appealing to users by segmenting results on the basis of price, property type – family, romantic, business – etc. This enhances user experience by enabling them to quickly browse through reviews that are more suitable for their interests.
With over 50% of its global traffic using the meta feature, TripAdvisor claims to be witnessing higher conversion rates after the introduction of meta display. Approximately 20% of the company’s desktop and tablet users are using the meta display feature currently, and it intends to rollout the same to all its global users by June this year.
On the flip side, TripAdvisor’s meta rollout negatively impacted its Q1 2013 revenue growth by 3%-5%, as it worked towards improving the conversion pricing and getting more customers on board the scheme. The company expects the negative impact to accelerate this quarter, but recover in the latter part of 2013, as it approaches revenue neutrality. The 100% conversion to the meta display platform will lead to pricing gains and higher conversion rates, which in turn will counter the revenue loss towards the end of the year.
Though it limits the short term growth, we believe that the transition is a good move for TripAdvisor’s long term growth, as it enhances the overall user experience.
Improving Mobile Platform To Expand User Base
At the end of Q1 2013, TripAdvisor reached close to 36 million downloads for the TripAdvisor application.  The company has reached around 62 million monthly unique mobile device visitors, a y-o-y increase of 300%. It launched a significant update of its mobile application last month, and is working on a similar product refresh for the tablet applications. Additionally, TripAdvisor recently entered into a partnership with Samsung (PINK:SSNLF), making it the only travel application to come pre-installed onto the new Samsung Galaxy S4, which is expected to sell 10 million units per month. ((TripAdvisor Management Discusses Q2 2013 Results – Earnings Call Transcript, Seeking Alpha, May 7, 2013))
While the monetization levels of tablets are already approaching that of desktops, smartphone monetization remains low at around 20%. However, TripAdvisor expects the rate to improve in the future as it pays more attention in optimizing the meta experience and the meta pricing on the phone.
Expanding International Footprint To Accelerate Growth
Over 60% of TripAdvisor’s traffic originates from outside its core markets of the U.S. and the U.K. With more than 75% increase in traffic, Asia-Pacific was one of the fastest growing markets for the company in 2012.
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. In 2013, it intends to focus on enhancing its brand image in the emerging markets by incorporating more local language content to drive higher user engagement. As TripAdvisor targets growth outside the U.S., we feel that it can witness higher growth in hotel shoppers as the hotel industry in international markets offer better growth opportunities, compared to the U.S. market which is nearing saturation.
TripAdvisor claims that around 50% of the traffic visiting its websites search for hotel deals.  An increase in the number of hotel searches on TripAdvisor’s websites was one of the key factors behind its growth in 2012 and Q1 2013.
– Revenue growth to be in low 20s.
– TripAdvisor sees increased revenue headwinds for Q2 and Q3 as it does not expect meta to be revenue-neutral this quarter.
– Click based revenue to grow in the high teens to low 20s range.
– Display based revenues to increase by low double digits.
– Subscription, transaction and other revenue growth in the mid-50s.
– EBITDA growth in the mid-single-digit range.
We are in the process of updating our price estimate of $43.89 for TripAdvisor.Notes:
- TripAdvisor Management Discusses Q2 2013 Results – Earnings Call Transcript, Seeking Alpha, May 7, 2013 [↩]
- TripAdvisor’s Management Presents at Deutsche Bank’s DbAccess 21st Annual Media and Telecom Conference (Transcript), Seeking Alpha, March 5, 2013 [↩]