The world’s largest travel review website, TripAdvisor (NASDAQ:TRIP), posted strong results in Q1 2013 with a 25% and 30% sequential increase in revenues and EBITDA, respectively. Click-based revenues grew by about 25% y-o-y on account of robust growth in hotel shoppers and better pricing across geographies. Growth in display advertising revenue also re-accelerated to 14% due to rising traffic, better sell-through rates and slightly higher prices. Click and display advertising contribute close to 90% of the company’s revenues. 
During the first quarter of 2013, TripAdvisor’s website averaged a record breaking 200 million monthly unique visitors, representing y-o-y growth of more than 50%. The company’s ever expanding user base is the main driver behind its rapid growth as it attracts advertisers to the website.
TripAdvisor is set to release its Q2 2013 earnings on July 24. Despite the management’s expectation of a temporary slowdown due to the roll out of the new meta display, we believe TripAdvisor’s user base and revenues will grow in the long term with growth in its mobile platform, the expansion of its international footprint and the full-scale roll out of the meta feature.
Meta-Display To Enhance Revenue In The Long Term
TripAdvisor rolled out its new meta display feature globally across its smartphone traffic in Q4 2012. By Q1 2013, about 20% of the company’s desktop and tablet users were using the meta display feature. TripAdvisor announced plans to extend this feature to 100% of its users including desktops, tablets and smartphones, by the end of Q2 2013.
Earlier, TripAdvisor’s 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.
The revenue from advertisements on meta search are CPC (cost per click) based. Since the comparison-shopping now takes place on TripAdvisor’s website itself, fewer leads are sent to advertisers. However, the leads are more qualified, resulting in higher conversion rates of hotel shoppers to revenue-generating clicks.  Thus, TripAdvisor charges CPC rates that are several times higher than historical rates, although the higher rates have not yet been able to offset the headwinds in revenue due to lesser leads sent.
This negatively impacted revenues by approximately 3%–5% in Q1 2013. The company estimates the impact to be stronger in Q2 2013 which will also fall to the bottom line as its hiring and investment plans remained unchanged. However, it expects the revenue impact to steadily subside thereafter to achieve revenue neutrality by the end of the year as the meta search feature brings more customers on board the scheme and conversion rate improves. 
Mobile Platform To Expand User Base
TripAdvisor is the world’s second most downloaded mobile travel application after Google Earth.  Mobiles and tablets together account for approximately 30% of the company’s global traffic. At the end of Q1 2013, TripAdvisor reached close to 36 million downloads for the TripAdvisor application and averaged around 62 million monthly unique mobile device visitors, representing a y-o-y increase of 300%.
TripAdvisor recently entered into a partnership with Samsung under which TripAdvisor’s app comes preinstalled on the new Samsung Galaxy S4 that is expected to sell 10 million units per month. The company also acquired popular travel related apps such as Tiny Post and GateGuru to expand its mobile offering.
The downside to TripAdvisor’s expanding mobile user base is the lower monetization level for this platform. While the monetization level of tablets is fast approaching that of desktops, smartphone monetization rates remain low at around 20%. We believe the current boom in mobile usage will fuel growth in the user base for TripAdvisor, and as the company strives to improve monetization rates on smartphones, revenue will grow.
International Expansion Offers Higher Growth Opportunities
TripAdvisor is rapidly expanding into international markets. Growing at close to 30% y-o-y, international revenue constituted about 50% of total revenues for TripAdvisor in Q1 2013. Asia Pacific and Latin America are two of the fastest growing markets for TripAdvisor, although some countries in these posted 5%-10% lower revenues due to to lower CPC rates. 
With TripAdvisor branded websites in 30 countries and 21 languages, the company has a vast international presence. TripAdvisor intends to focus on enhancing its brand image in the emerging markets by incorporating more local language content to drive higher user engagement. As it targets growth outside the U.S., we feel that it can witness higher growth in hotel shoppers as the hotel industry in international markets offers better growth opportunities compared to the U.S. market where growth is slower.
Based on the company’s performance in the upcoming Q2 2013 results, we will update our price estimate for TripAdvisor which currently stands at $54.
- TripAdvisor Management Discusses Q1 2013 Results–Earnings Call Transcript, Seeking Alpha, May, 2013 [↩]
- Tripadvisor Shakes Up Business With Aggressive Hotel Metasearch, Skift.com. Feb 13, 2013 [↩]
- TripAdvisor Management Discusses Q1 2013 Results-Earnings Call Transcript, SeekingAlpha, May, 2013 [↩]
- TripAdvisor MAU Ranking, AppData [↩]
- TripAdvisor Management Discusses Q1 2013 Results-Earnings Call Transcript, May, 2013 [↩]