TripAdvisor (NASDAQ:TRIP) is slated to release its earnings for the first quarter of 2014 on Tuesday, May 6. The world’s largest online travel review company posted revenues of $213 million in the final quarter of fiscal year 2013, up by 26% compared to the year-ago period. Click-based advertising revenue increased by 17% year-on-year and accounted for 68% of total revenues.
The company launched a new meta-display platform in 2012 that collates hotel pricing and availability information from top advertisers on a single page. In the last few quarters, the feature negatively impacted TripAdvisor’s click-based advertising business (generates 68% of company revenue) due to leakages in the system. However, the meta-display feature also approached revenue neutrality in Q4 on the back of improved pricing and conversion. We are encouraged by this development and expect the growth in click-based advertising revenue to re-accelerate this year as the platform grows its scale.
We will update our current price estimate of $83 for TripAdvisor’s stock after the Q4 2013 results are announced.
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Meta-Display Approached Revenue Neutrality In Q4 2013, Will Now Increase Its Scale
Earlier, users had to click through to an advertiser’s website in order to view hotel pricing and availability information. The meta platform allows users to do all the comparison-based shopping on TripAdvisor’s website itself since it collates and displays this information from top advertisers. Although this has lowered the number of leads sent by TripAdvisor to its advertisers, the leads are more qualified and have better conversion rates, as travelers are now more likely to click on the advertiser’s link for booking rather than just seeking information.
The better quality leads allowed TripAdvisor to increase its advertising rates. Despite this, the meta platform was unable to achieve revenue neutrality until Q3, as fewer leads were being sent to advertisers than before. Advertisers were wary of the transition to meta-display, and therefore, were conservative when bidding on the new platform. The feature approached revenue neutrality in December last year through a combination of higher ad pricing and better conversion rates. Pricing improved through the fourth quarter as competition among advertisers to gain visibility in the meta platform lifted bids, while conversion rates improved as more users returned to make purchases. 
TripAdvisor’s vast user base is its key growth driver as it attracts many advertisers. Monthly unique visitors to the company’s websites grew by 50% year-on-year in Q4 to 260 million.  We believe that meta will help TripAdvisor to further expand its user base as it enhances overall user experience.
We also believe that meta will provide a boost to the ad revenue earned by the company per page view as users start making more purchases and competition on meta heats up further.
Subscription Growth Story Still Intact For TripAdvisor
TripAdvisor has historically seen robust revenue growth at its subscription, transaction and other (STO) division. The company earned $29 million as STO revenues in 2010, and the figure grew at a compounded annual rate of about 65% to $130 million in 2013. This compares with contemporaneous growth of 25% in the company’s top-line. Improved sales productivity and pricing for the company’s Business Listings product and increased brand awareness, inventory and transactions for the company’s Vacation Rentals product were the key drivers behind the out-performance of the division. 
We expect the division to continue growing strongly on the back of sales efficiency, a rapidly expanding user base, the launch of TripConnect for small and independent hotels, and the introduction of a new commission model for vacation rentals. Subscriptions and transactions contribute slightly more than 15% to total company revenues and account for 14% of our valuation for TripAdvisor’s stock.Notes:
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- TripAdvisor’s CEO Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, February 11, 2014 [↩]