TripAdvisor’s Top-Line Accelerates On Strong Monetization Through Instant Booking and Meta

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TripAdvisor (NASDAQ:TRIP), the world’s largest travel review company, posted revenues of $323 million in the second quarter of fiscal year 2014. Click-based advertising revenue increased by 28% year on year and accounted for 73% of total revenues. The business benefited due to the launch of Instant Booking and due to an increase in pricing and conversion rates on the company’s meta-display platform. We will elaborate on Instant Booking and meta-display later in this article. [1]

Despite the strong top-line growth, TripAdvisor’s adjusted EBITDA increased by only 14% year on year as the company spent $10 million on TV advertising. The company intends to continue investing in TV advertising until October, which means that profitability may remain suppressed even in Q3. [2]

TripAdvisor maintained its guidance for top-line growth for the year from mid-20s to high 20s to low 30s. However, the forecast does not incorporate any meaningful upside from future increases in pricing and conversion rates. It also does not include any meaningful additional revenue from Instant Booking and the effect that its new ad campaigns will have on the traffic. This means that revenues could increase beyond the management’s expectations.

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We are in the process of updating our $89 price estimate for TripAdvisor, based on the quarterly results that were recently announced.

See our complete analysis for TripAdvisor’s stock

Improved Metrics On Meta-search And Launch Of Direct Bookings For Mobile Lift Revenue Per Hotel Shopper

Launched in 2013, meta-display is a new feature on TripAdvisor that collates and displays hotel pricing and availability information on TripAdvisor’s websites itself, as compared to the earlier solution that redirected users to the hotel advertiser’s website to show users the pricing and availability information. The platform was unable to achieve revenue neutrality until Q3 2013, as users could see information on TripAdvisor and fewer leads were being sent to advertisers than before. Advertisers were wary of the transition to meta-display, and thus, they were conservative when bidding on the new platform.

The platform approached revenue neutrality in December last year through a combination of higher ad pricing and better conversion rates. Pricing improved through Q2 2014 as competition among advertisers to gain visibility in the meta platform lifted bids, while conversion rates improved as more users returned to make purchases. Revenue per hotel shopper growth accelerated from -19% and -9% in Q3 and Q4 2013 respectively, to +1% in Q1 2014. [2]

TripAdvisor launched its Instant Booking feature last quarter in order to reduce the friction associated with mobile bookings. Instant Booking enhances the user’s experience by completing the booking process on TripAdvisor itself. It handles all aspects of the booking process from selecting a room to inputting personal and credit details, thus offering a frictionless booking experience. Using TripAdvisor’s app and mobile website was cumbersome earlier due to issues during hand-off and moving back and forth between TripAdvisor and advertiser content.

Instant booking is currently available across the U.S., with a broader rollout to other important markets expected later this year. The company is designing similar versions for desktops and tablets that are expected to be introduced in the current quarter. It has commitments from over 50 Internet booking engines that want to partner with it on Instant Booking. [2]

Revenue per hotel shopper accelerated for the third straight quarter to +11% in Q2 2014 due to increase in pricing and conversion on meta and also due to the launch of Instant Booking. We expect revenue per hotel shopper growth to accelerate further as the two platforms grow in scale.

Strong Traffic Growth On Account Of Mobile and International Expansion

Average unique monthly visitors to TripAdvisor websites increased to 280 million in Q2, representing year over year growth of 25%. The company crossed 128 million downloads for its apps due to which mobile traffic grew strongly and accounted for nearly 50% of the total traffic on TripAdvisor. Apart from enhancing the mobile booking process through the launch of Instant Booking, TripAdvisor is launching native apps that allow travelers to download cities and get access to user reviews, photos and maps without incurring roaming charges. Additionally, it has rolled out a new tab-based user interface to all of its traffic in major markets. We believe that the enhancements TripAdvisor is making to its mobile platform will help mobile traffic to surpass desktop traffic in the near future. [2]

TripAdvisor is also expanding its international footprint to grow its traffic. The travel review company is working to increase TripAdvisor domains in localized languages to better serve local travelers and align its offerings with its local OTA partners. It launched websites with localized content in Austria, Israel, Finland, Hungary and Vietnam in Q2. With the addition of Czech Republic in the current quarter, TripAdvisor now has branded websites in over 43 countries and 26 languages with over two-thirds of its traffic originating from international markets.

TripAdvisor is aggressively targeting international markets also via its TV advertising campaign. The company plans to spend $30 million on TV advertising in US, Australia and France this year. As it targets further growth outside the U.S. by rolling out TV ads in additional international markets, we believe that it can witness higher growth in traffic. [2]

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Notes:
  1. TripAdvisor Reports Second Quarter 2014 Financial Results, TripAdvisor Earnings Release, July 23, 2014 []
  2. TripAdvisor’s (TRIP) CEO Steve Kaufer on Q2 2014 Results – Earnings Call Transcript, Seeking Alpha, July 23, 2014 [] [] [] [] []