TripAdvisor Poised For A Strong Q3’14 Backed By Better Platforms, Aggressive Expansions & Wide Promotions

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TripAdvisor (NASDAQ:TRIP), the world’s largest travel review company, is set to release its Q3 2014 earnings on Nov 4th. Backed by its launch of Instant Booking and a hike in the pricing and conversion rates in its meta-display platform, the company posted a strong first half in 2014. Revenue for the first half stood at $604 millions, achieving a year-on-year growth rate of 27%. The click-based advertising revenue accounted for 73% of the company’s revenue. In line with the company’s expectation in Q1 2014 (that bulk of its investments towards its new TV campaign will take place in the second and third quarters), TripAdvisor spent $10 million towards this end in Q2. This resulted in Q2 adjusted EBITDA growth decelerating to 14% year-on-year, as against a 135% year-on-year growth in Q1 2014. The company’s plans on continuing with its advertising campaign until October 2014, which implies that the Q3 profitability might also be dampened  [1].

TripAdvisor’s  guidance for 2014, of achieving a top-line growth from mid-20s to high 20s to low 30s, doesn’t include meaningful upside from a future hike in pricing and conversion rates. Also, meaningful additional revenue from Instant Booking and the effect of the new advertising campaigns on website traffic is not incorporated. This implies that revenue could experience an upswing beyond the guidance.

We will update our $94.34 price estimate for TripAdvisor after the release of the third quarter earnigs release.

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Seamless Features And User Experience Enhancement Are Key To TripAdvisor’s Surging Revenue Per Hotel Shopper

Launched in 2013, the meta-display feature on TripAdvisor accumulates and displays the price and availability data on the TripAdvisor website itself, as against the previous feature which redirected users to the hotel advertiser’s website to gain such information. This has lowered the number of leads sent by the company to its advertisers, at the cost of improving the quality of leads with better conversion rates. Potential travelers are now more prone to clicking on the advertiser’s link for booking rather than for information. The platform reached revenue neutrality in December 2013 through a mix of higher advertisement pricing and better conversion rates. Pricing improved through Q1 and Q2 2014 as bids among advertisers rose with intensifying competition for greater visibility and with a better conversion rate among users. Consequently, the decline in revenue per hotel shopper dropped down from 19% in Q3 2013 to 9% in Q4 2013 respectively, and witnessed a 1% growth 1% in Q1 2014 [1].

In Q1 2014, the company presented its Instant Booking feature which aimed at reducing the friction related to mobile bookings. The user experience is enhanced by allowing users to complete all booking related steps from selecting a room to inputting personal and credit details on the TripAdvisor platform itself. Thus, the hassle of moving back and forth between TripAdvisor and the advertiser’s website has been mitigated. Instant booking, currently available in U.S., is expected to be introduced to other markets of strategic importance sometime later this year. The impact of all the enhancements was reflected in Q2 2014, when revenue per hotel shopper growth jumped to 11% from 1% in Q1 2014. We expect the metric to show further expansion with greater adoption of these platforms.

In October 2014, TripAdvisor introduced a new feature called “Just for You” providing personalized hotel recommendations to its users based on customized preferences and their travel search trends on the website. The feature will provide subsequently better recommendations as travelers select their travel preference tags on the new “Just For You hotel” page, keep searching for more hotels and destinations on the website, and write reviews about their journeys. [2]

Aggressive Expansion And Promotional Strategies Ensure TripAdvisor’s Traffic Growth

TripAdvisor attracted 280 million average unique monthly viewers for Q2 2014, which reflected a year-on-year growth of 25%. The mobile application download crossed 128 million, which accounted for almost 50% of the total traffic. Other than its Instant Booking feature, TripAdvisor is also launching native apps that allow travelers to download cities and get access to user reviews, photos and maps without incurring roaming charges. The company is trying to expand its international presence by launching sites in local languages. In Q2 2014, such sites were introduced in Austria, Israel, Finland, Hungary and Vietnam. With the addition of Czech Republic in Q3 2014, TripAdvisor now has branded websites in over 43 countries and 26 languages with over two-thirds of its traffic originating from international markets. The company also plans to spend $30 million on TV advertising in US, Australia and France this year.

The aggressive growth pursuit has pushed TripAdvisor to compete with its advertisement clients as well. TripAdvisor stated in July that its Instant Booking feature would also feature inventories from GDS operator Travelport, which lists 580,000 hotels internationally. The company has also acquired Viator in September 2014 which is an online service providing access to over  20,000 tours and attractions in 1,500 destinations across the globe [3].

With its aggressive promotional and expansion strategies, we believe TripAdvisor is poised for steady growth in the third and fourth quarters of this year.

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Notes:
  1. TripAdvisor’s (TRIP) CEO Steve Kaufer on Q2 2014 Results – Earnings Call Transcript, Seeking Alpha, July 23, 2014 [] []
  2. TripAdvisor launches new personalised hotel recommendations, Travel Daily News, October 2014 []
  3. TripAdvisor to compete with its ad clients, Travel Weekly, August 2014 []