TripAdvisor Displays Moderate Growth, Promises Better Future With Product Launches And Acquisitions

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TripAdvisor (NASDAQ:TRIP), the world’s largest travel review company, posted its Q3 2014 earnings on November 4th. In line with the previous strong top line performance of 2014, TripAdvisor witnessed a 39% year-on-year growth in revenue to $354 million. The primary contributors to this performance were its recent Viator acquisition, contribution from LaFourchette (its restaurant reservation platform), and 31% year-on-year growth in click-based revenue (which accounts for around 70% of the company’s revenue).

The performance though apparently strong, fell short of the growth expected by the company. The primary reason for the setback was a seasonal decline in the click per hotel shopper since mid-August 2014. Additionally, the acquisition related expenditures, coupled with the expenses directed towards capturing a bigger pie of the travel and entertainment market, contributed to the headwinds.

Expenses grew by 56% mainly due to online and offline marketing spends and expenditures on headcount. In Q3 2014, $19 million was spent on offline advertising, more than 9 times of that spent in Q3 2013. The company plans on investing a total of $30 million in TV advertisements in 2014. Google Trends data displays an increase in traffic growth in US, France, Australia, and Canada, countries where the advertisements were launched.

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For full year 2014, the management expects total revenue growth between high 20% to low 30% range and the click based revenues growth in the mid-20% range. [1]  We believe that due to its investments and initiatives, TripAdvisor will eventually reap benefits in the long run which will translate its strong top line performance into healthy bottom line growth, though it might face temporary set backs in the short run.

Our $94.34 price estimate for TripAdvisor is higher than the current market price of $74 per share, which has fallen about 25% since late August. We are in the process of updating our model for the Q3 2014 earnings.

See Our Complete Analysis for TripAdvisor Here.

Though Seasonal Slowdown Was Observed, New Feature Launches Would Help In Gaining Traction In The Future

The seasonal decline in click per hotel shopper has been a major cause for the financial performance falling short of guidance in Q32014. The metasearch feature, which TripAdvisor launched in 2013, 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. Since the introduction of the metasearch feature, the seasonal declines in clicks per hotel shopper tend have been reduced. Management now believes that this seasonal slowdown had never quite been removed, but was overshadowed by the optimization gain of the metasearch experience in the second half of 2013. However, despite the seasonal down trend, the revenue per hotel shopper growth accelerated to 14% in Q3 2014, which was a three percentage point increase from Q2 2014.

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. In Q3 2014, the management observed that users appear to prefer this feature, and are using it for bookings more than the metasearch option. Rate of user conversion to booking seems to have accelerated. The feature is currently available only in the U.S., but the company plans to roll it out on a wider scale in the future.

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 better recommendations as travelers select their travel preference tags on the new “Just For You hotel” page, pursue future searches for more hotels and destinations on the website, and write reviews about their journeys. [2] TripAdvisor’s aim behind this feature launch is to increase the value-add for users and advertising partners. This in turn will boost its own business by accelerating traffic growth, which will help in booking conversions as well.

Acquisitions Aimed At Expanding The Gamut Of Offerings And Increasing Client Base

TripAdvisor currently has 2.4 million restaurant listings on its platform. It acquired LaFourchette in May 2014, and in this short duration has streamlined the reservation experience and launched an instant reservation feature. This aided in tripling the number of seated diners from TripAdvisor through the LaFourchette platform. TripAdvisor’s aim is to extend the LaFourchette’s reach on a wider level in the future.

In order to extend its reach in the entertainment sector, which is its third largest source of demand after hotels and restaurants, TripAdvisor acquired Viator in September 2014. Viator is an online service providing access to over 20,000 tours and attractions in 1,500 destinations, in 10 different languages, worldwide. This is cited as one of the biggest development in this quarter, by the company. With this acquisition, TripAdvisor is poised to offer an end-to-end experience, from research to direct booking, to its users.

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Notes:
  1. TripAdvisor’s (TRIP) CEO Stephen Kaufer on Q3 2014 Results – Earnings Call Transcript, Seeking Alpha, November, 2014 []
  2. TripAdvisor launches new personalised hotel recommendations, Travel Daily News, October, 2014 []