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Investment Overview for TripAdvisor (NASDAQ:TRIP)
TripAdvisor ended 2016 on a weak note mainly on account of the lack of traction on its Instant Booking platform that led to a decline in its hotel revenues (which accounts for ~80% of its total revenues). Along with this, the company continued investing in its marketing initiatives to make Instant Booking more popular among users and this led to a further dampening of the margins. Though the trend of investment on the platform is expected to continue, the user interest on the platform seemed to be improving towards the end of 2016. TripAdvisor expects this improvement to carry on in 2017. Along with the presence of 9 out of the top 10 hotel chains, and OTA leaders, Priceline and Expedia, on its platform, Instant Booking does have the potential to be the major growth driver for TripAdvisor in the long run.
The company will spend the first half of 2017 to complete its Instant Booking rollout in its international markets. The user experience while browsing and shopping for hotels will be further enhanced so that they can find the best price. It is also currently weighing the option of a multi-year brand marketing initiative and it also wants to bring back its advertisements on television. The company believes that more aggressive brand marketing investments will help it in reaching a greater audience and in helping users get more used to the fact that along with the opportunity to compare prices of hotels, TripAdvisor now gives the option to book hotels through its platform. Greater investments in branding and marketing initiatives would imply that the dampened profitability trend of the company will continue persisting over the near term.
Currently, the TripAdvisor platform includes over 435 million reviews (50% y-o-y growth) for 1.9 million accommodations, 4.2 million restaurants, and 730,000 attractions, and the platform enjoys 390 million average monthly unique visitors reflecting an 11% y-o-y growth.
- Instant Booking platform still lacks sufficient traction
- TripAdvisor's metasearch engine was complemented with an Instant Booking platform in the first half of 2014. Instant Booking gives users the freedom to book directly from the TripAdvisor platform, instead of being directed to the hotel website. It requires partners to pay a commission for each completed transaction. This commission-based model is similar to most of the OTAs’ pricing process of a fee per transaction, charged after the completion of a stay.
- The Instant Booking platform is yet to show significant user traction. This has led to a sharp decline in TripAdvisor's revenues per hotel shopper to the extent where most of its peers are earning almost 4-5 times more revenue per shopper. This has led to a massive erosion of the company's stock price.
- TripAdvisor's transition from a metasearch and reviews platform to an online booking site is taking time as people mostly browse through the hotels on its websites and go to other OTA sites or independent hotel websites to complete their bookings.
- Coupled with this is the problem of mobile conversion, i.e., though more people visit the website through mobile, the conversion to a confirmed booking from mobile is far less than that of those from desktop sites.
- The company is still rolling out the Instant Booking with better user experiences and roping in more hotels, which means the additional investments will continue keeping its margins dampened in the near future.
- TripAdvisor grows in the tours and activities space with Viator
- TripAdvisor acquired Viator in September 2014 in order to extend its reach in the entertainment sector, which is TripAdvisor's third largest source of demand, after hotels and restaurants. Viator is a leading online service provider of over 20,000 tours and attractions.
- In February 2015, TripAdvisor and Viator announced the launch of a new tours and activities supplier platform called Marketplace. Marketplace enables more partners to list their business on, and more users to book tours and activities through, Viator.
- TripAdvisor believes that attractions can be its next billion dollar revenue generating segment. The market is in a fragmented state and it provides for an $80 billion market potential in the U.S. and the U.K. alone. After the launch of Marketplace in 2015, Viator’s bookable properties has almost tripled from 11,000 to 32,000.
- In 2016, the supplier base for the Marketplace platform grew by 90% and the bookable products grew by almost 80% y-o-y to 56,000. TripAdvisor's attraction platform Viator's integration on its main page is helping build the traction for this segment even further.
- In the vacation rental segment, the company acquired its fifth business, London-based HouseTrip in April 2016. In 2016, TripAdvisor's Vacation Rental platform saw a 10% growth in property to 835,000 and almost 80% of these properties can be booked online.
- TripAdvisor’s restaurant platform, TheFork, now spans across 12 countries
- Since 2014, TripAdvisor has been on a shopping spree when it comes to restaurant reservation websites. It acquired LaFourchette, the leading online restaurant reservation systems in France and Spain, in May 2014. In Q4 2014, TripAdvisor acquired mytable and restopolis in Italy, and Iens in The Netherlands. It also acquired Portugal-based Best Tables in April 2015. Best Tables also operates in Brazil and has a database of 1,200 bookable restaurants. In May 2015, the company acquired the largest Australian restaurant reservation booking website, Dimmi.
- As a result of its restaurant reservation platform acquisitions, the company has expanded the restaurant booking business into 12 countries, in less than a year's time. TripAdvisor rebranded its restaurant platform as TheFork and its reach was expanded to Portugal and Australia in Q2 2015 and in Denmark in Q4 2015.
- In 2016, TripAdvisor's TheFork witnessed a 20% growth in bookable restaurants on its platform to 40,000 spanning over 12 countries.
- TripAdvisor EBITDA Margin: TripAdvisor EBITDA Margins declined from 57% in 2009 to 28% in 2015. We expect margins to revert to over 30% by the end of our forecast horizon. Adjusted EBITDA in the Hotel segment for 2015, was flat when compared to 2014, due to an increase in revenue, offset primarily by increased personnel and overhead costs, search engine marketing, or SEM costs, and other online traffic acquisition costs, and TV advertising. The Hotel segment adjusted EBITDA margin decelerated slightly year-on-year during 2015, primarily due to the deceleration in revenue growth year over year. For the rest of the segments, the adjusted EBITDA decreased $2 million during 2015 when compared to 2014 due to investments to fund growth initiatives in the Attractions, Restaurants, and Vacation Rentals businesses, which are all at earlier stages of their growth and business life cycle, and is a contributing factor to this reportable segment operating at a loss.
Click & Display Advertising
- Unique Visitors To TripAdvisor Sites (per month): We currently expect Unique Visitors To TripAdvisor Sites (per month) to increase to over 600 million users by the end of our forecast period. However, if competition weighs on TripAdvisor’s traffic and the growth of Unique Visitors To TripAdvisor Sites (per month) moderates, reaching around 500 million by the end of our forecast period, it will lead to around 15% downside to our price estimate for the company. On the other hand, TripAdvisor has a major opportunity to bolster traffic by tapping growth in the mobile and social media platforms. If TripAdvisor is able to grow the number of unique visitors to TripAdvisor sites (per month) to over 1 billion by the end of our forecast horizon, there could be around 50% upside to the current Trefis price estimate.
TripAdvisor is a leading online platform for travel related reviews, aggregating over 300 million reviews and opinions about destinations, accommodations, restaurants, and activities. TripAdvisor is easily among one of the fastest growing internet businesses at present. According to the third annual Access America Vacation Confidence Index, 60% of American consumers say they factor other travelers' online reviews into their plans when booking a vacation. Benefiting from the trend and capitalizing on the traction gained from users, TripAdvisor continues to introduce travel planning tools on its websites to act as a definitive resource for travelers.
TripAdvisor branded websites include tripadvisor.com in the United States and localized versions of the website in 46 countries. TripAdvisor branded websites globally averaged more than 350 million monthly unique visitors in 2015 and have built a marketable base of over 320 million reviews and opinions.
With rich user-generated content, TripAdvisor has valuable monetization opportunities. Travel businesses can advertise on TripAdvisor's platform and benefit from its large audience and global reach. TripAdvisor derives most of its revenue from the sale of advertising, primarily through click-based advertising and to a lesser extent, display-based advertising. The remainder of TripAdvisor’s revenue is generated through a combination of subscription based offerings, content licensing, and its recently launched private sale site, SniqueAway. It also offers deals on top hotels at lucrative discounts. TripAdvisor has diversified its geographical mix in the past few years with the contribution of its US operations declining from 82% in 2008 to approximately 50% in 2015. Long-term revenue growth is expected to be driven by expanding traffic and user generated content.
TripAdvisor's global reach is highly attractive to advertisers
TripAdvisor maintains a global presence both through the reach of its global portfolio of ~30 websites and through its in-market staffing in more than ten countries. The flagship TripAdvisor brand operates websites in 46 countries in 28 languages. Its core TripAdvisor platform and many of its other brands are uniquely positioned to appeal to travelers globally and strive to provide universally relevant content and community. Since 2013, the company focused on enhancing its brand image in the emerging markets by incorporating more local language content to drive higher user engagement.
The sheer scale and reach of TripAdvisor should help it command attractive rates from advertisers seeking placements on TripAdvisor websites.
TripAdvisor Business Listings are delivering excellent return on investment
TripAdvisor launched Business Listings in January 2010, which allows property managers to directly connect to TripAdvisor's community of people.
As part of a Business Listings subscription, accommodation businesses may display any combination of contact information on their TripAdvisor listing, including their URL, email address, and phone number. Subscribers also gain access to TripAdvisor's special offers feature, enabling properties to attract travelers with customized offers.
TripAdvisor reveals that Sabre Hospitality Solutions, a global provider of technology, marketing, and distribution tools for the hotel industry, is seeing strong results from TripAdvisor Business Listings.
In Q1 2013, TripAdvisor introduced a new transaction-based model for business listing. The new model is different from the old subscription model under which properties paid a subscription fee to TripAdvisor for business listing. Now, properties are free to list but they pay on a per transaction basis, which has resulted in a greater number of business listings.
TripAdvisor launched the Instant Booking platform in 2014
In Q1 2014, TripAdvisor rolled out 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. With its Instant Booking Platform, TripAdvisor plays the role of an intermediary between a traditional online travel agent (OTA) and a travel advertising website.
Facebook partnership continues to boost traffic as travelers increasingly use social media to access travel information
Consumers are increasingly leveraging social networks for research before making purchases for any product including travel. Trefis sees social media, such as Facebook, being used heavily as a means to communicate and exchange travel information and opinions. The trend can create strategic growth opportunities, allowing TripAdvisor to attract new consumers and develop unique and effective advertising solutions.
To capitalize on the social media boom, TripAdvisor entered into a partnership with Facebook in 2010 and launched a setup that allowed users to receive “Instant Personalization” when visiting the site with an active Facebook account. Using the system, TripAdvisor users can check out their friends' travel experiences before planning their own trip. Under the system, users who are already logged into Facebook can view friend reviews of various locations while checking out places their friends visited during their travels. Users are also treated to a “most popular” destinations screen based on their friends' cumulative travel information.
TripAdvisor’s Facebook app reached the number one spot in terms of monthly active users in Q4 2012, and was the only travel app in the top 20 applications. It now has over 38 million logged-in Facebook users. Presently, 35% of TripAdvisor’s new reviews are derived from its Facebook connected members.
Growing global travel market and online penetration
Recent historical trends show that, each year, an increasing percentage of global travel spending has been conducted online through supplier websites and online travel agencies. The trend is expected to continue as online penetration continues, mobile smartphone and other devices continue to proliferate, and as travel grows along with an expanding middle class in certain developing countries like China and India.
The internet is expected to become increasingly integral to the travel planning process due to increasing worldwide online penetration, particularly given the capability that the internet provides travelers to refine searches, compare destinations, and view real-time pricing. With internet penetration currently estimated at 40% globally (88.5% in North America, over 80% in Europe, ~ 60% in Latin America and ~ 30% in Asia), TripAdvisor has the potential to grow in all markets.Link
Increasing online advertising spend
The global online advertising market is growing and was projected to grow from $135.42 billion in 2014 to $239.87 in 2019, a CAGR of 12.1%, as advertisers continue to shift their spending from offline to online channels, mirroring the trend in consumer media consumption, generally.
PhocusWright estimates the global travel spending to cross $1.3 trillion in 2016. Given the size of the travel market, travel providers and travel related advertisers will continue to be motivated to devote significant resources to advertise their travel products and services. In addition, as more travel dollars are spent online generally, an increasing amount of travel advertising spending is expected to migrate from traditional offline advertising channels to online advertising opportunities.
Growing mobile travel spend
Consumers are increasingly using mobiles and tablets to access the internet. Mobile is expected to exceed the growth of display by 2018. Display Internet advertising revenue was the second-largest component of Internet advertising revenue in 2014 and is expected to maintain a solid 7.9% CAGR to 2019. However, mobile Internet advertising revenue is growing at the rate of 23.1% CAGR and is expected to overtake display in the future. Link
TripAdvisor has been investing heavily in its mobile platforms such as GateGuru mobile and tablet applications. The company introduced the Facebook log-in functionality and launched its new iPad application a few years back.
TripAdvisor has around 290 million cumulative mobile application downloads and approximately 53% of TripAdvisor traffic visited was via tablets or smartphones in 2015.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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