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Investment Overview for TripAdvisor (NASDAQ:TRIP)

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1. Hotel Segment Turnaround

TripAdvisor managed to turn around its Hotel segment in the second quarter of 2018. This improvement was driven by more than a 30% rise in the company's mobile click-based revenue backed by improved mobile penetration. Further, a robust growth in its display and subscription revenue due to early partner adoption of its media ad product also complemented the improvement in the segment's performance. That said, TripAdvisor expects its full year 2018 Hotel segment revenue to decline compared to 2017 due to re-balancing of its paid marketing investment mix and tough year-over-year comparisons for click-based revenue. However, we expect the segment's revenue to grow in 2019 and beyond, backed by strong click-based and subscription revenue.

2. Strong Performance from Non-Hotel Segment

The company's Non-Hotel segment continued to grow strongly, similar to the previous quarters, driven by the strong demand in its Experiences and Restaurants segments. The growth in the Experiences segment reinforces the company's leadership position as the world’s largest online platform to book and sell tours, attractions, and travel experiences. The company will continue to capitalize on the significant supply and demand advantages in the Non-Hotel offerings and remain focused on driving revenue growth and market share gains.

The Non-Hotel segment has delivered strong operational and marketing efficiency gains as a result of the company's ongoing initiatives to optimize its marketing investments. We expect these efficiency gains to bolster TripAdvisor's operating profits as well as valuation in the coming quarters.

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TripAdvisor Group

• Click and Display EBITDA Margin: TripAdvisor EBITDA Margins declined from 57% in 2009 to 22% in 2017. We expect margins to stay around the same level by the end of our forecast horizon. Adjusted EBITDA in the Click and Display segment for 2017, decreased over the years due to an increase in personnel and overhead costs, search engine marketing, or SEM costs, and other online traffic acquisition costs, and TV advertising, offset partially by increased revenue. We expect the margins to increase to 26% in the next few years. However, there could be an upside of 12% if the margins improve to 30%

Click & Display Advertising

• Unique Visitors To TripAdvisor Sites (per month): We currently expect Unique Visitors To TripAdvisor Sites (per month) to increase to over 750 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 575 million by the end of our forecast period, it will lead to around 16% 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 975 million by the end of our forecast horizon, there could be around 21% upside to the current Trefis price estimate.

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TripAdvisor is a leading online platform for travel related reviews, aggregating over 630 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 455 million monthly unique visitors in 2017 and have built a marketable base of over 600 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 2016. Long-term revenue growth is expected to be driven by expanding traffic and user generated content.

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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.

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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.

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?

1. We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
2. 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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