Wikimedia’s Travel Site Could Spell Trouble For TripAdvisor

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Tripadvisor

TripAdvisor (NASDAQ:TRIP), the leading online platform for travel-related reviews, recently reported its Q2 2012 earnings. Although the company posted a strong quarter with 7% sequential and 16% y-o-y increase in revenues despite macroeconomic headwinds, the stock price registered a drop of close to 20% post the Q2 results. The increase in expenses, primarily on account of the company’s traffic quality improvement initiative, led to a slight y-o-y decline in net profits. (Read: TripAdvisor’s Q2 Earnings Points To Another Solid Year Ahead)

With respect to its user base, TripAdvisor had a good second quarter with an average 54 million unique visitors worldwide, a 31% y-o-y increase. By the end of the quarter, it crossed the 75 million reviews and opinions milestone and continued to witness accelerated growth in contributions per minute. TripAdvisor derives a majority of its revenue from advertising sales, primarily through click-based advertising and, to a lesser extent, display-based advertising. Having a rich user-generated content contributes to valuable monetization opportunities for the company.

Thus, sustaining and increasing its user base in the long run is the most important aspect for TripAdvisor’s valuation. However, lately there has been a controversy about the accuracy and reliability of certain user reviews on TripAdvisor’s website. In addition, the possibility of Wikimedia foundation coming up with a travel guide could be an additional threat for the company in the long run.

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Wikimedia Foundation To Launch Its Own Travel Site

The Wikimedia foundation is planning to create a travel site focused on providing accurate travel-related information to users. The proposal to launch an advertising-free travel site was approved by the foundation’s board on July 11. [1] It looks like Wikivoyage, which broke away from Wikitravel in 2006, has shown interest to join the travel site by contributing its articles, name, URL, board and administrators.

Wikipedia, the free user-written encyclopedia, has a dominant presence in Google search results. The launch of a travel guide by the Wikimedia foundation could significantly impact other travel-related platforms such as TripAdvisor, if the yet-to-be-launched site garners a comparable clout in the future.

TripAdvisor’s business model thrives on the accuracy and abundance of user reviews and opinions on its websites and a decline in the same could significantly impact the company’s valuation. We currently estimate the number of unique visitors on TripAdvisor’s website (per month) to reach over 120 million by the end of our forecast period. However, in the likely scenario of the number reaching only 100 million instead, there would be a 12% downside to our current price estimate.

We have a price estimate of $35.18 for TripAdvisor, which is almost in line with the current market price.

See our complete analysis for TripAdvisor’s stock

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Notes:
  1. Wikimedia To Get Into Travel Industry, Will Start Travel Site, The Tech Journal, July 14, 2012 []