Key Takeaways From TripAdvisor’s Q4 2016 Earnings Results

As was predicted, 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 on 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.

Though Recovery Was Evident Towards The End Of 2016, Marketing Initiatives Will Keep Margins Dampened For A While

The user generated content for the company grew by 50% year-over-year in 2016 and it is fast approaching around 500 million reviews on its platform. The monthly users on its platform grew by ~14% year over year to reach 390 million last year. Though a ComScore study suggested that around 40% to 50% of the global online hotel reservations are influenced by TripAdvisor, yet the company’s own hotel booking platform is still lagging behind in terms of user traction. This has led to severe decline in the company’s revenue per shopper in 2016, resulting in the company’s weak performance. In line with its previous three quarters, the fourth quarter also remained weak for the company. As a result, for the year 2016, its revenues declined by 1% y-o-y to reach $1.48 billion, while its EBITDA declined significantly by 24% y-o-y to reach $352 million. In 2016, TripAdvisor’s hotel revenues declined by 6% y-o-y to reach $1.19 billion while its non-hotel revenues grew by 27% y-o-y to reach $290 million.

However, it seems that the trend has started improving towards the fourth quarter with click-based and transaction revenue growth and the parameters have improved further in January when compared to the last quarter of 2016. The improvement was most prominent in the U.S. markets where the rollout of the Instant Booking platform has been completed.

(Image Source: TripAdvisor Q4 2016 Results)

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.

Hotel Segment

TripAdvisor’s hotel segment contributed to around 80% of its revenues in 2016. The main driver for this segment is its Instant Booking platform. In Q4, over 560,000 hotels were present on the platform. Currently, nine out of the top ten global hotel chains are on its platform, with Hilton being the latest addition towards the beginning of 2017. Also on the OTA front, after Priceline, Expedia also joined its Instant Booking platform (currently only on desktop sites in the U.S.). In 2016, TripAdvisor introduced enhanced features to the Instant Booking platform such as a new algorithm to sort hotels and a more organized price-shopping display. This is the beginning of an ongoing initiative towards improving the hotel shopping experience to help shoppers find the best prices for their desired accommodations at all times.

TripAdvisor also launched a suite of products to enable its hotel and OTA partners to gain more returns from advertising on its platform. For example, in Q4 2016, it launched the Bid Management Platform that helps the partners in improving their campaigns’ efficiency.

Non-Hotel Segment

Among the various components of its non-hotel segment, tours and attractions is the largest growth driver for TripAdvisor. Last year the supplier base for this 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.

TripAdvisor’s online restaurant booking platform, TheFork, witnessed a 20% growth in bookable restaurants on its platform to 40,000 spanning over 12 countries.

TripAdvisor’s Vacation Rental platform saw a 10% growth in property to 835,000 and almost 80% of these properties can be booked online.