Why Might TripAdvisor Be Looking Out For Buyers?

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Tripadvisor

After trying really hard to transition itself from a metasearch and travel review leader to a hotel booking platform, it seems TripAdvisor is now saying ‘enough is enough.’ Still struggling to make a turnaround for over two years post its Instant Booking platform release, TripAdvisor might be looking out for buyers, as was expressed by its Chairman Mr. Greg Maffei at a recent conference. Mr. Maffei even added that companies like Facebook, Alibaba, or Amazon might be interested in the company that enjoys over 375 million monthly unique users. TripAdvisor is currently the world’s largest travel review website. The company’s stock price received an upward push following Mr. Maffei’s statement who seemed to think that a potential acquirer might be able to evaluate TripAdvisor’s true worth as against what the current market sentiment regarding the company might be.

So, What Went Wrong For TripAdvisor?

TripAdvisor wanted to expand its functionalities and become a lighter version of an OTA when it introduced its Instant Booking platform in 2014. Instant Booking would let users book the hotel after they’ve browsed for the most suitable one using TripAdvisor’s metasearch capabilities. However, things did not go as planned. Despite investing aggressively on upgrading the platform, spending in technology and marketing, and roping in some of the best names in online travel, TripAdvisor still couldn’t warm up to users. Some reports claim that it might be because the booking features on the Instant Booking platform are sometimes confusing or inconsistent, while others suggest that users still viewed TripAdvisor as a travel metasearch and review platform and hence they’d use all those functionalities to select a hotel before booking it through another OTA or directly through the hotel’s website.

Strangely, the suppliers of the travel industry placed more confidence on the Instant Booking platform than the buyers ever did. Hence, both the global OTA leaders, Expedia and Priceline, are present on Instant Booking as are nine out of the top ten hotel chains in the world. Yet, TripAdvisor’s revenue per hotel shopper fell significantly lower than those of its peers due to the lack of traction on the Instant Booking platform. Most of its peers are earning almost 4-5 times more revenue per shopper than TripAdvisor. Instant Booking is the primary contributor of TripAdvisor’s Hotel Revenues that accounts for around 80% of the company’s total revenues.

trip revenue per hopper 2016 annual

(Image Source: TripAdvisor Q4 2016 Results)

In its Q4 2016 earnings call, TripAdvisor’s management spoke about spending the first half of 2017 to complete its Instant Booking rollout in the international markets. It also spoke about greater investments in branding and marketing initiatives that implied that the dampened profitability trend of the company will continue persisting over the near term. However, if the company does find a suitable buyer who can help in branding and marketing TripAdvisor’s new image successfully, then the company does have a chance of a brighter future in the long run.

Is Marketing Currently A Problem For The Company?

It might be possible that TripAdvisor is lagging behind because it doesn’t have adequate resources to market itself more aggressively. Compared to the larger names like Priceline, Expedia, or Ctrip, TripAdvisor’s resources are limited. To put things into perspective, in 2016, TripAdvisor’s selling and marketing expenses grew by 9% y-o-y to reach $756 million, while that of Expedia’s grew by 29% to reach $4.36 billion and Priceline’s reached $4.35 billion after a 23% y-o-y growth. Though Ctrip’s marketing spend was a little above TripAdvisor’s at $844 million, however, it had actually grown by 90% y-o-y post its buying of a ~40% stake in its closest rival, Qunar. Maybe, a bigger entity possibly acquiring TripAdvisor can take care of this issue and help with the better exposure of TripAdvisor’s new image, thereby helping it spread more among travelers resulting in a significant growth in demand.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for TripAdvisor

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