TripAdvisor’s Q2 2017 Earnings Review

by Trefis Team
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TripAdvisor reported its Q2 2017 results on August 9th. Its revenues for the quarter grew by 8% to $424 million while its adjusted EBITDA grew by 6% to $101 million. The hotel booking segment might be slowly improving in its performance indicated by a growth of its click-based revenues. The TripAdvisor branded click and transaction revenues grew by 60% y-o-y on mobile mainly due to a 36% y-o-y growth in hotel shoppers. TripAdvisor’s non-hotel segments continued performing well with its 31% y-o-y revenue growth in attractions, restaurants, and vacation rentals segment. However, a big challenge that is probably looming large for the company is that its largest clients, Priceline and Expedia, are shifting their marketing spends away from TripAdvisor. This was evident by a weaker cost-per-click rate for hotel auction that it witnessed towards the beginning of the third quarter. This implies that OTAs or hotels seeking higher listings on TripAdvisor’s pages weren’t bidding as aggressively for the top slots. This softness in the cost-per-click coupled with the migration of many consumers to browse and book hotels from TripAdvisor’s website to its mobile apps (that has a lower rate of monetization) drove TripAdvisor to lower its revenue growth expectations in 2017 from double-digits to mid-single digits.

In Q2 2017, the cumulative value of click-based advertising revenue and transaction-based revenue from instant booking was lower than the value of click-based advertising revenue alone in Q2 2014 (a period prior to the introduction of Instant Booking). This might imply that the revenues from Instant Booking are not growing at a pace that compensates for the loss of the older click-based revenue. This, in turn, means that TripAdvisor might still have a long way to go before its Instant Booking platform starts showing signs of healthy growth.

Softer Cost-Per-Click: A Temporary Issue?

The trend of softness in pricing (due to less aggressive bidding by its hotel and OTA partners) is an important factor for TripAdvisor to take into consideration. Priceline and Expedia together contribute close to 50% of TripAdvisor’s revenues currently and a lack of enthusiasm from its biggest advertisers might add on to TripAdvisor’s already existing troubles of not being able to boost the demand on its Instant Booking platform.

It is noteworthy to remember that Priceline has recently acquired Momondo Group to further strengthen its metasearch engine Kayak in some markets where Kayak doesn’t have a significant appeal. Similarly, Trivago, the metasearch engine where Expedia is the majority stakeholder, has recently undergone an IPO. Trivago is currently growing in leaps and bounds. So, in case Priceline and Expedia decide to shift to a Kayak or a Trivago or even a Google or a Facebook (which are increasingly becoming some of the best advertising medium for corporates), this might mean further bad news for TripAdvisor. However, it is too early to call it a lasting trend. As TripAdvisor’s CEO Stephen Kaufer mentioned that the cost-per-click bidding has been soft globally in July so it was not restricted to a specific market or geography, hence there is a chance that this was a temporary phenomenon which might reverse in the days to come. The company is currently focusing on its advertising campaigns and on its revamped website for hotel shopping in order to drive growth.

Television Advertising Gains Steam

The company is aggressively spending on its TV advertising. In the second quarter it spent around $16 million on the same. In Q3, the spending will be more than doubled to around $35 million. The campaigns were released in mid-June in the U.S. and then in Canada, France, Spain, the U.K., and Australia.

Earlier in 2017, the company had announced that it will spend around $70 million on its TV ad campaigns for this year. TripAdvisor isn’t focusing solely on its Instant Booking capability in its current crop of TV ads. Also, the ads will try to better explain the capabilities of the company in a short time span because the management feels as though the TripAdvisor platform has a lot more to offer, it is still used primarily as a travel review website. This is especially true when we see that TripAdvisor is the world’s largest travel review website and yet, when it comes to attracting people to book through its platform, the company has not been highly successful, so far. The TV ads might be a better way to attract more customers to its platforms and use its metasearch and Instant Booking capabilities. The company had previously stopped its TV ads due to the huge investments it incurred on setting up and enhancing its Instant Booking platform.

TripAdvisor’s recent ad initiative is aiming to boost its hotel business which contributes to around 80% of its revenues and which is unfortunately taking a longer time to turn around things for the company than earlier expected.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such 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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