TripAdvisor’s Growth Might Remain Dampened In Q3 Due To The Softer Cost-Per-Clicks
TripAdvisor (NASDAQ: TRIP) is expected to release its Q3 2017 earnings results on November 7th. The company’s several attempts to revive its performance have still not been significantly successful for it post the introduction of its Instant Booking platform in 2014. For the first half of 2017, though its revenues increased by 7% to $796 million, its net income fell by around 38% to $40 million. Its earnings per share for the first half of this year declined by 36% to $0.28. TripAdvisor’s problems seem to be incessant. As its Instant Booking platform failed to generate enough traction over these years, TripAdvisor is trying to bring back the focus on its metasearch features through its TV advertisements. However, in Q2 2017, the company seemed to witness a decline in revenues from some of its biggest clients, Expedia and Priceline. This was indicated by a weaker cost-per-click rate for hotel auction than it witnessed towards the beginning of the third quarter. This might mean that hotels or OTAs are not vying for the top slots on TripAdvisor’s pages any more. Though TripAdvisor’s non-hotel segment continued doing well, it contributes only around 20% of the company’s revenues. The 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. We have a $42 price estimate for TripAdvisor which is at around 7% higher than the current market price.
Will The Softer Cost-Per-Click On Its Platform Be A Major Concern For TripAdvisor?
Priceline and Expedia together contribute around half of TripAdvisor’s revenues, so a lukewarm demand from these advertisers might spell a grave problem for the company. Both the metaserach engines under Priceline and Expedia are growing well. Priceline recently acquired Momondo Group to strengthen its metasearch engine Kayak and Expedia’s metasearch engine (where it owns a majority stake) Trivago underwent an IPO. 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, the softness might be a temporary issue and it might be too early to call it a trend.
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TripAdvisor’s Non-Hotel Segment Is Growing But Will It Be Enough To Revive Its Growth?
While TripAdvisor’s hotel segment grew by 3% y-o-y in the first half of 2017 to $640 million, its non-hotel segment grew by 26% during the same period to reach $156 million. Hence, even though its current contribution to the overall revenue is less, the non-hotel segment might grow in the future to contribute a greater share to TripAdvisor’s revenues thus boosting the company’s growth. Therefore, it might be good for the company to gain a competitive advantage in this segment by strengthening and expanding its offerings. TripAdvisor constantly tries to upgrade the offerings in this segment. In the restaurant booking segment, TripAdvisor partnered a few months back with restaurant delivery service provider, Deliveroo. The Deliveroo service is available across 12 countries on over 20,000 restaurants listed on the TripAdvisor platform. Customers who wish to access the Deliveroo service can click on the “order online” option of TripAdvisor. After acquiring multiple restaurant reservation booking websites, TripAdvisor now has the biggest online restaurant reservation platform in Europe called ‘TheFork.’
In October, Viator, TripAdvisor’s tours and activities market place, launched a booking platform for travel agents. Viator’s new platform enables travel agencies from around the world to book over 70,000 tours and attractions. The transactions can be made in 13 different currencies and agencies can earn an 8% commission. This initiative turned Viator into the first major consumer facing tours and activities platform that offers direct booking options for travel agents along with an added commission.
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