TripAdvisor Delivers A Lackluster Third Quarter Driven By Its Hotel Segment’s Poor Performance
TripAdvisor‘s (NASDAQ: TRIP) Q3 2017 earnings continued in line with the previous trend of its non-hotel segment performing significantly better than its hotel segment, despite the company’s huge spending on TV ads this year (close to $60 million, so far), after a 2 year-hiatus from the television advertising space. The company derives over 70% of its overall revenues through its hotel segment and hence the segment’s revival is crucial for its growth. TripAdvisor’s Instant Booking platform, launched in 2014, couldn’t lure enough hotel searchers to book on its platform, leading to a persistent weak performance of its revenue per hotel shopper metric. Even though the company is currently trying to bring back the focus on its metasearch features through its TV advertisements, its softer-cost-per click suggests that its bigger clients like Priceline and Expedia might not be competing too aggressively for top slots on its pages. However, TripAdvisor claims that its TV ads have been successful in expanding its mobile presence as it witnessed a 29% rise in its mobile hotel shoppers for the third quarter. In Q3 2017, TripAdvisor’s revenues increased by 4% to $439 million while its total adjusted EBITDA fell by 17% due to a 48% decline in its hotel earnings to $51 million. The average monthly unique visitors on its platform increased by 17% in Q3 to reach 455 million, while the reviews on its site grew by 32% y-o-y. We have a $42 price estimate for TripAdvisor which is higher than the current market price.
Segment-Wise Performance
TripAdvisor’s hotels segment revenue declined by 3% to $312 million due to a 5% decline in its click-based and transaction revenue and an 11% decline in its revenue per hotel shopper. Its non-hotel segment revenue performed significantly better with a 26% growth to $127 million. In its prepared remarks, the company mentioned how it has its eyes set on the long term growth of the company, that is, building a loyal brand of hotel shoppers on its platform. The top line performance of the company has been impacted by its marketing spends towards its brand building efforts. However, these efforts are expected to reap benefits in the future. The company’s non-hotel segment’s growth was boosted mainly by the attractions and restaurants segments. It is further expanding on the offerings of its tours and activities and investing on enhancing user experience on its Marketplace platform. The operating expense for the quarter was primarily driven by its huge TV ad spends, however managing expenses on the non-hotel side has enabled it to keep its adjusted EBITDA within the expected range.
- Up 26% Already This Year, What Is Next For Tripadvisor Stock?
- Up 21% Since 2023, How Will Tripadvisor Stock Trend Post Q4 Results?
- Down 18% This Year, How Will Tripadvisor Stock Trend Following Q3 Results?
- What’s Next For Tripadvisor Stock?
- Will Tripadvisor Stock See Gains Post Q2?
- Tripadvisor’s Stock Down 10% This Year, What’s Next?
Priceline’s Shift To TV Ads Might Spell Bigger Troubles For TripAdvisor
As we discussed in Priceline’s Q3 2017 earnings report, just like TripAdvisor, Priceline has also decided to get back to TV advertising in a big way for its biggest brand, Booking.com. With an aim to bring in more direct booking customers on to its platform and raise awareness about its other accommodation offerings, such as vacation rentals, Priceline has decided to air its TV ads in 30 countries by the end of this year, expanding their presence from the 12 countries in which those were aired last year. Priceline’s CEO also spoke about how the investments to maintain a top position in its digital advertiser’s pages has always been a dampener for the company’s margins. Given the fact that the same advertisers are also competing against Priceline with their hotel booking platforms, it makes little sense for Priceline to keep on giving its money to its competitors. We’ve discussed earlier how this problem might arise in the future for TripAdvisor. Instant Booking puts TripAdvisor as a direct competitor for OTAs like Priceline and Expedia, the same companies who contribute to around 50% of TripAdvisor’s advertising revenues. TripAdvisor’s click-based and transaction revenue declined by 5% in Q3 2017, and that is because of advertisers tightening their spends on TripAdvisor. Additionally, both Priceline and Expedia have their own metasearch engines, so even if these OTAs are spending on digital ads, they can focus more on their own metasearch sites. This might not spell a very optimistic future for TripAdvisor. The company has been already struggling to make its Instant Booking platform popular and now the metasearch segment is also facing such challenges. If we add on to that the possibility of the arrival of blockchain thereby making metasearch engines even more ineffective by minimizing the flaws in the distribution system, something that helps these engines generate revenues, then the future truly looks grim for TripAdvisor.
Notes:
See More at Trefis | View Interactive Institutional Research (Powered by Trefis)