Here Are Some Of The Factors That Might Continue To Weaken TripAdvisor’s Performance In 2018

by Trefis Team
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TripAdvisor (NASDAQ: TRIP) had a disappointing 2017, as indicated by its first nine months’ performance. The company’s non-hotel segment performed significantly better than its hotel segment, despite its huge spending on TV ads in 2017 (around $60 million), after a two  year-hiatus from the television advertising space. TripAdvisor failed to gain traction for its Instant Booking platform since its launch in 2014. While focusing on the platform, the company also lost some of the demand on its metasearch platform. Over the last few months, the company has been striving to bring back the focus on its metasearch features through its TV advertisements. However its softer-cost-per click in both the second and third quarter of 2017 suggests that its bigger clients like Priceline and Expedia might not be competing too aggressively for top slots on its pages. This doesn’t bode well for TripAdvisor as it derives over 70% of its overall revenues through its hotel segment and hence the segment’s revival is crucial for its growth. We have a $35 price estimate for TripAdvisor which is in line with the current market price.

TripAdvisor’s Performance Might Continue Being Dampened Because Of A Few Factors

Almost 50% of TripAdvisor’s advertising revenues come from the two OTA giants Priceline and Expedia. However, both these companies have started relying less on TripAdvisor’s metasearch platform and have instead switched to either their own and other metasearch engines, or to more ads via TV. 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 aired its TV ads in 30 countries by the end of 2017, thereby significantly expanding its presence from the 12 countries in which those were aired in 2016.

Priceline and Expedia might also be feeling uncomfortable with their margin erosion that results due to spending a huge amount to maintain a top position on a digital advertiser’s page and hence they decided on switching loyalties. Along with this, comes the bigger issue of TripAdvisor’s direct competition with its OTA clients. Its Instant Booking platform has placed the company as a rival for OTAs like Priceline and Expedia and it is only natural that they don’t want to spend their money on their rival’s platform. 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. Hence, currently both TripAdvisor’s metasearch and Instant Booking platforms seem to be suffering.

Finally, the possibility of the arrival of blockchain might minimize the metasearch demand by minimizing the flaws in the distribution system, something that helps these engines generate revenues. All these factors together might continue dampening TripAdvisor’s performance this year and we need to wait and watch how TripAdvisor addresses these issues.

 

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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