Is The Market Pricing TripAdvisor Fairly?
TripAdvisor (NASDAQ: TRIP) has performed timidly over the past couple of years, with a marginal annual growth in revenue and a 53% decline in the stock price in between 2015-2017. The company holds over 600 million reviews on places to stay and eat, and things to do, along with facilitating reservations for them on its primary website, tripadvisor.com, and other managed websites. With a target of increasing its ties with travel partners and Online Travel Agencies (OTA) in comparison to the previous year, and increased investments, especially to enhance technological capabilities in order to improve customer engagement, suggests an improved growth outlook for the company. However, with strong competition from market leaders such as Expedia and Booking Holdings, the company’s top-line growth is likely to remain restricted in the near term. Our price estimate of $35.20 suggests that the market is pricing TripAdvisor, 15% above our estimates.
We have also created an interactive dashboard which shows our forecasts and estimates for the company; you can modify the key value drivers to see how they impact the company’s revenues and valuation.
Steps To Arrive At Our Price Estimate
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TripAdvisor generates revenue from two segments: Hotel revenue and Non-hotel revenue. We expect the Hotel segment to generate $$1.2 billion revenue in 2018 from Click-based and Transaction revenue, Display-based Advertising and Subscription revenue, and Other hotel revenue. The company has witnessed increased visitors (or hotel shoppers) on its primary website, tripadvisor.com, over the recent years, where direct suppliers and Online Travel Agencies (OTA) place their advertisements. Clicking on these advertisements leads to revenue generation for TripAdvisor from travel partners. Additionally, the company also generates a commission from its travel partners for the instant booking feature, facilitated by the company. With average hotel shoppers at 1.87 billion, around 6% greater than the 2017 figure, and revenue per shopper at $0.40, which has been declining over the years amid increased competition, we estimate Click-based and Transaction revenue of $750 million for 2018.
We expect Display-based Advertising and Subscription revenue and Other hotel revenue of $302 million and $150 million in 2018, respectively. Travel partners and OTAs place their advertisements on the company website and pay a cost per thousand impressions. Moreover, the company offers subscription-based pricing to these OTAs to enhance their listing. Our forecast is in-line with the company’s guidance. 
Further, we expect $443 million revenue from the Non-Hotel segment for 2018. Revenue has grown at nearly 26% annually in the past two years, primarily due to the fact that the company is one of the few operators which facilitates researching and booking local activities at the travel destination through tripadvisor.com and viator.com. Moreover, this segment also includes booking restaurants and vacation homes, which is in direct competition with Expedia and Booking Holdings.
A revenue estimate of $1.65 billion and an average share count of 140 million, give us revenue per share of $11.75. Keeping in trend with the decline over the past two years, we expect TripAdvisor’s trailing twelve-month P/sales multiple to be around 3 at the end of 2018, which when multiplied with expected revenue per share, gives us $35.24 as a fair price estimate.
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