Factors That Will Drive TripAdvisor’s Value In The Near Term
Despite the expectation of a weak revenue in 2018, TripAdvisor (NASDAQ: TRIP) has experienced a more than 50% surge in its stock price since the beginning of the year. This optimistic sentiment for the company is largely driven by the turnaround of its Hotel segment in the second quarter. Further, the company’s Non-Hotel segment has continued to deliver operational and marketing efficiencies, which have resulted in a strong improvement in its profitability. Thus, we believe that while TripAdvisor’s revenue for 2018 may come in weak, its sustained efforts to enhance its product offering and control its operating costs will drive its value in the near term.
We currently have a price estimate of $43 per share for the company, which is lower than the market price. View our interactive dashboard for TripAdvisor’s Price Estimate and modify the key drivers to visualize the impact on its valuation.
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After a few quarters of weak performance from its Hotel segment, TripAdvisor managed to turn around this division in the second quarter of 2018. This improvement was driven by more than a 30% rise in the company’s mobile click-based revenue backed by improved mobile penetration. Further, a robust growth in its display and subscription revenue due to early partner adoption of its media ad product also complemented the improvement in the segment’s performance. That said, TripAdvisor expects its full year 2018 Hotel segment revenue to decline compared to 2017 due to re-balancing of its paid marketing investment mix and tough year-over-year comparisons for click-based revenue. However, we expect the segment’s revenue to grow in 2019 and beyond, backed by strong click-based and subscription revenue.
In addition, the company’s Non-Hotel segment continued to grew strongly, similar to the previous quarters, driven by the strong demand in its Experiences and Restaurants segments. The growth in the Experiences segment reinforces the company’s leadership position as the world’s largest online platform to book and sell tours, attractions, and travel experiences. The company will continue to capitalize on the significant supply and demand advantages in the Non-Hotel offerings and remain focused on driving revenue growth and market share gains.
Besides, the Non-Hotel segment has delivered strong operational and marketing efficiency gains as a result of the company’s ongoing initiatives to optimize its marketing investments. We expect these efficiency gains to bolster TripAdvisor’s operating profits as well as valuation in the coming quarters. Further, the company will continue to invest in product enhancements, supply growth, and platform expansion to enable a better customer experience and augment its revenue growth. For instance, TripAdvisor plans to globally expand its platform by using Viator tech base that will support multiple languages and points of sale. These investments to enhance the product offering will be a key contributor to the company’s top-line growth as well as value in the near term.
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