What Is TripAdvisor’s Fair Value?

by Trefis Team
+29.07%
Upside
44.51
Market
57.45
Trefis
TRIP
TripAdvisor
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TripAdvisor (NASDAQ: TRIP) has delivered a solid performance so far this year, driven by a turnaround in its Hotel business and solid demand for its Non-Hotel business, particularly the Restaurants and Experiences segment. In fact, the company’s Non-Hotel segment has continued to deliver operational and marketing efficiencies, which has resulted in a strong improvement in its profitability. In the first nine months of 2018, the company’s revenues grew 3% year-over-year (y-o-y) to $1.3 billion. In addition, the company’s adjusted EBITDA grew 25% during this period, largely due to increased investments, notably to enhance technological capabilities in order to improve customer engagement.

TripAdvisor has experienced a more than 75% surge in its stock price since the beginning of the year. We have maintained our price estimate for TripAdvisor at $64, which is slightly ahead of the current market price. We have created an interactive dashboard on What Is Driving Our $64 Price Estimate For TripAdvisor, which details our key forecasts and estimates for the company. You can modify the interactive charts in this dashboard to gauge the impact that changes in key drivers for TripAdvisor can have on our price estimate.

Overview of Forecasts

Segment Overview

TripAdvisor has two reportable segments: Hotel and Non-Hotel. The Hotel segment accounts for almost 80% of the company’s revenues. The company’s revenues declined moderately in its core hotel-booking segment, even as profitability spiked in the division in the first nine months of fiscal 2018. However, management expects that the hotel business will return to growth in Q4 following several consecutive quarters of declines, largely on the back of its lower cost base and more restrained spending. On the other hand, TripAdvisor’s Non-Hotel segment is broken down into Experiences, Restaurants, and Rentals. In the first nine months of fiscal 2018, the segment’s revenue jumped 25% to $350 million. The segment has been profitable, but is still substantially in growth mode as management focuses on adding to its portfolio of bookable products in hopes of capturing a dominant position in this high-growth market.

We expect the Hotel segment to generate about $$1.2 billion in revenue in 2018 from Click-Based and Transaction revenues, Display-Based Advertising and Subscription revenue, and Other Hotel revenues. The company has witnessed increased visitors (or hotel shoppers) on its primary website, Tripadvisor.com, over recent years, where direct suppliers and Online Travel Agencies (OTA) place their advertisements. Additionally, the company also generates commissions from its travel partners for its instant booking feature. Increased visitors on the TripAdvisor website have driven more clicks and partnerships with advertisers (hotels and OTAs). However, declining revenue per hotel shopper, amid increased competition, has put pressure on revenues. We expect this metric to further decline, putting further pressure on the company’s revenue growth.

Although we expect TripAdvisor’s Hotel revenues to decline for full-year fiscal 2018, the segment’s revenues should rebound over the long run as the company is focusing on three major areas – brand advertising, product experience, and marketing mix. In addition, the company continues to capitalize on the significant supply and demand advantages in the Non-Hotel offerings and remains focused on driving market share gains in the segment. Also, TripAdvisor plans to globally expand its platform by using Viator’s tech base to support multiple languages and points of sale. Going forward, the company plans to continue investing in long-term core growth initiatives that should drive a solid growth in its revenue and adjusted EBITDA.

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