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 50% surge in its stock price since the beginning of the year. We have maintained our price estimate for TripAdvisor at $64, which is almost 20% ahead of the current market price. We have created an interactive dashboard on TripAdvisor’s Revenue and EBITDA breakdown, which details our forecasts for the company’s revenue and EBIDTA in fiscal 2018. You can modify our assumptions to see the impact any changes would have on the company’s earnings and valuation. We expect TripAdvisor to generate around $1.6 billion in revenues in 2018. Of the total expected revenues in 2018, we forecast nearly $1.2 billion for the Hotel business and nearly $420 billion for the Non-Hotel segment.
Breakdown By Division
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TripAdvisor’s Hotel segment accounts for almost 75% 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 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. TripAdvisor’s adjusted EBITDA has declined from $460 million in 2015 to $330 million in 2017, reflecting a decline in Hotel revenues. However, we expect this value to grow slightly and reach $340 million in 2018, on the back of the company’s efforts to capitalize on the significant supply and demand advantages in the Non-Hotel offerings. Going forward, the company plans to continue investing in long-term core growth initiatives that should drive growth in its revenue and adjusted EBITDA.
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