How Could TripAdvisor’s Valuation Be Affected If Its Unique Visitors Fell By 20% in 2019?

by Trefis Team
+24.81%
Upside
46.03
Market
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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 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 in 2018. We have maintained our price estimate for TripAdvisor at $64, which is almost 16% ahead of the current market price. In our interactive dashboard How Could TripAdvisor’s Valuation Be Affected…, we provide a scenario in which we estimate TripAdvisor’s valuation in a situation where the company’s visitors could decline by 20% in 2019 – if companies such as Google provide an increased push in the travel space. In this scenario, we forecast the company’s valuation to decline as much as 25% if the mentioned event occurs. Below we detail this scenario further.

The Hotel segment accounts for almost 80% of the company’s revenues. 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. However, we estimate TripAdvisor’s total revenue to decline by 10%, and reach $1.6 billion in 2019 in our scenario –  if the company’s unique visitors decline by 20% in 2019. In our base case, we expect the company’s revenues to grow to $1.7 billion in 2019.

We have decreased the company’s EBITDA margin estimates in our scenario, from a previous 24.9% to 23% in 2019, which translates into EBITDA Per Share of $2.60, down from $3.20 in our base case. We have assumed the company’s total share count to remain at $135 million in 2019. In addition, we have also reduced our P/EBITDA estimate to 18x in our scenario, down from 20x in our base case, as a lower growth would justify a lower multiple. Overall, these scenario case estimates result in a downside price estimate of $48 for TripAdvisor, which is almost 25% lower than our base case estimate.

 

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