Can TripAdvisor’s Hotel Segment Return To Growth In Q4?

TripAdvisor (NASDAQ: TRIP) is scheduled to announce its fiscal fourth quarter results on Wednesday, February 13. The company has delivered a solid performance of late, driven by a turnaround in its Hotel business and solid demand for its Non-Hotel business, particularly the Restaurants and Experiences segment. The Non-Hotel segment has continued to deliver operational and marketing efficiencies, which has led to solid improvement in its profitability, which we expect to continue for the fourth quarter. In the first nine months of 2018, the company’s total revenues grew 3% year-over-year (y-o-y) to $1.3 billion. Its adjusted EBITDA grew 25% during the same period, largely driven by the Hotel segment’s EBITDA margin expansion.

We have a price estimate for TripAdvisor of $64, which is around 10% ahead of the current market price. The company saw a more than 50% surge in its stock price over the course of 2018. We have created an interactive dashboard on What To Expect From TripAdvisor’s Q4, which details our key forecasts and estimates for the company. You can modify the charts in the dashboard to gauge the impact that changes in key drivers for TripAdvisor would have on the company’s earnings and valuation, and see all of our Information Technology data here.

Segment Expectations

TripAdvisor’s 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 segment will return to growth in Q4 following several consecutive quarters of declines, with profitability likely to remain strong on the back of its lower cost base and more restrained spending.

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 largely 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.

Revenue Forecasts

We expect TripAdvisor’s Hotel segment to generate about $1.2 billion in revenue for full-year 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. 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 weighed on revenues. We expect this metric to decline going forward, 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 Non-Hotel offerings and remains focused on driving market share gains in the segment. TripAdvisor also plans to further 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 solid growth in its revenue and adjusted EBITDA.

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