Can TripAdvisor Witness A Turnaround In Its Hotel Segment In Fiscal 2019?

by Trefis Team
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TripAdvisor‘s (NASDAQ: TRIP) Q4 results beat revenue estimates, but missed on EPS and Hotel performance metrics. The company’s Q4 performance was driven by solid demand for its Non-Hotel business, particularly the Restaurants and Experiences segment. This segment has continued to deliver operational and marketing efficiencies, which has led to solid improvement in its profitability, which we expect to continue in fiscal 2019 as well. In fiscal 2018, the company’s total revenues grew 4% year-over-year (y-o-y) to $1.6 billion. Its adjusted EBITDA grew more than 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 2019, which details our key forecasts and estimates for the company for fiscal 2019. In addition, you can see all of our Information Technology company 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 fiscal 2018. Management expects the segment to see slight declines in fiscal 2019, due to a continued negative impact from marketing pullbacks and some additional currency headwinds in the fiscal first half. However, the segment’s profitability will likely 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 fiscal 2018, the segment’s revenue jumped 27% to $460 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. The company expects this segment to grow at a similar pace as last year in fiscal 2019, with rentals weighing marginally on it.

 

Revenue Forecasts

We expect TripAdvisor’s Hotel segment to generate about $1.1 billion in revenue for full-year 2019 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 Hotel revenue growth.

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