Can TripAdvisor Curtail The Decline In Revenues For Its Core Hotels Segment?

TripAdvisor (NASDAQ: TRIP) is an online travel company that helps users plan a vacation. The platform enables travelers to share travel experiences by reviewing hotels, travel activities, experiences, and restaurants. This user-generated content then drives more audience and further leads to an increase in travel partners on the platform. To make the travel experience better, the platform also provides online reservation, price comparison tools, and associated services. TripAdvisor earns a majority of its revenues from online advertising including both click-based and subscription-based offerings.

In our interactive dashboard on TripAdvisor’s revenues, Trefis analyses the changes in TripAdvisor’s key revenue streams over the last two years. You can also make changes to the associated revenue drivers in the dashboard to come up with your forecast for the company. Additionally, you can see more of our Information Technology company data here.

Since January, TripAdvisor reports its revenues in three operating segments:

• Hotels, Media & Platform (HM&P): TripAdvisor’s travel partners are predominantly online travel agencies and hotels. The company enables its partners to advertise their offerings on the platform and in-turn charges a fee on CPC (cost-per-click) or subscription basis. These advertising revenues along-with transaction fees from the hotel booking feature are recorded as income under the Hotels, Media & Platform segment. Advertising revenues have been declining over the last two years, primarily due to increased competition and downward trending unique shoppers on the website. HM&P segment revenues came in at $1 billion for 2018 and we expect these to further decline in 2019.

• Experiences & Dining (E&D): TripAdvisor enables users to book tours, activities, and experiences on affiliate partner websites such as hotel chains, airlines, and local travel agencies. Moreover, through its restaurant reservation application, TheFork, the company offers users to research and book restaurants in popular travel destinations. The commissions generated for such bookings are recorded under Experiences & Dining segment. This has been the strongest segment for TripAdvisor, where its revenues grew by 40% in 2018. TripAdvisor leverages user reviews to drive more audience and finally more listings. Experiences and restaurant listings have grown at a CAGR of 17% and 9%, respectively, since 2015. Considering the high demand for this category, we expect the E&D segment to continue performing at a strong pace in the coming years.

• Other Revenues: TripAdvisor also offers to book short-term rental properties such as villas, cottages, beach houses, etc. The commissions generated from rental bookings and certain flight/cruise offerings are recognized as other revenues. Due to increased competition, we observe the growth in rental listings have been lower than overall accommodation listings and subsequently been a drag on the revenues. We expect TripAdvisor’s to continue facing headwinds from rental bookings in 2019.

Based on our forecast for TripAdvisor’s revenues (shows key revenue components) of $1.65 billion in 2019, we estimate a non-GAAP EPS of $2.30. This EPS figure coupled with a forward P/E multiple of 22, works out to a price estimate of $51 for TripAdvisor stock (shows cash and valuation analysis), which is roughly 30% above the current market price.

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