Here’s How TripAdvisor Plans To Tackle Competition From Google in 2020

by Trefis Team
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TripAdvisor (NASDAQ: TRIP) plans to spend more on ads and expects its Experiences and Dining revenues to drive a major share of its revenue growth in 2020. This is in line with the company’s efforts to tackle increased competition from Google. TripAdvisor’s total expenses have trended lower from $1.6 billion in 2017 to $1.4 billion in 2019. As a % of Revenues, Expenses have declined from 101.2% in 2017 to 91.9% over the same period. Operating expenses are the biggest driver of TripAdvisor’s expenses, accounting for 87% of Revenue in 2017 and 82% of Revenues in 2019. We estimate that this decrease in operating expenses as % of revenue has impacted TripAdvisor’s operating income by about $60 million. However, operating expenses are expected to increase in 2020, as the company plans to spend more on ads. TripAdvisor’s operating expense as % of revenue is likely to grow to 85% in 2020, leading to reduced operating profits.

We have created an interactive dashboard on TripAdvisor Expenses, where we take a look at how the company’s key expense components have trended and the key reasons for the change.

Total Expenses Are Projected to Be $1.5 Billion in 2020, with Operating Expenses of $1.3 Billion

1. Cost of Sales :

Cost of Sales has increased from $71 Mil in 2016 to $94 Mil in 2019, driven by increased direct costs associated with prepaid tour tickets, merchant credit card, and other transaction payment processing fees, as a result of revenue growth in the  Non-Hotel segment. As Cost of Sales has grown at a faster rate than Revenues, the Gross Profit Margin has declined from 95.2% to 94.0% over the same period. We expect this figure to reach 93.4% in 2020.

2. Operating Expenses are expected to increase from $1.2 billion in 2016 to $1.3 billion in 2020, driven by (A) $57 Million decreases in S&M expenses, (B) $67 million increase in T&C, (C) $57 million increase in G&C expenses, and (D)$36 million increase in D&A expenses.

(A) Selling & Marketing (S&M) Expenses decreased from $778 million in 2017 to about $672 million in 2019 due to decreased SEM (Search Engine Marketing) and online traffic acquisition costs in the Hotel segment. However, the company plans to increase its ads spending going forward to tackle increased competition from Google. As a % of Revenue, SG&A expenses declined from 54.6% in 2017 to 43.1% in 2019. This figure could grow slightly higher to 44% in 2020.

(B) Technology & Content (T&C) Expenses are expected to increase from $243 million in 2017 to about $310 million in 2020, due to higher personnel and overhead costs. As a % of Revenue, T&C expenses could grow from 15.6% in 2017 to 19.5% in 2020

(C) General & Administrative (G&A) Expenses are expected to increase from $157 million in 2017 to about $200 million in 2020. As a % of Revenue, G&A expenses could likely grow from 10.1% in 2017 to 12.6% in 2020

(D) Depreciation & Amortization (D&A) Expenses could increase from $111 million in 2017 to about $136 million in 2020. As a % of Revenue, D&A expenses could increase from 7.1% in 2017 to 8.6% in 2020

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