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Think Nice Things or Suffer a Bad $TRIP

Trip Advisor (NASDAQ:TRIP) Advisor – the business model

TripAdvisor has a huge bank of user generated reviews across hotels, restaurants and tours mainly and very high web traffic. There are 48 TripAdvisor branded regional sites and 20 non-branded sites such as cruisecritic.com. When a visitor to a TripAdvisor website books one of these experiences (e.g. a hotel stay) via TripAdvisor then it gets paid by the experience provider (e.g. Hilton hotels pays TripAdvisor for the sales lead). Similarly, if it is booked with another online travel agency (‘OTA’) such as Expedia Group Inc (NASDAQ:EXPE) then they pay TripAdvisor in the same way. These two channels make up c.60% of the income of TripAdvisor. Revenues are also generated through advertising on the websites and accounts for 20% of revenues. The remaining 20% is Non-hotel revenues generated from bookings made with tours and experiences.

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In the main revenue channel, the split is not clear between direct providers (this is called instant booking) and other OTA’s (called metasearch) but historically OTA’s have made up the bulk of TripAdvisor revenues. In the accounts, they have split revenue by ‘hotel’ (77%) and ‘non-hotel’ (23%) and then within ‘Hotel’ they break it down by “Trip Advisor-branded click-based and transaction”, “Trip AdvisorAdvisor-branded display-based advertising and subscription” and “Other hotel revenue”. Not exactly user friendly.

Hotel revenue has historically done the heavy lifting for TripAdvisor and at the end of December 2017 it made up 77% of revenues and 86% of EBITDA. But, it is struggling as can be seen from the below:

TRIP ADVISOR (NASDAQ: TRIP) Revenues 2012 – 2017

$’m 2017 2016 2015 2014 2013 2012
Hotel 1,196 1,190 1,263 1,135 899 732
Non-Hotel 360 290 229 111 46 31
Total 1,556 1,480 1,492 1,246 945 763

The Non-Hotel segment of tours and attractions has been picking up the slack which has been keeping the analysts happy that everything is moving along sweetly but it is not, there are issues. The stagnation in Hotel, and therefore TripAdvisor, revenues coincides with the entrance of ever more OTA’s and providers to the market, most notably, Alphabet Inc (NASDAQ:GOOGL), Skyscanner (NASDAQ:CTRP), AirBnb and Facebook Inc (NASDAQ:FB). The factors generally noted by TripAdvisor for the decline in Hotel revenues are

– reduction in their marketing spend, and

– declining revenue per shopper

They have noted however, that according to their internal logs visitor numbers have increased. They say they are up 7.5% in 2017 to 1.768bn unique annual visitors. That’s a lot of unique visitors considering it is estimated 3billion people use the internet.

The bull argument on TripAdvisor primarily centersaround increasing revenue per shopper from the current 43c per shopper to much higher levels. Any material rise in this will catapult the stock price given the amount of shoppers (1.77bn) involved. A very fair point.

Expedia (NASDAQ:EXPE) delivers $14 per unique shopper. Booking Holdings Inc (NASDAQ:BKNG) is hard to verify but it seems to be around $33 per unique shopper so if TripAdvisorcould deliver anything close to those figures it would be huge returns, 30x to 60x current revenues.

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