The “Gig” economy is also a threat. Airbnb has risen in popularity of course. But there are other effects. As people work more for themselves and corporates are less willing to spend on a more transient workforce then hotels are used less. Gig people are more used to Airbnb and Couchsurf than hotels and they are unwilling to spend their own money this way.
Does this theory stand up to reality? The below chart is a Google trends search for the websites TripAdvisor (NASDAQ: TRIP), Expedia Group Inc (NASDAQ: EXPE), Booking Holdings Inc (NASDAQ: BKNG) and Airbnb and it is clear that the rise of Airbnb is real and that it now surpasses the others in terms of people searching for it.
As we can see over the last five years searches for TripAdvisor have declined considerably, Expedia has declined but not as much. Booking has always been low, possibly because people remember the name more as the website address too and so don’t need to search. This is in line with what they say happens. Airbnb has gone from nearly bottom of the search interest to the top of the heap over five years. The current generation of customers are already off searching for hotels and on to searching for Airbnbs which has happened in the last few years. Airbnb is searched 3 times more than Trip Advisor on Google.
Trip Advisor’s revenues are stagnating/declining in Hotels and the future looks like it is getting tougher and tougher for that offering. Without the financial clout of their competitors for marketing or the brand space in people’s minds, it looks like they could be spent and/or searched off of the field of play.
In the non-hotel segment however Trip Advisor has built a good business with little competition at present. This channel has great potential. It is still too small to meet the valuation levels of the firm as a whole but it is a definite area of strength for the business.
The Numbers
Revenues have been discussed above but the table below highlights the growth rates yoy:
TRIP ADVISOR (NASDAQ: TRIP) Revenue growth rates 2012 – 2017
| $’m | 2017 | 2016 | 2015 | 2014 | 2013 |
| Hotel | 0.5% | -5.8% | 11.3% | 26.3% | 22.8% |
| Non-Hotel | 24.1% | 26.6% | 106.3% | 141.3% | 48.4% |
| Total | 5.1% | -0.8% | 19.7% | 31.9% | 23.8% |
These growth rates start out very attractively but fizzle out pretty quick. The Hotels channel makes up the majority of revenues each year but its growth rates are less than the non-hotel channel every year from 2013-2017. This highlights the shift in where the growth is coming from.
Outside of revenues they have healthy cash balances, $673m and they maintain a good balance sheet overall. There is, however, scope for them to overrun themselves due to an unused revolving credit facility, particularly given their history of acquisitions.
The book value of the firm is $1.3billion but this includes $760million of goodwill which is the result of its acquisition history. This primarily reflects the amount of premium Trip Advisor (NASDAQ: TRIP) has paid on its historic acquisitions. They use market valuation to decide on whether this goodwill should be written down so the size of this item is connected to the misvaluation in price. I would not rely on it as a component of business value in the context of it generating cash or value so I would discount it from the book valuation. This gets us to about $440m of assets if it were to be sold tomorrow. There is $237m of debt captured within that figure but worryingly there is a further $1bn available to them on a revolving credit facility at any time they choose to spend it in the near future. The use of more than $440million of that would put the balance sheet in the red.
