When it comes to finding travel-related reviews, Tripadvisor (TRIP 4.61%) is the go-to platform and has been for about two decades. The platform hosts more than one-billion reviews, helpful for almost any traveler no matter where they're going.
However, it's fair to wonder if Tripadvisor is losing its relevance. After all, Alphabet's Google can provide some of the same insights as Tripadvisor. And considering how many people use Google Maps, it might even be easier to check out reviews on Google.
I believe this possibility is supported by the numbers. Tripadvisor has reorganized its business over the years so direct comparisons are challenging. However, in 2019 the company's Tripadvisor brand (representing nearly all its sales then) generated revenue of $939 million.
By comparison, in 2023 the whole company generated total revenue $813 million through the first three quarters, putting it on pace for just a hair more than $1 billion over the entire year. So growth over the last three years has been quite meager and suggests its best days for growth are over.
Growth may be coming to an end for Tripadvisor. But fortunately the company owns a travel platform that's experiencing some of the hottest growth in the entire sector. And it may hold the key to the future success of Tripadvisor stock.
The travel platform for booking experiences
Nearly a decade ago, Tripadvisor acquired a platform called Viator. And it appears that Viator's time has finally arrived.
Tripadvisor only started breaking out Viator's financial results in 2022, so investors can't track its progress too far back. However, Viator has generated revenue of $576 million through the first three quarters of 2023, which is a 57% increase from the comparable period of 2022.
Viator is more similar to Airbnb than it is to Tripadvisor. Third parties list bookable experiences on the Viator platform. Travelers then browse and book. Viator then collects the payment, pays the experience organizer, and keeps a cut for itself much in the same way that Airbnb does business.
This is a different business model from Tripadvisor's. Tripadvisor has links for booking hotels on other platforms, and the company is paid per click. The platform also allows the display of ads for which it's paid for impressions (views).
The travel-experience market is a budding opportunity, and Viator appears to be the frontrunner. Airbnb's co-founder and CEO Brian Chesky might be a little jealous considering he's foreseen this trend for a long time. Way back in 2018, Chesky told USA Today that travel experiences were an "Amazon-sized opportunity."
Rumor has it that Amazon is pretty big. And indeed, Viator is already a big deal for Tripadvisor. In the third quarter of 2023, revenue from Viator accounted for 46% of the company's total revenue.
One thing that could hold Tripadvisor back
I love the Tripadvisor stock opportunity today. At less than two times its trailing sales, shares have almost never been cheaper, and they trade well below their historical average. Moreover, the business is very high margin with its gross margin consistently more than 90%. And Viator's surging adoption gives the company an underappreciated growth engine for the long term.
That said, there's one glaring concern I have with this company today: Tripadvisor has always been high margin. But despite this advantage, profits have been few and far between over the last several years. And one of the main culprits is how much is spent on sales and marketing.
The chart below offers a comparison of Tripadvisor against Airbnb and Booking Holdings. Of these three travel stocks, Tripadvisor currently spends the most on sales and marketing as a percentage of revenue. But of the three, it has the slowest top-line growth right now.
TRIP Sales and Marketing Expense (% of Quarterly Revenues) data by YCharts.
My fear is that Tripadvisor might only enjoy top-line growth because it spends heavily to drive traffic to its platform. And if its traffic is truly dependent on this spending, then the company may never be able to generate meaningful profits for shareholders.
That said, the older Tripadvisor brand may be more dependent on spending that drives traffic. By contrast, its possible that Viator is gaining enough brand awareness to generate organic traffic, much like Airbnb does. If that's the case, the business could enjoy operating leverage as Viator scales.
Assuming this latter scenario plays out, this investment could be really good for shareholders considering that Tripadvisor's market cap is only $3 billion. That's a really cheap valuation if it successfully scales into and profits from this large and growing opportunity in the travel industry.
