Will TripAdvisor Sustain Its Earnings Momentum?

Image source: TripAdvisor.

Reinventing a company takes time, and online travel specialist TripAdvisor (TRIP -4.71%) has worked hard to try to recast itself as a broader-based travel company. Starting from its origins as a travel review provider, TripAdvisor saw the potential to offer more services directly in order to go up against former parent Expedia (EXPE -1.39%) and other high-profile online travel companies. Coming into its first-quarter financial report on Wednesday, TripAdvisor investors weren't sure exactly what to expect, fearing that earnings could contract at an inopportune moment and send the poorly performing stock down further. Let's take an early look at what TripAdvisor will probably tell investors and what could be in the company's future.

Stats on TripAdvisor

Data source: Yahoo! Finance.

Can TripAdvisor earnings recover?
In recent months, analysts have prepared for weaker performance on TripAdvisor earnings. They now believe that the company will earn $0.10 per share less than they formerly did, and they've reduced their expectations for the full 2016 and 2017 years by about 13% to 14%. The stock hasn't done much either, falling 9% since late January.

TripAdvisor's fourth-quarter results gave the stock a much-needed boost from its lows, as growth reawakened for the company. Revenue was up just 7%, but adjusted net income jumped by more than a quarter, and the display-based advertising revenue segment produced solid sales gains along with subscriptions, transactions, and sources of income other than click-based ad sales. The launch of TripAdvisor's instant booking platform has made it a major player in the hotel space, giving hotel-company partners an alternative to the business models that Expedia and other industry players have traditionally given them.

Yet some investors are concerned about the prospects for TripAdvisor, Expedia, and online travel more generally. So far, TripAdvisor and its peers have been able to succeed because hotel companies haven't focused very hard on trying to offer their own direct-booking platforms for loyal customers to seek out brand-name hotels. In particular, if hotels have to start clamping down on what they pay third-party booking sites in order to remain profitable, then TripAdvisor could be left with a fundamental problem in its business model. TripAdvisor also has to deal with the potential impact of room-sharing services like Airbnb, which could potentially pose a threat to the traditional hotel industry -- and, by extension, its services to that industry.

Still, there are a couple of reasons why investors should be less concerned about TripAdvisor's prospects. First of all, the travel industry has suffered recently from the loss of the tourist trade from Japan and countries in Europe and Latin America that have had to deal with the strength of the U.S. dollar. Foreign tourists are sensitive to currency fluctuations, but lately, the dollar's strength has started to reverse itself, and that could be good news for TripAdvisor. In addition, TripAdvisor has become a large player in the online travel space, but it's still small enough to be a reasonable acquisition target for a company looking to boost its reach over the industry. Expedia doesn't seem like a likely partner given its spinoff of the company, but if TripAdvisor can coax either one of Expedia's direct competitors or someone currently outside the business to get interested, then TripAdvisor shares could soar.

In the TripAdvisor earnings report, watch closely to see whether the recent uptick in commodity-heavy economies like Brazil, Australia, and Canada have had any substantial impact on the industry. Moreover, TripAdvisor will need to share its vision in a way that investors can understand. By doing so, shareholders will be able to have confidence that TripAdvisor is on the right path and will be able to outrun Expedia and other companies in its quest for greater success.