TripAdvisor (TRIP 2.19%) investors have had it rough the past few years, as the company shifted its business model away from advertising toward a transaction-based model known as instant booking. This new feature -- which allows users to book their stays on TripAdvisor's site or app rather than clicking away to complete their reservation -- has taken a lot of time to catch on, causing revenue to decline 1% for full-year 2016.
Though that's a cardinal sin for a technology-driven growth stock, TripAdvisor's first-quarter earnings on May 10 contained what may be the seeds of a comeback, with improved results in the all-important hotel segment, and forward guidance that indicates the worst may be over for the beleaguered online travel company.
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Signs of life in the hotel segment
Contributing more than 80% of total revenue, TripAdvisor's hotel segment revenue declined in each of the previous four quarters, falling 6% in 2016. But that losing streak is finally over, with hotel revenue rising 4% in the first quarter to $314 million.
And by most measures, the tide appears to be turning. The number of monthly unique hotel shoppers grew by 9%, the largest increase in four quarters. Click-based and transaction revenue per hotel shopper returned to growth, rising 2% after six quarters of decline. And perhaps most telling, the company noted that in the U.S., revenue per hotel shopper has finally returned to the levels it achieved prior to the launch of instant booking. That's important, because the U.S. was the first country where instant booking was rolled out, indicating that a revenue recovery may be on its way to additional countries soon.
One big thing that is likely helping is the company's evolving stance on instant booking, as the company says it no longer seeks to push the option on users when it doesn't offer a compelling value. CEO Steve Kaufer explained (transcription by Thomson Reuters):
We have been talking for several quarters about Instant Booking earning its position in our hotel shopping experience, so that we put it in front of users when we think they're most likely use it, either for price, because Instant Book might have the best price, or convenience, particularly on the phone, if it's something you've used before. ... We want to do what's best for our travelers. And we believe that Instant Book plays a key role in that, though not as a big a role as we had anticipated a couple of years ago.
The non-hotel segment will be profitable soon
The faster growing piece of the company is TripAdvisor's non-hotel segment, which encompasses attractions, restaurants and vacation rentals. This segment reported revenue of $58 million for the quarter, up 18% from last year.
Even better, the company expects that growth to accelerate for the remainder of the year, and now says that this segment will become profitable in 2017, providing a much-needed (if still rather small) contribution to the bottom line.
Spending big to change consumer behavior
TripAdvisor has a huge, growing user base -- with unique monthly visitors up 14% in the first quarter to 386 million. Monetizing this asset more effectively remains the company's biggest opportunity.
To do this, the company plans to spend $70 million to $80 million on a TV advertising campaign later this year. The company says TripAdvisor influences an incredible 55% of worldwide travel accommodations. The new advertising will attempt to get users who already trust TripAdvsor for reviews to think of TripAdvisor as the best place to book their travel as well.
Kaufer explained:
So we have a large portion of our current audience and have, for the past decade, come to TripAdvisor, read reviews and move into our price comparison engine and then click off to our partners or use Instant Book to book. So that's an already established behavior pattern for a large portion of our users. ... The question is, can the TV campaign accelerate the move of the people who don't currently use us for that to join the crowd that does? And a lot of people, when we ask, will say, "Well, yes. I use it for reviews. I didn't know that you had price comparison."
Full-year guidance remains promising
With the hotel segment looking healthier by the quarter, the non-hotel segment continuing to gain steam, and a plan to build consumer booking habits, management stuck to its previously issued guidance, with a couple of new details.
For full-year 2017, the company expects:
- Double-digit revenue growth.
- Double-digit click-based and transaction revenue growth.
- Non-hotel revenue growth close to 2016 levels -- around 27%.
- Flat to down adjusted EBITDA compared to 2016.
On this last point, management noted that the new advertising spending didn't alter its EBITDA outlook, as the increased TV campaign costs will be offset by improving profitability in the non-hotel segment and by reallocating some less-efficient online spending to TV.
Although TripAdvisor is still attempting to find its footing, these feel like positive first steps. If the company can achieve the guidance above and get on a path to expanding earnings as well, it should finally begin to attract growth investors back to TripAdvisor's beaten-down stock.
