There was a lot to like about the travel recommendation engine operator, especially its leadership in the important and growing niche. The traffic it had built up was valuable for selling ads to hotels and other travel-related businesses. However, the transition from more-valuable desktop ads to lower-priced mobile ones, and a misguided strategy of moving away from its core business of selling ads and into booking hotels sunk the company's revenue growth and profits, and its share prices still hasn't recovered. The stock has been falling since 2014, recently hitting lows not seen since late 2012.
For investors looking for growth stocks in the travel sector, The Priceline Group (BKNG 1.09%) presents a better option. As the chart below shows, Priceline has handily outperformed TripAdvisor over the last five years.
King of the OTA's
Priceline has been one of the best-performing stocks on the market over the past decade, and has led the online travel agency sector since its inception at the dawn of the internet.
Its portfolio of brands, global reach, and agency model give it an advantage that competitors such as Expedia, TripAdvisor, and Trivago (TRVG 2.01%)can't match. In addition to its namesake brand, Priceline's primary brands include Booking.com, Kayak, agoda.com, rentalcars.com, and Open Table.
Revenue has grown 16% through the first half of the year, and with the exception of a brief period in 2015 when the company faced stiff currency headwinds, revenue has grown in the teens or better every quarter for 10 years. Priceline continues to add new properties to its sites, invest in technology, and make acquisitions such as Momondo Group, which operates a European travel engine by the same name, and Cheapflights, a flight-booking platform which will be folded into Kayak. Priceline acquired Momondo earlier this year for $550 million.
The travel specialist's agency model gives it a key advantage over its peers: It derives the majority of its revenue from acting as an intermediary between customers and businesses like hotels and airlines. This is a higher-margin model than the merchant model, in which an online travel agency buys rooms from a hotel or seats from an airline, and then resells them. A further edge comes from its exposure to faster-growing international markets.
Stick with the best
TripAdvisor's attempt to break into bookings shows how high the barriers to entry are in Priceline's business. Even Alphabet and Amazon have made plays with their own travel-booking businesses, but have had little success cutting into the lead built by the Priceline-Expedia duopoly.
While TripAdvisor has returned to revenue growth, profits have been slower to come around; adjusted earnings per share were flat in its most recent quarter even as net income fell modestly. Non-hotel growth has been strong, but the company has still not successfully emerged from its strategic transition. Without earnings growth, the stock is likely to fall even further, given that its P/E multiple remains elevated near 60.
Priceline, meanwhile, continues to execute at a high level, and the weakening dollar should help give the stock an earnings boost in its upcoming report, its seasonally biggest third quarter. Analysts predict 13% earnings growth to $34.25 on 17.6% revenue growth, though the company has topped earnings estimates in its last three quarters.
Though Airbnb may present a threat to Priceline over the long term, the company's dominant brands, strong business model, and leading position in an industry that still has considerable room to expand makes it a better growth stock to buy than TripAdvisor.