What happened
Shares of Tripadvisor Inc (TRIP 0.34%) were heading lower today, falling in sympathy with Trivago (TRVG)after shares of the hotel-booking platform crashed 24% when the company recorded a decline in first-quarter revenue and cut its guidance for the year. Though there was no direct news out on Tripadvisor today, shares of the travel-recommendation service nonetheless finished down 8.5% today as it is subject to many of the same business trends as Trivago in the online travel industry.
Image source: Getty Images.
So what
Like Trivago, TripAdvisor makes much of its money through referrals to larger online travel agencies like Booking Holdings and Expedia, both of which pay to bid on clicks through such partner sites. Competitive dynamics fluctuate inside the online travel industry as the larger players at times aggressively go after market share, spending more to win bids. However, Trivago management said that partners such as Booking Holdings and Expedia were more focused on profitability in the quarter, meaning they likely scaled back on their marketing budget for platforms like Trivago and Tripadvisor.
Trivago also said that qualified referrals increased 7% in the quarter, but revenue fell 3% in part due to currency fluctuations, indicating that partners were spending less to get referrals.
Now what
Like Trivago, Tripadvisor has struggled in recent quarters as revenue growth has slowed and profits have fallen due to weaker monetization rates on mobile ads than desktop ads, and due to the company's launch of its Instant Booking platform hitting unexpected headwinds.
Still, investor expectations for Tripadvisor are low and the stock spiked on its last report as a weak round of results managed to beat expectations. We'll learn more when Tripadvisor reports first quarter earnings on May 8. Analysts are expecting revenue to decline 2.7% to $362.1 million and earnings per share to fall from $0.24 a year ago to $0.16. While that's a low bar to overcome, Trivago's weak results and its decision to cut full-year guidance to flat revenue growth doesn't bode well for its peer.
