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Sales Declines Hit TripAdvisor

By Dan Caplinger – May 8, 2019 at 7:33AM

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The online travel company remained profitable, but investors worry about the future.

The online travel industry is more competitive than ever, and TripAdvisor (TRIP 2.75%) has worked hard to try to carve out a lucrative niche among rival travel websites. Yet even as TripAdvisor tries to distinguish itself from its peers, the company still has to show that it has growth prospects that will keep investors satisfied for the foreseeable future. Recently, that's proven to be a bit more difficult than many had hoped.

Coming into Tuesday's first-quarter financial report, TripAdvisor investors were hoping to see modest gains in sales that would produce a bigger boost to profits. TripAdvisor wasn't able to deliver the top-line growth that many were counting on seeing, and that seemed to leave investors dissatisfied despite continued gains on the earnings front.

TripAdvisor logo and slogans.

Image source: TripAdvisor.

A slow start to 2019 for TripAdvisor

TripAdvisor's first-quarter results extended a streak from past quarters. Sales of $376 million were down 1% from year-ago levels, falling short of the 2% growth that most of those following the stock had wanted to see from the online travel specialist. Adjusted net income was higher by 21% to $51 million, though, and adjusted earnings of $0.36 per share compared favorably to the consensus forecast among investors for just $0.31 per share.

TripAdvisor saw similar performance from its primary segments as it has recently. The newly named hotels, media & platform segment, which includes not only branded hotels but also branded display and platform-related revenue, was essentially flat on the sales front on a year-over-year basis. However, adjusted pre-tax operating earnings from the segment climbed 36%, providing the biggest push to the company's results. On the other hand, revenue from the experiences and dining segment jumped 36% from year-ago levels, but all that did was to widen the segment's loss dramatically.

However, TripAdvisor's fundamental metrics didn't hold up entirely well. Monthly unique visitors fell 5% to 411 million on average during the quarter. That's down from 490 million at its seasonal peak in the third quarter of 2018, and even the 20% growth in reviews to 760 million still left the unanswered question of whether visitors will come back during the summer months.

What's next for TripAdvisor?

CEO Steve Kaufer tried to keep focused on positives. "In [the first quarter]," Kaufer said, "we grew profit while investing in and growing our strategically important experiences and restaurants business." CFO Ernst Teunissen added that the new segment structure more accurately reflects the different ways that TripAdvisor gets revenue compared to its online travel peers.

TripAdvisor's guidance reflected the new structure for the company, but many of the things it had said previously remained the same. The online travel service still expects adjusted pre-tax operating earnings to rise by double-digit percentages throughout 2019. Improving revenue trends for hotels, media, and platform in the second half of the year should help that segment produce double-digit percentage gains on its bottom line as well. However, experiences and dining will lag behind, with weaker adjusted pre-tax operating earnings than in 2018 because of greater investment in the space. Within the next three to five years, TripAdvisor sees itself returning to double-digit percentage revenue and profit growth with contributions from both of its segments.

TripAdvisor investors weren't sure what to make of that, but they weren't happy with the sales shortfall, and the stock dropped 6% in after-hours trading following the announcement. Though there's room for TripAdvisor to mount a more convincing recovery, it'll take time and effort to convince investors that the future remains bright for the travel website.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends TripAdvisor. The Motley Fool has a disclosure policy.

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