TripAdvisor (TRIP 0.34%) has worked hard to transform itself into a full-blown online travel company. Going beyond its origins in solely offering reviews, TripAdvisor would ideally like to capture more of the business that it now refers out to its partners. Yet that's been a tough proposition for a while now, as competitive pressures throughout the online travel industry have made it harder for the company to gain traction and stand out from the crowd.
Coming into Wednesday's second-quarter financial report, investors had wanted to see solid earnings gains and some sales growth as well. Unfortunately, TripAdvisor once again saw its top line decline, and although the company wants to invest fully in its future, not everyone is happy about the sacrifices it's making to try to achieve its goals.
Hotels hurt TripAdvisor's sales
Second-quarter results didn't give the good news that people wanted to see. Revenue fell 3% to $422 million, well short of the 3% growth that most of those following the stock had expected. Adjusted net income fared a bit better, rising 10% to $64 million. But adjusted earnings of $0.45 per share couldn't match the consensus forecast among investors for $0.51 per share on the bottom line.
A look at the key hotels, media & platform segment shows the strategy that TripAdvisor is trying to follow. Revenue for the segment dropped 7%, as TripAdvisor's overall business flow was weaker. Hotel-specific sales sank 9%, offsetting gains of 5% in display and platform advertising revenue. However, the company said that it was more efficient in handling direct selling and marketing expenses associated with the hotel business. As a result, adjusted pre-tax operating earnings for the segment were up 27% year over year.
Elsewhere, TripAdvisor saw sales growth from the areas that it's giving top priority. In experiences and dining, revenue jumped 28% from year-ago levels. But adjusted pre-tax operating earnings from the segment plunged by more than half, as the company said that it was making investments designed to foster faster growth in the future. Its catchall other-revenue category saw sales sink 32%, although its bottom line improved dramatically.
The reach of the company's network continued to expand. The website now sports 795 million reviews and opinions along with 182 million traveler photos, covering 8.4 million restaurants, accommodations, and travel activities and experiences. You'll find information on more than 500 airlines and 70,000 cruises, and the company is still aiming to take maximum advantage of its library to drum up more business.
What's next for TripAdvisor?
CEO Steve Kaufer was succinct in his comments. "We delivered strong second-quarter and first-half 2019 profitability, amid ongoing investments aimed at future growth," Kaufer said. He noted that efforts to focus more directly on the consumer appear to be paying off.
The strategy TripAdvisor will follow is quite clear. In Kaufer's words, "We are laying the foundation to deepen customer relationships with our platform, and monetize our significant influence in travel."
For the most part, TripAdvisor remains confident about its long-term prospects, even if it thinks that it might not be able to match its first-half performance. The company said that it expects adjusted pre-tax operating earnings to rise by double-digit percentages over the course of 2019. But it added that it expects second-half growth rates to fall from their first-half levels of around 15%. The good news is that it's likely to see accelerating revenue and bottom-line growth in the fourth quarter, building up momentum as the company approaches 2020.
Shareholders weren't all that pleased with lackluster performance in the second quarter, though, and the stock fell 4% in after-hours trading following the announcement. The online travel company is making the right moves to try to establish the full value of its platform, but TripAdvisor has more work to do to prove that it can execute on its strategy effectively.