Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

TripAdvisor Tells Investors That Change Is Coming

By Demitri Kalogeropoulos - Nov 14, 2019 at 9:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The travel specialist shifts strategies following a frustrating third quarter.

For investors keeping track, TripAdvisor ( TRIP -3.55% ) has now made three major strategic shifts since 2016. The vacation booking specialist has had to adjust to big changes in the hotel booking business as it seeks a sustainable way to monetize its huge base of engaged travelers. The moves started with a shift into instant booking in 2016, followed by a bid to shore up profitability in 2018.

The latest move came this week after TripAdvisor posted third-quarter sales trends that management described as "frustrating." Revenue worsened in the hotel segment and slowed in its new division focused on booking experiences, rentals, and restaurants.  

In a conference call with investors and a shareholder letter, CEO Steve Kaufer and his team detailed the actions they're taking today to try to stabilize the business while admitting that returns could be pressured for some time by the tough selling conditions they're seeing in the market.

Let's look at a few highlights from that presentation. 

Two travelers take a selfie.

Image source: Getty Images.

A tough quarter

Trends worsened in our hotel click-based auction, leading to a 14% decline in TripAdvisor branded hotels revenue. We believe our most significant challenge remains Google pushing its own hotel products in search results and siphoning off quality traffic that would otherwise find TripAdvisor via free links and generate high margin revenue in our hotel click-based auction. 

Results were weaker than most investors expected to see and trailed management's outlook across the platform. In the core hotel segment, sales declines worsened to 7% from 3% last year, all but ensuring that the division will not return to revenue growth this fiscal year. Executives said the main challenge was new competition from Alphabet's Google, whose search engine is highlighting its own booking products ahead of rivals'.

Sales were also underwhelming in the experiences division, which management has identified as a key growth avenue. Revenue gains slowed quicker than expected thanks to a mix of more competition and missed execution. "We are dissatisfied with our results," executives summarized, "which are particularly frustrating considering we entered 2019 with such great momentum."

The path ahead

We see growth opportunities in 2020 and beyond, and we are addressing them with urgency. 

TripAdvisor doesn't see the competitive landscape on Google improving any time soon, so the company is shifting its focus to try to maximize growth in other areas like advertising and restaurant bookings. The rebound strategy also involves working to bring the experiences segment up to par through marketing and app development. Success here should show up in higher conversion and repeat bookings rates, and in sales growth that more closely tracks the over 100% increase in available inventory TripAdvisor is achieving right now.

New financial realities

Loss of revenue in our [search engine optimization] channel in hotel has been negatively affecting our bottom line, and we will prudently reduce and reallocate expenses in certain parts of our business to preserve strong profitability while investing in strategic growth areas. 

Another clue that TripAdvisor isn't expecting a quick return to normal is the fact that management announced another cost-cutting plan aimed at better aligning the hotel segment with the lower growth and earnings outlook. The good news is that these moves will protect margins and generate cash that can be redirected toward more promising initiatives. The savings will also result in higher returns to investors, as demonstrated by TripAdvisor's announcement of a special dividend of $3.50 per share.

On the other hand, investors seem destined to endure another year of weakening operating trends in 2019 and into 2020, which leaves unanswered the question about whether the consumer discretionary stock can build a sustainable business around its industry-leading travel site network.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

TripAdvisor, Inc. Stock Quote
TripAdvisor, Inc.
$24.75 (-3.55%) $0.91

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/04/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.