TripAdvisor (TRIP 0.80%) shareholders have endured volatile price swings in their stock so far this year. While shares surged through early March, returns slumped as COVID-19 case rates began climbing again. Investors are worried about stalled growth momentum that could last into 2022.
The world's biggest travel website should clear up some of those concerns in an upcoming earnings report, set for release early on Tuesday, Nov. 9. Let's look at three key questions investors have heading into that announcement.
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1. How bad was the slowdown?
Investors are bracing for mostly bad news on the growth front. Sure, sales gains will look impressive compared to a year ago, when travel rates were near historic lows. Wall Street pros are predicting that TripAdvisor's sales will roughly double to $307 million in the third quarter.
But that result would still mean the company is operating about 40% below a more normal travel period, the same quarter in 2019. Back then, TripAdvisor notched $428 million of sales across its booking platform for hotels and experiences.
The key metric to watch is the growth trajectory over the past few weeks. CEO Steve Kaufer said back in early August that bookings volume was accelerating thanks to a declining virus threat and historically strong economic trends. Consumer spending didn't slow down since then, but COVID-19 outbreaks might have slowed TripAdvisor's momentum through the early fall.
2. Is profitability rising?
Heading into the pandemic, TripAdvisor was becoming a more profitable business. Adjusted profit margin improved to 28% of sales in 2019 from 26% a year earlier and 21% back in 2017. Net profit margin rose in 2018 and 2019, too.
2021 won't mark a full rebound to those earnings levels, but TripAdvisor might show progress toward even higher margins in 2022 and beyond. Cost cuts helped the company beat management's profit targets last month and might surprise Wall Street again on Tuesday.
Most investors who follow the stock are looking for earnings to land at $0.24 per share compared to a loss of $0.17 per share a year ago. It's possible Kaufer and his team will make some bullish comments about TripAdvisor's earnings potential as we approach a full rebound in the travel industry.
3. Will there be a strong finish to the year?
The travel industry could soar in the next year or so thanks to pent-up demand following two years of depressed booking volumes. That rebound, plus the potential for rising profit margins, forms the basis for the long-term investing thesis in the world's most trafficked travel researching platform.
Investors are looking for confirmation that this demand spike is happening, and that TripAdvisor can capitalize on it by handling more bookings across its hotel, restaurant, and experiences niches. Executives three months ago said they were confident that rising demand they had seen in the U.S. market would show up in places like Europe.
"We are optimistic about further travel recovery into 2022," they said in a shareholder letter, "and believe the industry has entered into a 'return to travel' period and an initial release of significant pent-up demand." Management will update that reading of the industry on Tuesday, and the stock's short-term movement might depend on the bullishness of that new growth forecast.
