What happened

Shares of Tripadvisor (TRIP 4.61%) were pulling back today after the online travel recommendation service reported underwhelming second-quarter results.

As of 1:44 p.m. ET, the stock was down 7.3%.

So what

Tripadvisor continues to grow thanks to the strong performance in Viator, the tours and activities company it acquired in 2014 and that has recently become a breakout performer.

Overall revenue rose 18% to $494 million, which easily beat estimates at $472.7 million.

However, revenue at the TripAdvisor core brand increased just 2% to $279 million. Viator, on the other hand, saw top-line growth of 59% to $216 million. Management also talked up its new generative artificial intelligence (AI) planning tool, which is now in beta, showing it's taking advantage of the latest technology.

Despite the solid revenue growth, margins shrank as hotels, its most profitable segment, reported a 7% decline to $174 million. 

An increase in headcount also contributed to a decline in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) from $109 million to $90 million. On the bottom line, adjusted earnings per share fell from $0.37 to $0.34, just missing the analyst consensus at $0.35. 

Management also said it had begun a cost-cutting program, which includes layoffs in the TripAdvisor core segment that are expected to deliver annualized cost savings of $35 million.

CFO Mike Noonan said: "Our experiences category outperformed, while the rest of the business delivered largely within expectations with the exception of our European-sourced hotel revenue. We have initiated cost-savings actions that will provide flexibility in prioritizing our strategic investment as we finish 2023, plan for 2024, and bolster our path to our long-term financial objectives."

Now what

Tripadvisor didn't provide guidance in the earnings release, but investors seemed disappointed with the margin compression and poor performance in the hotel segment, especially at a time when the travel sector still seems to be recovering from the pandemic.

In fact, the stock has drifted steadily lower since a peak in February 2021, showing it's struggled to capitalize on the travel recovery. Analysts expect profits to improve in the second half of the year, but the stock is likely to struggle until profit growth returns.