Trip Dubai
Dubai. Source: TripAdvisor.

Coming into Tuesday afternoon's third-quarter earnings release, investors in TripAdvisor (NASDAQ:TRIP) were hoping that the online travel review and services specialist would be able to deliver strong growth from a thriving U.S. economy. Yet even though the company did produce impressive sales gains, TripAdvisor stumbled in having the most possible profit fall through to the bottom line, and investors quickly responded with substantial after-hours declines in the share price. Let's take a closer look at how TripAdvisor did last quarter and why those who follow the stock are disappointed with the results.

A mixed growth picture for TripAdvisor
In terms of top-line growth, the third quarter went well for TripAdvisor. Revenue climbed to $354 million, up 39% from 2013's third quarter, as TripAdvisor saw solid gains from all of its revenue sources. Click-based advertising, which makes up 70% of TripAdvisor's overall revenue, enjoyed 31% growth, while subscription, transaction, and other revenue more than doubled from the year-ago period. Display-based advertising was the laggard in terms of sales, but even it managed to post a 13% gain from last year even as it fades in overall importance for the company.

Looking more closely at the revenue numbers, TripAdvisor saw impressive gains across the globe. The company's North American segment enjoyed revenue gains of 35%, which was especially important given that North America makes up half of TripAdvisor's overall sales. The Europe, Middle East, and Africa segment grew even faster, posting 43% gains from a year earlier, and Latin America-based revenue climbed at an even more impressive 78% year-over-year rate.

Earnings, though, didn't give TripAdvisor the lift that many had expected. On a GAAP basis, earnings per share actually fell slightly from year-ago levels. Adjusted net income produced a 9% rise, but even after those adjustments, earnings per share of $0.48 fell well short of the $0.60 that investors had hoped to see. As a result, free cash flow plunged by about 65% to just $45 million.

Trip Singapore
Singapore. Source: TripAdvisor.

Quality gains for TripAdvisor's business
Despite the poor earnings results, TripAdvisor can still point to continued progress on several important business fronts. The website's monthly unique visitor count climbed more than 12% to about 315 million for the quarter compared to the second quarter of 2014, and about half of that traffic is coming from mobile devices. TripAdvisor counted more than 150 million downloads of its mobile app, more than doubling last year's pace of growth.

Moreover, TripAdvisor is making forays to broaden its business. Its launch of its Instant Reservation feature is an attack of OpenTable, which Priceline.com (NASDAQ:PCLN) recently acquired, and TripAdvisor boasts more than 13,000 restaurants in its current network. Overall, TripAdvisor's reach has extended dramatically in recent years, with the company now boasting more than 200 different travel brands among its user review collection, including more than 100 hotel brands and chains. Moreover, with its TripConnect platform enabling direct instant bookings, TripAdvisor will further encourage potential customers to make their offerings available on its website.

But according to CEO Steve Kaufer, the key to TripAdvisor's success could come from its acquisition of Viator, which will open up the lucrative tours and attractions reservation business to the company's overall lineup. TripAdvisor paid about $200 million for the tour provider, and with more than 600,000 user reviews as well as photos and videos related to tour products, Viator could help build out TripAdvisor's already impressive portfolio.

Regardless of TripAdvisor's long-term prospects, though, the immediate reaction was negative, with the stock falling 8% in after-hours trading immediately follow the announcement. Given that TripAdvisor shares trade at 57 times trailing earnings and more than 30 times 2015 earnings estimates, the company truly needs to grow at an accelerated pace in order to justify its current stock price. TripAdvisor has the potential to bounce back, but for now, the travel site needs to work on executing better and getting more of its hard-earned revenue to turn into profit.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Priceline Group and TripAdvisor and owns shares of Priceline Group. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.