) is set to release its third quarter earnings for fiscal year 2013
on Wednesday, October 23. The company continued its growth
momentum in Q2 2013 with a 25% y-o-y increase in revenue, driven
primarily by traffic growth. Click-based advertising revenue
grew 21% y-o-y on account of robust growth in hotel shoppers
in both core and emerging markets. Display-based advertising
revenue growth accelerated to 18% owing to a rise in traffic and
better sell-through rates.
Despite the management's expectation of a temporary slowdown due
to the roll out of the new meta-display, we
believe TripAdvisor's user base and revenues will grow.
This is achievable through higher sales productivity, expanding
mobile and international presence, and the enhanced user experience
that the meta feature offers.
Our price estimate of $80 for TripAdvisor
marks our valuation at a premium of about 5% to the current market
See our complete analysis for TripAdvisor's
Meta-Display Headwinds To Be More Intense This
Earlier, TripAdvisor's partner pages appeared in a pop-up window
when a user entered a travel query. The company has now
integrated all the search query results on the main page known
as meta-search. This enhancement allows users to see travel
content, real time hotel pricing and availability from booking
partners, all on a single page.
The transition to meta-search negatively impacted revenues by
approximately 3%-5% in Q1 2013. The impact was even more magnified
in Q2 2013 at 6%-9% as the meta feature roll-out approached
completion during the quarter. Management expects continued
headwinds on Q3 2013 earnings as it is the first quarter with 100%
meta throughout the period. The effects will also trickle down to
the bottom-line as hiring and investment plans remained unchanged.
On the positive front, the management expects the impact to
steadily subside thereafter and the meta-platform to achieve
revenue neutrality by year end as it brings more customers on
board, conversion rates improve and advertisers become more
familiar with the meta-search operating model.
Traffic Growth To Maintain Its Momentum
The number of monthly unique visitors to TripAdvisor's websites
is one of the primary drivers fueling the company's present growth.
TripAdvisor's user base has nearly tripled compared to last year
due to its dominating presence in the global travel review
industry.TripAdvisor websites averaged over 220 million monthly
unique visitors in Q2 2013. The company's mobile traffic grew over
200% y-o-y and accounted for about 35% of the total traffic.
Cumulative downloads for TripAdvisor apps breached the 50 million
mark, registering an annual increase of more than 125%.
The meta-display feature has enhanced the overall user
experience by addressing queries on a single page. The new
transaction-based subscription model has increased the visibility
of businesses and helps the company provide the best recommendation
Also, the company has a vast international presence with
TripAdvisor branded websites in 30 countries and 21
languages. It is presently working on new TripAdvisor domains
in localized languages to better serve local travelers and align
its offerings with its local OTA partners in the region. We believe
TripAdvisor's user base will continue to grow strongly driven by
Subscription And Related Revenue
To Continue Its Growth Trajectory
The new transaction-based model introduced in Q1 2013 is
different from the old subscription model under which properties
paid a subscription fee to TripAdvisor for business listing. Now,
properties are free to list but they pay on a per transaction
basis, which has resulted in a greater number of businesses listing
themselves. This also allows TripAdvisor to list those properties
at the top which have higher conversion rates, thus providing the
best recommendation to the user.
TripAdvisor's subscription, transaction and other revenue
increased by 68% y-o-y in Q2 2013. The company expects to see
continued sales productivity in business listings and higher
vacation renting due to the introduction of the offering.
Based on the company's performance in the upcoming Q3 2013
results, we will update
our price estimate of $80 for TripAdvisor
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