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TripAdvisor Profit Growth Seen Solid, User, Mobile Up

By: Investor's Business Daily
Posted: 4/19/2013 4:26:00 PM
Referenced Stocks: EXPE;GOOG;NOK;PCLN;TRIP

TripAdvisor ( TRIP ) scored a nice win last month when the online provider of travel reviews got the word it would be the only travel app to be pre-installed in the new Samsung Galaxy S4 smartphone.

Samsung Electronics is also using TripAdvisor content to power its own travel apps.

Samsung plans to announce the Galaxy S4 release date in coming weeks.

The pact may not move the needle much on TripAdvisor's financial front, say watchers. But it should help TripAdvisor expand its presence in the fast-growing mobile channel and up its smartphone user base.

"In general, a continued improvement in the company's mobile presence is a positive," said Piper Jaffray analyst Mike Olson. "Getting onto one manufacturer's device is a small positive and a step in the right direction. But ultimately, we need to want to see a broad adoption of TripAdvisor's app on mobile devices to see a material impact on revenue and earnings per share."

TripAdvisor expects the rate of growth in smartphone and tablet users will continue to exceed the growth rate of its overall users for the foreseeable future.

It's not that TripAdvisor needs a lift. Its branded websites make up the largest travel community in the world, the company says, with more than 200 million unique monthly visitors, and over 100 million reviews and opinions. Its sites operate in 30 countries.

Links To Customers

Beyond travel-related content, its websites provide links to the websites of its customers, including hotels and other businesses, allowing travelers to directly book their travel plans.

TripAdvisor, which was spun off from online travel firmExpedia ( EXPE ) in December 2011, has seen solid sales gains in its first year as a public company. Profits have picked up the past two quarters with double-digit increases in each. In the most recent fourth quarter, earnings rose 21% to 29 cents a share. Revenue grew 23% to $169.4 million.

Followers expect the company to keep up the pace when it reports first-quarter results May 7 after the close. Analysts polled by Thomson Reuters see earnings growing 21% to 46 cents a share. They see a 22% rise in sales to $224.07 million.

"Our expectation is it's going to generally be an in-line quarter," said Olson. "But there's the potential for 2013 guidance to move higher, given the transition to metasearch appears to be tracking better than expected."

TripAdvisor is in the process of moving away from its historical model to a metasearch display, which it says is an easier model to navigate. A metasearch display is an interface that shows hotel or flight availability and pricing information from multiple sources, without requiring the user to visit another website. Its current model relies on pop-ups to get ads in front of users.

TripAdvisor has offered a flight metasearch product since 2009. In 2012, it built a hotel metasearch product for its smartphone platforms. It plans to roll out the hotel metasearch product on its desktop and tablet platforms over the next few months.

Needham & Co. analyst Laura Martin says she expects a stronger first quarter than the Street assumes.

And she has recently raised her full-year 2013 estimates for sales and earnings.

The reason: "We are raising our FY '13 estimates to reflect continued mobile adoption resulting in higher click-based revenue and higher margin," Martin wrote in a report.

Macquarie Securities analyst Tom White says the metasearch display should be a big improvement from the way users can search on-site today. "But the switch to metasearch makes me somewhat nervous over the next couple of quarters as the change will temporarily disrupt the primary monetization engine of TripAdvisor's content," he said.

In addition to its flagship TripAdvisor brand, the company manages and operates websites under 19 other travel media brands, such as bookingbuddy.com.

The company added to its lineup with the March acquisition of Tiny Post, an app that lets you write over photos and turn them into stories. And this month it bought Jetsetter.com, a members-only private sale site for hotel bookings.

Its largest source of revenue is click-based advertising, which includes links to partners' booking sites, which are mainly online travel agencies and direct suppliers in hotel, airline and cruise product categories. It gets payments from advertisers based on the number of users who click on each type of link. The rest of its revenue is generated through a combination of subscription-based offerings and selling room nights on its transactional sites SniqueAway and Tingo.

As Martin notes, TripAdvisor's mobile presence, which includes apps for theApple iPhone, Android,Nokia ( NOK ) and Palm smartphones, has been growing at a rapid clip. In the fourth quarter, smartphone and tablet app downloads doubled to more than 31 million and its 45 million monthly mobile unique visitors was up 190% year over year, said founder and Chief Executive Steve Kaufer on the fourth-quarter conference call.

The company's primary growth driver comes from an increasing volume of users coming to its site, says Martin.

In the fourth quarter, total monthly unique visitors to TripAdvisor branded sites grew roughly 45% with Asia Pacific leading the way at more than 75% growth. More than 60% of its traffic originated from outside of its core U.S. and U.K. markets.

TripAdvisor boasts a number of strong points, analysts say.

Among them, says Martin, is it's a natural advertising base for the online travel sites such asPriceline.com ( PCLN ) and Expedia as well as hotels.

Massive Head-Start

"The real asset is the content," adds White. "They have a massive head-start and lead in terms of high-quality user-generated reviews on resorts, hotels and restaurants."

Its rivals includeGoogle ( GOOG ),Yahoo (YHOO) and Baidu (BIDU), and online travel agencies such as Expedia and Priceline.com.

Followers expect the company to keep up its momentum. Analysts polled by Thomson Reuters see full-year earnings rising 13% to $1.74 a share. They expect a 24% gain in 2014.

The climate for its business is good. A TripAdvisor survey by research firm StrategyOne found 42% of U.S. travelers plan to increase travel spending this year and 79% of U.S. hoteliers are optimistic about increased profit this year, leading the world average of 68%.

According to the IDC New Media Market Model, the global online advertising market is growing and is projected to exceed $130 billion by 2014, as more and more advertisers continue to shift their spending from offline to online channels, says a company SEC filing. For travel specifically, IDC estimates that annual expenditures for global mobile Internet travel advertising in 2013 will be close to $15 billion.

On Dec. 11, Liberty Interactive bought about 5 million shares of TripAdvisor's common stock from media mogul Barry Diller and the Diller-von Furstenberg Family Foundation.

The transaction gave Liberty control of about 22% of TripAdvisor's common stock and 57% of its voting stock.

Concurrently with the transaction, Diller resigned as chairman and senior executive of TripAdvisor, but will continue to serve as a director.