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Why Are TripAdvisor's Hotel Revenues Declining?

TripAdvisor‘s (NASDAQ: TRIP) hotel revenues have been on a declining trend in the last few years, having lost more than $100 million in revenues since 2015. The primary reason for this decline was lower click-based advertising revenues on TripAdvisor-branded websites. We have created an interactive dashboard on Why Are TripAdvisor’s Hotel Revenues Under Pressure? where we dig deeper to find the root cause of this decline.

Why Are Click-Based Advertising Revenues On a Decline?

  • Click-based advertising is generally priced on a cost-per-click (CPC) basis, with payments from travel partners determined by the number of travelers who click on a link multiplied by the CPC rate for each specific click.
  • This revenue per hotel shopper has been gradually declining from $0.54 in 2015 to $0.42 in 2018, largely due to travel partners bidding to lower CPCs in the click-based metasearch auction and more hotel shoppers visiting TripAdvisor-branded websites and apps on mobile phones.
  • Declining revenue per shopper continued to put pressure on click-based advertising revenue growth, which was partially offset by increased visitors on the TripAdvisor website until 2018.
  • However, TripAdvisor’s unique visitors also declined by 4% in 2018 – putting further pressure on the company’s Hotel revenues.

So What?

  • TripAdvisor’s unique visitors fell in 2018 due to increased competition and hotel marketing optimization initiatives.
  • More than 50% of TripAdvisor’s advertising revenues come from the two Online Travel Agency (OTA) giants: Booking Holdings and Expedia. However, both these companies have started relying less on TripAdvisor’s meta-search platform and more on either their own meta-search engines or to advertisements via Television – leading to a decline in the number of TripAdvisor visitors. Both Expedia and Booking Holdings are trimming their spend to improve their margins.
  •  Going forward, we expect TripAdvisor to likely see slight declines in Hotel revenues again in fiscal 2019, due to a continued negative impact from marketing pullbacks and some additional currency headwinds.

 

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