VALUATION HIGHLIGHTS

1. Tripadvisor Core constitutes 41% of the Trefis price estimate for TripAdvisor's stock.
2. Viator constitutes 40% of the Trefis price estimate for TripAdvisor's stock.
3. TheFork constitutes 8% of the Trefis price estimate for TripAdvisor's stock.

WHAT HAS CHANGED?

1. Tripadvisor Q3 Snapshot

In Q3, Tripadvisor's revenue was flat year-over-year (y-o-y) at $532 million and its adjusted earnings per share came in at $0.50 - down 4% y-o-y. The company spent aggressively on marketing and technology development - especially in the Viator and core Tripadvisor platforms. Segment-wise, the company's core brand saw revenues fall 12% y-o-y to $255 million, whereas Viator and The Fork segments saw their revenues grow 10% and 17%, respectively, to $270 million and $49 million. Its adjusted Q3 EBITDA of $122 million, or 23% of revenue, came in better than expected due to a favorable channel mix and disciplined marketing spending.

Viator allows third parties to list bookable experiences on its platform. It then collects the payment through travelers' bookings, pays the experience organizer, and keeps a cut for itself - similar to how Airbnb does business. Viator is now responsible for 50% of the company's revenues.

Note: Tripadvisor's FY'23 ended on December 31, 2023. Q3 FY'24 refers to the quarter that ended on Sept. 30, 2024.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

• Tripadvisor EBITDA Margin: EBITDA Margins declined to 18.7% in 2023 from 19.8% in 2022 - driven by increased costs - primarily in paid online traffic acquisition costs, including SEM, the substantial majority of which was incurred within the Viator segment. We expect the margins to fall in 2024 due to lower margins seen in the Tripadvisor Core segment so far this year. Going forward, we expect margins to stabilize at 16% by the end of our forecast period. There could be an upside of 10% if the margins improve to around 19%.

BUSINESS SUMMARY

Tripadvisor is a leading online platform for travel-related reviews, aggregating 1 billion reviews and opinions about 8 million hotels and other accommodations, destinations, restaurants, and activities. According to the third annual Access America Vacation Confidence Index, 60% of American consumers say they factor other travelers' online reviews into their plans when booking a vacation. Benefiting from the trend and capitalizing on the traction gained from users, Tripadvisor continues to introduce travel planning tools on its websites to act as a definitive resource for travelers.

Tripadvisor branded websites include tripadvisor.com in the United States and localized versions of the website in 40 markets and 20 languages worldwide. With rich user-generated content, Tripadvisor has valuable monetization opportunities. Travel businesses can advertise on Tripadvisor's platform and benefit from its large audience and global reach. Tripadvisor derives most of its revenue from the sale of advertising, primarily through click-based advertising and to a lesser extent, display-based advertising. The remainder of Tripadvisor's revenue is generated through a combination of subscription-based offerings, and content licensing. It also offers deals on top hotels at lucrative discounts. Tripadvisor has diversified its geographical mix in the past few years with the contribution of its U.S. operations declining from 82% in 2008 to to 67% in 2023. Long-term revenue growth is expected to be driven by expanding traffic and user-generated content.

Of late, Google has upgraded its travel search tools in recent years to compete with trip booking websites like Tripadvisor and Booking Holdings. Google is pushing its own hotel products in search results and siphoning off quality traffic that would otherwise find Tripadvisor via free links and generate high margin revenue in its hotel click-based auction, which is now leading to the revenue decline in this segment.

During Q2 2022, management realigned its business segments into TripAdvisor Core, Viator, and TheFork, the last two of which are wholly owned brands.

SOURCES OF VALUE

Tripadvisor's global reach is highly attractive to advertisers

Tripadvisor maintains a global presence both through the reach of its global portfolio of ~30 websites and through its in-market staffing in more than ten countries. The flagship Tripadvisor brand operates websites in 40 countries in 20 languages. Its core Tripadvisor platform and many of its other brands are uniquely positioned to appeal to travelers globally and strive to provide universally relevant content and community. Since 2013, the company focused on enhancing its brand image in emerging markets by incorporating more local language content to drive higher user engagement.

The sheer scale and reach of Tripadvisor should help it command attractive rates from advertisers seeking placements on Tripadvisor websites.

Facebook partnership continues to boost traffic as travelers increasingly use social media to access travel information

Consumers are increasingly leveraging social networks for research before making purchases for any product including travel. Trefis sees social media, such as Facebook, being used heavily as a means to communicate and exchange travel information and opinions. The trend can create strategic growth opportunities, allowing Tripadvisor to attract new consumers and develop unique and effective advertising solutions.

KEY TRENDS

Core Business Seeing Weakness

Revenue for Tripadvisor’s flagship brand and largest business is declining at an increasingly fast rate - mostly its legacy hotel metasearch product, which saw a 10% year-over-year decline in revenue in the second quarter of FY 2024 to $250 million. The decline is driven by ongoing pressure on the metasearch businesses, paired with recent changes in Google’s travel search results pages.

The company is transitioning from its historical reliance on legacy offerings such as hotel meta, which has experienced ongoing pressure over time to a more diverse and sustainable model. While Brand Tripadvisor saw a decline, Tripadvisor’s other two businesses are growing.

Growing global travel market and online penetration

Recent historical trends show that each year, an increasing percentage of global travel spending has been conducted online through supplier websites and online travel agencies. The trend is expected to continue as online penetration continues, mobile smartphones and other devices continue to proliferate, and travel grows along with an expanding middle class in certain developing countries like China and India.

The Internet is expected to become increasingly integral to the travel planning process due to increasing worldwide online penetration, particularly given the capability that the internet provides travelers to refine searches, compare destinations, and view real-time pricing. With internet penetration currently estimated at 50% globally (88.5% in North America, over 90% in Europe, ~ 70% in Latin America, and ~ 40% in Asia), Tripadvisor has the potential to grow in all markets.

Increasing online advertising spend

The global online advertising market is growing as advertisers continue to shift their spending from offline to online channels, mirroring the trend in consumer media consumption.

Given the size of the travel market, travel providers and travel-related advertisers will continue to be motivated to devote significant resources to advertise their travel products and services. In addition, as more travel dollars are spent online generally, an increasing amount of travel advertising spending is expected to migrate from traditional offline advertising channels to online advertising opportunities.

Growing mobile travel spend

Tripadvisor has been investing heavily in its mobile platforms such as GateGuru mobile and tablet applications. The company introduced the Facebook log-in functionality and launched its new iPad application a few years back.

AI Trip Planner Performing Well

The company is seeing early positive signs with its AI-powered trip planner. Travelers who have used the tool have generated an average of 15 times more revenue than TripAdvisor’s platform-wide average. Tripadvisor added 20 new languages to the tool and 30 new regions in Q2 2024. The company has updated its app recently, including a new home screen to encourage trip planning and emphasize the experiences business. The company also scaled AI-powered review summaries for restaurants and experiences.