This New Development Might Lead To Significant Upward Revision Of TripAdvisor’s Stock Price

December 27th, 2016 by Trefis Team
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Though TripAdvisor’s stock is currently trading at a yearly low, on account of the company’s struggles to generate adequate user interest for its Instant Booking platform, however, the latest development of Expedia joining Instant Booking and hence the platform now housing both Priceline and Expedia, along with the biggest hotels, might indicate that TripAdvisor is, after all, on the right track. Once Instant Booking gains traction and consequently, TripAdvisor’s revenues per hotel shopper goes up, we can expect TripAdvisor’s profitability to rise significantly. This might lead to a major rise in TripAdvisor’s stock price.

TripAdvisor’s revenue per hotel shopper is currently so low that most of its peers are earning almost 4-5 times more revenue per shopper. This has been one of the major reasons that led to the stock price reduction for the company. TripAdvisor’s stock price is currently trading at around its 52-weeks low. However, we can safely assume that Expedia joining TripAdvisor’s Instant Booking platform does sound like  positive news for TripAdvisor.

Expedia joining TripAdvisor (though only in the U.S. desktop sites for now, we can expect a global roll out in the future), after Priceline’s Booking.com, gives TripAdvisor a unique advantage of housing three of the world’s largest OTAs:  Priceline, Expedia, and Tripadvisor, on the same platform. This is excluding the impact of having most of the popular independent hotels and 8 of the top 10 global hotel chains on the platform as well. The choice that Instant Booking will now offer to its customers, coupled with the advantage that users will enjoy of comparing and selecting from the lowest prices, means an unprecedented amount of options for the traveler to choose from.

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The transition from a metasearch and reviews platform to an online booking site does have some teething issues, coupled with that is the problem of mobile conversion, i.e., though more people visit the website through mobile, the conversion to a confirmed booking from mobile is far less than that of those from desktop sites.

The company is still rolling out the Instant Booking with better user experiences and roping in more hotels, which means the additional investments will continue keeping its margins dampened even in the fourth quarter. However, from a long-term perspective, TripAdvisor does look like a profitable stock. Hence, if we assume that after the initial investments and transitioning issues, TripAdvisor’s Instant Booking does prove to be a major hit, then TripAdvisor’s profitability, and hence its EBITDA margin, can receive a significant positive boost. We currently expect TripAdvisor’s EBITDA margin to increase from close to 27% in 2016 to ~28% by the end of our review period. However, if the EBITDA margin increases to 32% on account of the returns on all the investments that TripAdvisor is currently making, especially on Instant Booking, then there can be around a 15% upward revision to our current stock price estimate for TripAdvisor.

Have more questions about TripAdvisor? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for TripAdvisor

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