Is TripAdvisor a Good Buy After 2Q12 Earnings?
Ashish is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
TripAdvisor (NASDAQ: TRIP) reported its 2Q12 earnings with consolidated revenue and non GAAP EPS of $197.1 million and $0.41 vs. consensus estimates of $203.2 million and $0.41 respectively. While TripAdvisor’s strategic changes to improve the quality of site traffic resulted in lower revenues, we believe that this will make TripAdvisor attractive to advertisers and will prove to be a long term positive.
Reduced SEM Spend on Low Converting Traffic:
TripAdvisor reported Q2 adjusted EBITDA of $96.9 million, above consensus estimates of $90.8 million. This could mainly be attributed to the reduced SEM spend on traffic that was converting at a lower rate for OTA customers. We believe that apart from increasing margins, this initiative would result in increased revenues in 2H12 due to improved click quality, which would improve advertiser ROI and hence CPC prices.
Shopper Growth Positive:
We believe that hotel shopper growth is an important metric for TRIP as it helps to determine the revenue generating potential for TripAdvisor’s business. In Q2, hotel shopper growth was a robust 30% YoY despite it being affected by the strategic changes from TripAdvisor to improve quality of site traffic. Furthermore, the management noted that the hotel shopper conversion rate in Q2 was higher than Q1 levels. We believe that the shopper growth would further increase in the coming months given TripAdvisor’s increasing user base and market penetration.
Growth in International Markets:
Revenue mix continued to shift towards international as total international revenue grew at a much higher rate than domestic revenues. We see this as a long term positive for TripAdvisor as it signifies a larger customer platform and less dependence on a competitive US market for revenues. Furthermore, we expect that the London Olympics will present a revenue headwind for TripAdvisor in Q3 with the high advertising and travel spend.
High User Growth:
TripAdvisor continued its tradition of increasing user engagement in Q2. At the end of Q2, TripAdvisor had over 75 million user reviews vs. 60 million reviews at the end of 1Q12. During Q2, TripAdvisor users made over 50 contributions per minute – a 25% increase from Q1’s 40. TripAdvisor management noted that users are spending more time on the website as well as interacting through mobile apps and social channels like Facebook, which is a long term positive for TripAdvisor as mobiles are expected to become the primary devices for internet usage.
TripAdvisor is the travel market leader when it comes to user traction and reach. The number of customer reviews on TripAdvisor is significantly higher than its closest competitor Yelp (NYSE: YELP), making it the best site for travel information. TripAdvisor is far ahead of both Expedia (NASDAQ: EXPE) and Priceline (NASDAQ: PCLN) as a travel information provider with over 570,000+ hotel and accommodation reviews. Although the revenues in Q2 missed consensus estimates, we believe that it was only because TripAdvisor decided to focus on long term objectives. As TripAdvisor seeks to become a high priority advertising platform with high click conversion rates, we see positive prospects for it in the future and hence we remain positive on this stock.
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