TripAdvisor Posts Strong Growth As Meta-Display Headwinds Dissipate

| About: TripAdvisor Inc. (TRIP)

The world’s largest online travel review company, TripAdvisor (NASDAQ:TRIP), posted revenues of $212.7 million in the final quarter of fiscal year 2013. Click-based advertising revenue increased by 17% year on year and accounted for 68% of total revenues. The business benefited as TripAdvisor’s meta-display platform approached revenue neutrality in December, owing to an increase in pricing and conversion rates. We will talk about meta in detail in this article. [1] [2]

TripAdvisor’s display-based advertising revenues jumped by 46% in Q4 to $32.5 million, due to certain seasonal purchases from advertisers. Its subscription, transaction and other revenues also grew sharply to $35.7 million, registering a 53% rise over the year-ago period. This was driven by pricing and productivity improvements in business listings, and by increased brand awareness, inventory and transactions in vacation rentals. [1] [2]

In Q3, TripAdvisor tested and rolled out its ad campaign in the U.S. However, the bulk of its TV marketing spend shifted to Q4, as the company began targeting international markets near the end of the third quarter. Consequently, the adjusted EBITDA margin fell to approximately 25% in the fourth quarter from 41% in the third quarter and 38% in the year-ago period. The impact also trickled down to the bottom line. The company’s net income shrunk to $20 million, posting a sequential decline of about 65%. [1] TripAdvisor’s management conveyed that it is not really focused on margin expansion and that it will continue to make investments in those prospects that have the potential to drive long term growth. [2]

We are in the process of updating our $80 price estimate for TripAdvisor based on the recently announced results.

Meta-Display Approaches Revenue Neutrality

Earlier, users had to click through to an advertiser’s website in order to view hotel pricing and availability information. TripAdvisor launched a new meta feature in Q4 2012, that collates and displays this information from top advertisers on its own website. Although this has lowered the number of leads sent by TripAdvisor to its advertisers, the leads are more qualified and have better conversion rates, as travelers are now more likely to click on the advertiser’s link for booking rather than just seeking information.

The better quality leads allowed TripAdvisor to increase its advertising rates. Despite this, the meta platform was unable to achieve revenue neutrality until Q3 as fewer leads were being sent to advertisers than before. Advertisers were wary of the transition to meta-display, and therefore, were conservative when bidding on the new platform. During the Q4 earnings call, TripAdvisor’s management said that the meta feature approached revenue neutrality in December last year. This was achieved through a combination of higher ad pricing and better conversion rates. Pricing improved through the quarter as competition among advertisers to gain visibility in the meta platform lifted bids, while conversion rates improved as more users returned to make purchases. [2]

TripAdvisor’s vast user base is its key growth driver as it attracts many advertisers. Monthly unique visitors to the company’s websites grew by 50% year-on-year in Q4 to 260 million. [1] We believe that meta will help TripAdvisor to further expand its user base as it enhances overall user experience. We also believe that it will provide a boost to the ad revenue earned by the company per page view as users start making more purchases and competition on meta heats up further.

Mobile Monetization To Improve Through 2014

TripAdvisor’s mobile traffic as a percentage of total traffic nearly doubled last year to 40%. The number of downloads for its app also grew by about 150% to 82 million. [1] Although mobile is becoming an increasingly important source of traffic for the company, its monetization on smartphones is only 20% of that on desktops. The main reason for this is the smaller screen size that makes it difficult to feed in data, and hand-off issues that occur while navigating to a travel supplier’s (advertiser) website.

The hand-off issue is a more pronounced problem for TripAdvisor as the meta functionality creates friction when users want to move back and forth between advertisers’ and TripAdvisor’s content. The company announced in October that it will begin taking direct bookings on mobile in 2014 to reduce this friction. The platform is called Assisted Book since it will allow users to book with TripAdvisor in addition to other OTA options. Completing the booking with TripAdvisor itself will also increase the likelihood of the transaction being successful. According to the management, building the Assisted Book platform will be the key focus for TripAdvisor in 2014 just as meta-display was in 2013. [2]

The percentage of travelers using a mobile device to search for travel related information has gone up from 8% in 2009 to 38% in 2012 for leisure travelers and from 25% to 57% for business travelers. [3] Therefore, we believe it is important for TripAdvisor to efficiently monetize on the mobile platform. The company’s drive to remove the friction associated with mobile bookings should help it do so. To learn more about the initiatives TripAdvisor took in 2013 to enhance the mobile experience for users, read our article: TripAdvisor’s Drive To Remove The Friction Associated With Mobile Bookings Will Lift Smartphone Monetization Levels

Outlook for 2014

Click-based ad revenue: Growth in low 20s (excluding the effect of TV ad campaign and Assisted Book)

Display-based ad revenue: mid to high teens

Subscription, transaction and other revenue: low 50s


  1. TripAdvisor Reports Fourth Quarter and Full Year 2013 Financial Results, TripAdvisor Investor Relations, February 11, 2014
  2. TripAdvisor’s CEO Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, February 11, 2014
  3. The 2012 Traveler, Google and Ipsos MediaCT, Travel Daily News, January 04, 2013

Disclosure: No positions