TripAdvisor's (NASDAQ:TRIP) quarter once again confirmed my belief that 2016 will be another year of investment, given that Instant Booking (IB) has yet to be fully deployed and that the platform still needs additional partners to be signed on. Despite the greater level of investment and the near-term challenges that the company is facing, I believe long-term improvement in customer experience and transactional efficiencies will drive meaningful revenue growth trajectory, as users can seamlessly conduct hotel bookings. That said, I still consider TRIP quite attractive at 15x 2017E P/E when looking at the long-term growth prospects for the company.
Revenue of $309m, +7% y/y, and EPS of $0.45 both came above consensus. The attack in Paris last year resulted in a 1.5-2% hit on revenue, but we could see gradual recovery as tourism resumes. Click-based revenue was down -1% versus +6% in the prior quarter. EBITDA of $87m was largely in line. Management stopped giving out formal revenue and EBITDA guidance, but provided some directional color on its Hotel and Other segments that I find to be quite helpful. First, hotel and click-based revenue growth is expected to be soft and likely to decelerate given the Instant Booking rollout and the tough comps. Management is more optimistic on the second half as the IB rollout in both the UK and the US takes effect. Notably, downstream conversion between meta and IB are close to parity, and we see continued improvement in IB conversion, with monetization/commissions remaining healthy at low-double digit rates, suggesting that there is limited dilution from arranged deals. Second, the growth in number of travelers returning to TRIP to book on IB remains healthy, and IB is now 50% of mobile revenue in the US. Given that average booking value continues to improve in the low-double digits and 10% of bookings are made by repeat customers, we could see an acceleration in IB metrics in the latter half of the year.
On the same token, the EBITDA margin is likely to remain depressed due to the IB rollout. The Other segment is likely to be consistent with that of last year, but the EBITDA margin will also remain depressed on higher opex commitment. Management is quite bullish on the growth outlook for this segment. So am I, but I acknowledge the fact that near-term spending will keep EBITDA in check.
Finally, supplier relationship appears to be solid with 8 of the top 10 hotels, and Priceline (NASDAQ:PCLN) is already on the IB platform. In addition, Expedia (NASDAQ:EXPE) made several positive commentaries about the quality of the platform, and this reinforces my view that IB will continue to gain traction among the suppliers.
I don't think the market gives IB enough credit given the near-term spending and slower-than-expected ramp up, but positive signs are evident from this quarter's results. TRIP remains a stock for long-haul investors, and I would be more constructive after Q2 as we get better visibility later in the year.
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