TripAdvisor's Meta-Display Platform Approaches Revenue Neutrality

| About: TripAdvisor Inc. (TRIP)

TripAdvisor (NASDAQ:TRIP) said during its most recent earnings call that its meta-display feature approached revenue neutrality in December last year. [1] Launched in Q4 2012, the meta feature displays room prices and availability from top advertisers, such as Expedia (NASDAQ:EXPE) and Priceline (NASDAQ:PCLN), on TripAdvisor's website. The transition to this new feature had negatively impacted bidding activity from many advertisers in the past few quarters, which weighed on TripAdvisor's top-line growth. We are encouraged by the recent development and expect the company to benefit as the platform grows its scale. We have a $83 price estimate for TripAdvisor's stock, about 15% lower than its market price.

How Does The Feature Exactly Affect Bidding By Advertisers?

Earlier, users had to click through from TripAdvisor's site to an advertiser's website in order to view hotel pricing and availability information. Meta-display 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 have allowed TripAdvisor to increase its advertising rates. However, the transition took time. The meta-display platform initially was unable to achieve revenue neutrality 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. The meta transition dragged down TripAdvisor's top-line by approximately 3%-5% in Q1 2013. The impact was more magnified in Q2 and Q3 at 6%-9% and 9%-12%, respectively, due to a broader roll-out of the feature across PCs and tablets.

Meta Will Help Enhance User Base And Revenue Per Page View

Meta achieved revenue neutrality in the December quarter through a combination of higher ad pricing and better conversion rates. Pricing improved through the fourth 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. [1] We expect this trend to continue going forward.

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 the meta platform will help TripAdvisor to further expand its user base as it enhances overall user experience by addressing queries on a single page.

Meta will also provide a boost to the ad revenue earned by TripAdvisor per page view as users start making more purchases and competition on meta heats up further. Furthermore, the feature will help the company to compete more effectively with Priceline's Kayak and Expedia's Trivago, the meta-search market leaders in the U.S. and Europe, respectively.

Disclosure: No positions.

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