uploads///Margins

Can TripAdvisor Expand Its Margins in 2016?

By

Aug. 8 2016, Updated 3:06 p.m. ET

1Q16 performance

TripAdvisor’s (TRIP) adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) decreased from $123 million in 2Q15 to $95 million this year, a decline of 23% YoY (year-over-year). Its EBITDA margin also declined to 24%, as compared to 30% in 2015.

The company’s Hotel segment’s EBITDA declined by 16% to $105, as compared to the 4% decline we saw in 2Q15. The segment’s EBITDA margin declined to 33%, as compared to 36% in 2Q15. The non-Hotel segment EBITDA declined to -$10 million, with an EBITDA margin of -13%

TripAdvisor’s Margins were impacted by revenue decline and cost increases.

Article continues below advertisement

Cost increases

TripAdvisor continues to invest heavily in its business. As a result, the company has high online traffic acquisition costs and increased television advertising cost. Selling & marketing costs have increased to 52% of sales, as compared to 47% in 2Q15 and 49% in 1Q16.

As a result, net profits declined by 41% to $34 million, as compared to $58 million in 2Q15.

Outlook

For 2016, TRIP will continue making investments for future growth, which will include increasing supply, content, and marketing. However, as its IB (instant booking) platform deployment nears completion in all geographies, some investments should ease off, though lower monetization rates will continue to be a significant headwind.

In addition, TRIP will continue to sign up new partners to make the platform useful for its users. As a result, expenses are expected to grow at a faster pace than revenues. This will continue to strain TRIP’s profitability in 2016.

However, TRIP’s management expects its long-term growth story to be intact. As CEO Stephan Kauffer said, “We continue to play the long game as we navigate our business to deliver the best user experience in travel.”

Notably, TripAdvisor indirectly competes with Priceline (PCLN) and Expedia (EXPE). It recently formed a partnership with PCLN and major hotel chains like Marriott (MAR) and Wyndham (WYN). TRIP makes up 1.6% of the First Trust NASDAQ-100 Ex-Tech Sect ETF (QQXT).

Advertisement

More From Market Realist