uploads/2017/11/Margin.png

Revenue Weakness Impacts TripAdvisor’s Profitability

By

Updated

TripAdvisor’s earnings fell

TripAdvisor’s (TRIP) 3Q17 adjusted EBITDA[1. earnings before interest, tax, depreciation, and amortization] declined 17.0% YoY to $95.0 million. Its revenues and margins decline contributed to its earnings decline.

TripAdvisor’s Hotel segment’s EBITDA declined 48.0% YoY to $51.0 million, due to its EBITDA margin’s decline from 30.9% to 16.3% in 3Q17. Its Non-Hotel segment EBITDA grew 193.0% YoY to $44.0 million, as its EBITDA margin improved to 34.6% compared to its 14.9% margin in 3Q16.

Advertising expenses add to pain

TripAdvisor (TRIP) is facing increasing competition from rivals such as OTA players Priceline (PCLN) and Expedia (EXPE). Both OTA players highlighted the increasing competition and the need to increase advertising spending.

Priceline’s performance advertising expenses increased 25.0% YoY to ~$1.2 billion in 3Q17. There were additional expenses for brand ads as well as sales and marketing. Both players have also lowered their 4Q17 guidance as a result.

TripAdvisor’s selling and marketing expenses increased 17.6% to $247.0 million. TripAdvisor’s management has been spending on its ads since its Instant Booking rollout.

Outlook

Apart from these factors, an increased number of TripAdvisor’s new customers are coming from mobile devices, where monetization rates are lower than those from desktop users. The volume growth in mobile hasn’t been enough to offset this difference.

The increasing competition and decreased monetization rates are expected to weigh heavily on margins. TripAdvisor has maintained its guidance of flat or down YoY 2017 earnings.

Investors can gain broad-based exposure to online travel stocks by investing in the SPDR S&P Retail ETF (XRT), which holds 1.1% of its portfolio in Priceline (PCLN), 0.85% in TripAdvisor, and 1.1% in Expedia (EXPE). It has no holdings in Ctrip International (CTRP).

More From Market Realist