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TripAdvisor Shares Rose 8% Due to Strong Q3 Earnings Growth

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Earnings beat the estimates

TripAdvisor (TRIP) shares rose ~8% in the after-hours trading session on November 7. The company reported strong bottom-line results for the third quarter. TripAdvisor’s third-quarter adjusted EPS increased two-fold to $0.72—ahead of analysts’ expectation of $0.48.

On a GAAP basis, the company posted an EPS of $0.49 compared to $0.18 in the third quarter of 2017. The strong bottom-line results were mainly driven by higher revenues and better cost management, particularly S&M (selling and marketing) expenses. Notably, the S&M expenses for the quarter declined 16.6% YoY (year-over-year) to $206 million. According to the company, the decline was due to marketing optimization.

TripAdvisor’s recent results marked the third consecutive quarter of consistent and strong bottom-line growth. The company was lagging until last year. Notably, the online travel service provider beat analysts’ earnings estimates in all three of the quarters in 2018 and marked a significant YoY improvement.

Investors are confident about TripAdvisor’s business model, which is reflected in its YTD (year-to-date) share price performance. The stock has rallied 68.5% YTD. The stock has outperformed the SPDR S&P 500 ETF’s (SPY) returns. SPY has gained 5.3% during the same period.

Revenues

TripAdvisor’s third-quarter revenues grew 4% YoY to $458 million due to its Non-Hotel business segment’s strong performance. The growth was partially offset by the weak performance in its Hotel division. TripAdvisor’s third-quarter total revenues fell short of analysts’ forecast of $468.6 million.

The company’s Non-Hotel segment’s revenues rose 20% YoY to $153 million, while the Hotel division’s revenues declined 2% YoY to $305 million. The decline in the Hotel segment’s sales was due to a 1% decline in click-based ad sales and a 27% fall in other hotel revenues. The decline was partially offset by a 7% increase in revenues from display-based ads and subscriptions.

Management’s commentary and peers’ performance

Steve Kaufer, TripAdvisor’s CEO, said “We delivered a strong third quarter, delivering increased operating efficiency while investing for long-term profitable growth.” He also said, “Product enhancements, platform expansion and progressive marketing optimizations continue to hit the mark and contributed to improved financial results.”

TripAdvisor’s top peers had also witnessed strong YoY growth in their third-quarter EPS. Expedia Group (EXPE) and Booking Holdings’ (BKNG) third-quarter non-GAAP EPS grew 45% and 7%, respectively. On November 7, Ctrip.com International (CTRP) reported its third-quarter earnings per ADS of $0.42—$0.01 higher than the third quarter of 2017.

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