TripAdvisor’s (TRIP) fourth-quarter revenues grew 8% YoY (year-over-year) to $346 million and beat analysts’ forecast of $342.8 million. A strong performance by the Non-Hotel segment mainly drove the company’s total revenues. However, continued weakness across the Hotel segment partially offset the overall revenue growth.
TripAdvisor’s Non-Hotel segment includes revenues generated through vacation rentals, restaurants, and attractions. The travel agency’s fourth-quarter Non-Hotel revenues rose 38% YoY to $106 million and contributed 31% to the company’s total revenues. The segment’s strong growth more than offset the 2% revenue decline registered in the Hotel segment. The Non-Hotel segment helped TripAdvisor report an 8% YoY increase in its overall sales.
TripAdvisor’s Non-Hotel segment is benefiting from increased global consumer spending mainly in the United States. The improving GDP growth rate, a healthy job market, and a steady rise in wages increased consumers’ disposable income. With more money in hand, consumers tend to spend more on vacations, eating out, and entertainment.
The company’s Non-Hotel segment has grown rapidly over the last five years. The segment’s yearly revenues have increased from $46 million in 2013 to $458 million in 2018. Analysts expect the company to continue to benefit from strong US economic growth. Analysts expect TripAdvisor’s non-hotel revenues to grow 20.3% YoY to $551 million in 2019.
What’s troubling the hotel business?
Hotel revenues, which account for ~69% of TripAdvisor’s revenues, fell 2% YoY to $240 million in the fourth quarter due to a 20% fall in other hotel revenues. For fiscal 2018, the Hotel segment’s revenues were $1.16 billion—down 3% from 2017.
The Hotel segment’s lackluster performance is mainly due to intensified competition from global players like Expedia (EXPE) and Ctrip.com International (CTRP) as well as regional and local players. To retain the market share, TripAdvisor had to lower its price and spend significantly on marketing. Reduced pricing and higher expenses hurt the Hotel segment’s revenues and profitability.
Online travel agencies (IYW) are also facing a massive challenge from Alphabet (GOOGL), which is aggressively enhancing its own travel products. Hotel owners are insisting that customers book rooms directly through their websites, which helps them save money by avoiding paying commissions to online booking sites.