TRIP Stock Forecast: A Light of Dawn or a Flash in the Pan

 

The article was written by Amber Zhou, a Financial Analyst at I Know First.

TRIP Stock Forecast

“The travel category is indeed enormous and outpacing other consumer spending worldwide, and TripAdvisor not only inspires travel, but also causes more travel – in particular by encouraging travelers to take longer trips by showing them how much more there is to see and do.” – Charlie Ballard, director of strategic insights, TripAdvisor

(Source: Wikimedia Commons)

Highlights:

  • Solid start of 2018 – a cheerful bottom-out
  • Rapidly scaling non-hotel segment from supply acquisition initiatives
  • Concerns remain on the shrinking hotel segment
  • Current I Know First Algorithm bullish forecast for TRIP

Cheerful Bottom-Out

TripAdvisor, Inc. (NASDAQ: TRIP) is an online travel company that enables users to research, plan and make reservations for their travel experience via its online platform by featuring reviews and opinions on destinations, accommodations, restaurants and activities and attractions. The stocks of the leading player in the online travel space is finally on the track of recovery since its significant dip on November 9, 2016, when its Q3 revenue failed to meet the estimates. Up to June 8, 2018, TRIP’s stock has gradually rebounded 89.29% since it hit bottom price $29.5 in last November and has surged 55.71% since entering May. A few days ago, on June 5, the price reached $57.94 and refreshed the 52-week high again. Around 3.77 million shares were changing hand on that date while the average trading volume is only 2.68 million.

The sudden growth was primarily a result of Tripadvisor’s positive Q1 performance released on May 9. Since late 2016, the company has been facing challenges due to the up-trending use of mobile devices as well as its resulted strategic transition from a pure travel-review site to a direct-booking platform. While there is only 2% growth, the top line figure already beat all analysts’ estimation and may be an indication of a successful following bottoming out of its struggling business.

Rapidly Scaling Non-Hotel Segment

The overall $378 million rise in revenue was substantially contributed by the accelerated Non-Hotel segment growth. Among the three divisions of this segment, Experiences (formerly Attractions) and Restaurants, for which bookable products and offerings are built in the platform, were the major growth drivers while Rentals remains stable. According to figures released during the quarterly conference call, the supply amount of bookable experiences soared 86% to 104,000 and number of seated diner also grew 30%.

Exhibit: Non-Hotel Segment Revenue (in millions, except percentages)

(Source: Investors Relations Presentations)

It is evident that the company’s supply acquisition and onboarding initiatives are making serious differences and showing positive signals from the improved operating efficiencies and profitability. The theoretical rationale behind this strategy is simple but sound. As people are switching from desktop to mobile devices, the probability and frequency of online self-planning and booking continues to increase. That is where the demand for Tripadvisor’s Non-Hotel segment comes from. Once the supply side keeps up with the growing pace, along with the well-established awareness and reputation of the platform, the downstream traffic would be captured and monetized.

(Source: Investor Relations Presentation)

Based on the supply and demand analysis above, it is reasonable for us to believe the current revenue growth for Non-Hotel segment is both scalable and sustainable.

Concerns on the Shrinking Hotel Segment

Despite the great news brought from the Non-Hotel segment, the Hotel segment, originally TRIP’s core business, remains as a big concern for investors since the declining trend has yet been reversed and revenue continued to drop 5%. This could be caused by the intense competition in the market from multiple online hotel-booking giants, including Booking and Expedia and the shift towards mobile usage.

(Source: Skift)

However, if we look at the accounting measures carefully, the company did make achievements in stabilizing its operating performance. Specifically, the adjusted EBITDA margin finally made a rally because of the improved efficiency of its online marketing investment initiatives since 2017. With ongoing TV ads campaign and material cut of non-TV marketing spending, the adjusted EBITDA margin has rebounded from 16% in Q3’17 to 29% in the latest quarter. The efficiency enhancement leads to a flat profit even with the presence of a declining revenue.

Exhibit: Quarterly Adjusted EBITDA Margin

As stated in Tripadvisor’s prepared remarks, as the company started initiating the second half 2017 changes their partners made to the online marketing efficiency targets later this year, a recovery of the click-based revenue could be expected.

Current I Know First Algorithm Bullish Forecast for TRIP

Below is the latest 3-month forecast I Know First algorithm released as of June 10, 2018.  I Know First provides a bullish signal for TRIP, which agrees with the discussion above.

How to read the I Know First Forecast and Heatmap

Conclusion

From Tripadvisor’s boosting Non-Hotel segment and gradual and steady recovery of its hotel segment, it is reasonable to conclude that the growth until now has been grounded and solid. Further, the company sent positive signals by repurchasing its shares early in February (normally because it thinks its shares are undervalued) as well as increasing its targeted EBITDA growth. Both indicate strong confidence for its future. Although the challenges from the competitive market and growth in mobile devices have not faded away, it is safe to say that with a variety of ramping initiative, the online travel leader is making their way to comeback.

 

Subscribe to I Know First’s Daily Market Forecast

Please note-for trading decisions use the most recent forecast. Get today’s forecast and Top stock picks.