The web has transformed the travel industry, from online airline and hotel bookings to sites that compare prices and share reviews. Increased competition is leading to falling margins and travel sites need to plow money into advertising to keep and draw customers. We decided to review TripAdvisor Inc. (TRIP.O) and see if it’s headed in the right direction.
TripAdvisor pioneered the idea of an online forum for reviews of hotels, restaurants and attractions, but according to StarMine indicators, it’s likely to miss earnings expectations this quarter. The company will also likely face foreign exchange headwinds as more than half its revenues are generated from outside the U.S. TripAdvisor currently has a negative 6% Predicted Surprise.
Source: Eikon/StarMine
Gathering Opinions
As you can see in the chart above, analysts have been lowering estimates for TripAdvisor over the past 90 days; the I/B/E/S consensus estimate is now at 56 cents per share, down more than 10 cents in the past quarter. Analysts cite increased competition, higher advertising spending and the negative effect of the strong U.S. dollar, while acknowledging that the industry is still growing rapidly.
However, if we look at analyst recommendations, we see that there are 16 hold recommendation and just seven buy recommendations. There is even a Bold Estimate of 51 cents per share, an estimate by a highly rated analyst with a strong track history that’s far below the consensus, so pay attention to that!
Source: Eikon/StarMine
Reviews Are Mixed
The chart above shows that TripAdvisor’s operating margins have been trending lower over the last three years and are now at 27%, the lowest since the company went public in 2011. Increased competition and spending has accounted for those falling margins, but rising revenues have compensated, somewhat.
However, if revenue growth slows, then falling margins could affect earnings even more, and from the look of things, it looks like other players, including Expedia Inc. (EXPE.O) and Priceline.com (PCLN.O), are ramping up their efforts to attract customers.
TripAdvisor also gets 95% of its revenues from hotels, and competitors such as VRBO (vacation rental marketplace) and AirBNB (short term accommodation rentals) are likely to also add to the competition.
For the current quarter, a TripAdvisor earnings miss looks likely. Looking toward the future, the company will be traveling a competitive path in this fast-paced industry.
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