EUR 850.00 For Business Accounts Only

Morningstar | TripAdvisor's Activities Lead Intact, While Macro and Marketing Headwinds Weigh on Near-Term Sales

We see two key takeaways from narrow-moat TripAdvisor's first quarter that included new segment disclosures. First, branded hotel platform (57% of total sales) revenue was down 0.5%, a bit below our prior segment branded click platform (which included flight and excluded sponsor ads) estimate of 2% growth. We attribute this to softer international demand, as auction pricing was stable, and lower marketing expense of 47.3% as a percent of sales versus our 49.5% estimate and 52.4% last year, which drove less traffic for the company. Still, hotel segment EBITDA margin was a robust 41% versus 30% last year, showing the underlying health of the business, as does the continued improved monetization in both mobile and desktop (unquantified).

Second, the company maintains a strong leadership position in the large and growing experiences and dining market, witnessed by sales lift of 29% (35% constant currency) on top of a 51% comparison, comfortably ahead of the roughly 20% market growth. Market share gains are supported by TripAdvisor's 1.1 million experience listings (ahead of the 25,000 plus at both Expedia and CTrip) with online bookable content growing 94% to 202,000 listings. And the long-term growth outlook remains attractive, as the tours and activity $120 billion market (around $170 billion when factoring in other travel activities like sports and music) is only 20% penetrated online, with TripAdvisor having only a low-single-digit online booking share, according to our calculation.

We plan to adjust our 9% 2019 sales growth forecast down toward 6%, to account for macroeconomic pressure, but maintain our low-double digit EBITDA growth estimate for the year, due to stronger market efficiencies. We also plan to maintain our five-year outlook for sales and EBITDA growth averaging around 10%. As a result, we don't plan a material change to our $60 valuation and see the low-double-digit percent pullback in shares post results as overreaction to transitory pressures.

TripAdvisor's network advantage remains intact. Total reviews grew 20% to 760 million, while hotel and rental content lifted 8% and 14%, respectively, to 1.3 million and 914,000. In addition to the 1.1 million travel activities, which grew 17%, TripAdvisor also saw a 9% increase in restaurant listing to 5 million with online bookable content at 61,000 establishments, up 27%, an acceleration from the 23% growth last quarter. Also, TripAdvisor's 411 million average monthly unique visitors remains very tough for others to replicate.