‘Instant Booking’ a bad trip for consumer stock

TripAdvisor Inc. has been labouring to get its new Instant Booking feature humming smoothly. TripAdvisor wants to morph its travel website’s earnings toward bookings commissions from merely click-based revenue from referrals. Its ‘travails’ have given the consumer technology stock’s share price a beating since the beginning of 2016.

Consumer StockTripAdvisor Inc. (NASDAQ—TRIP) provides travel related services. Its website offers reviews on restaurants, hotels and tourist destinations. Its revenue comes from providing advertisement space on its website as well as through commissions on bookings.

But the ride for TripAdvisor could continue to be turbulent since the Needham, Mass.-based consumer stock has had issues with rolling out its Instant Booking model.

In fact, New York-based UBS Securities analysts Eric Sheridan, Andrew Teutli-Vadhein and Benjamin Miller recently dropped their target share price but maintain a “neutral” rating on the stock.

The company’s Instant Booking initiative allows suppliers to put inventory into its hotel meta-search engine. But TripAdvisor’s effort to transition to a booking site model from a media-advertising model has been, well, a bit of a bumpy ride.

According to Messrs. Sheridan, Teutli-Vadheim and Miller, TravelAdvisor’s stock is down a whopping 36 per cent over the trailing 12 months compared to the S&P 500 Index average gain of 14 per cent over the same period.

The analysts, in fact, reduce their projection for the consumer services stock’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) this year to $275 million from $350 million, and they slash their adjusted EBITDA projection for 2018 to $386 million from $425 million.

For 2017, the analysts’ revenue estimate is $1.66 billion from $1.65 billion and their earnings per share (EPS) projection is lowered to  $0.95 from $1.33. Meanwhile, they boost their revenues estimate for 2018 to $1.95 billion from $1.86 billion, and their adjusted EPS estimate for 2018 to $1.43 from $1.66.

Messrs. Sheridan, Teutli-Vadheim and Miller explain that TripAdvisor sees 2017 as an investment year to push Instant Booking awareness and adoption, and they say that they will continue to assess the rate at which the travel sector comes on board.

“We look to the first quarter EPS call as an opportunity for management to address the key debates of the true scope of investments needed to successfully execute the transition to a better monetized operating model and what are the outputs of those investments in terms of the potential for an improved cadence of traffic growth, conversion and robust monetization,” say the UBS analysts.

The analysts maintain their “neutral” recommendation but reduce their 12-month target share price to $45 from $48. 

This is an edited version of an article that was originally published for subscribers in the May 12, 2017, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.

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