TripAdvisor Inc (NASDAQ: TRIP) could face challenges due to Online Travel Agent (OTA) rationalization trends and a tough competitive backdrop, while valuation appears to be aggressive, according to Guggenheim analysts.
Guggenheim’s Jake Fuller downgraded TripAdvisor from Neutral to Sell with a $40 price target.
OTAs are "tilting" from room nights to margin, which has undermined meta channel growth and put the company in competition with OTA advertisers like Trivago NV (NASDAQ: TRVG) to “own” the traveler, Fuller said in a note.
While TripAdvisor has stabilized its core business, there is potential estimate risk if OTAs continue to “squeeze for efficiency,” the analyst said.
There is also a tough competitive backdrop for the company as Trivago’s ad spend is ramped up, said Fuller, who expects Tripadvisor's ad spend to fall 4 percent this year.
Another issue is the ramp of Alphabet Inc (NASDAQ: GOOG)’s own hotel metasearch efforts. Google’s hotel ads enjoy prime placement above organic links and it doesn't have to acquire traffic, he said.
“It is hard to see how TRIP can maintain or grow share unless it is willing to reverse course and aggressively ramp brand spend or unless it gets some sort of regulatory relief in terms of GOOGL's placement above organic links.”
TripAdvisor’s valuation also seems “excessive” for a company with no history of growth and an uncertain trajectory, Fuller said.
At time of publication, shares of TripAdvisor were trading around $48.68. The stock had also received an upgrade to Outperform from Macquarie analysts.
Argus: Booking Holdings Has 20% Upside Potential
A Travel Pair Trade: Sabre And Travelport
See more from Benzinga
- Analyst: UPS Network Overhaul Could Improve Margins
- DA Davidson: Louisiana-Pacific 'Compelling' Despite Pricing Headwinds
- Juniper Networks Faces 'Ongoing' Business Pressures, Credit Suisse Says
© 2018 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.