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TripAdvisor's Investor Presentation: Calling Out Google and Predicting Growth Ahead

Demitrios Kalogeropoulos, The Motley Fool

TripAdvisor (NASDAQ: TRIP) is still figuring out how it wants to make money. The travel booking specialist has struggled to monetize its huge content platform in recent years, and those issues continued to impact results in its latest earnings report. Sales slipped for the second consecutive quarter, in fact, and are down through the first half of 2019.

Yet the company predicted a return to growth for its core hotel segment in just a few months while affirming plans to significantly increase profitability. CEO Steve Kaufer and his team explained the rationale behind those forecasts in a conference call with investors, and below are a few highlights from that presentation .

A couple on vacation in the tropics.

Image source: Getty Images.

The core business is still shrinking

Management noted, "Hotels revenue decreased primarily due to performance marketing optimizations throughout last year and, to a lesser extent, adverse changes in foreign currency and lower SEO revenue."

Revenue from the hotel booking segment fell for the second straight quarter and underperformed expectations yet again. Part of the slump can be pinned on management's choice to scale back on lower-returning marketing spending. That move is making the business far more efficient, with a 27% spike in adjusted earnings leading to a 43% margin compared to 31% a year ago.

TripAdvisor blamed Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google for some of the decline, too, saying the company is unfairly promoting its own hotel booking products in search results at the expense of organic rankings. Management indicated that the move is anti-competitive, calling it "a practice we anticipate will receive increased focus from regulators" in the future.

Experience products are in investment mode

We could choose to operate [the experiences] segment closer to enterprise-level profit margins today; however, we believe investing in platform expansion to capture market share and long-term growth is the best way to maximize future profits and shareholder value. -- Kaufer

The 28% revenue spike in TripAdvisor's bookable experiences segment nearly offset the 7% drop in its core hotel business. That division continues to impress, with sales up 28% over the first half of 2019. Its $206 million of revenue accounts for 26% of all sales today, compared to 20% a year ago.

But the division is far from a reliable profit source, and executives said investors can expect that weakness to continue as they prioritize achieving scale over short-term earnings.

Getting back to growth

Said management, "Looking ahead, we expect [hotel] adjusted [earnings] growth in both Q3 and Q4 ... and we target returning to [hotel segment] revenue growth in Q4."

TripAdvisor's outlook calls for a return to hotel revenue growth late this year to mark its first expansion since late 2018. Combined with a slight slowdown in the experiences segment, that outlook implies modest overall sales gains over the next few months while profits continue rising at their double-digit pace.

Looking further out, management took time to lay out the case for its advertising business becoming a major growth driver in the next few years. Comparing itself to other platforms with large, engaged user bases such as Spotify and Yelp, the company suggested that its $153 million of annual ad revenue could approach $1 billion over the long term after passing $300 million in the next three to five years.

That prospect sounds attractive, but the ad business grew by just 5% this quarter, so investors are better off focusing on TripAdvisor's established revenue sources, which today only seem able to deliver either higher sales or increased profits -- but not both.


Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Demitrios Kalogeropoulos owns shares of TripAdvisor. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and TripAdvisor. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com