TRIP Stock: This Could Be a Big Problem for Tripadvisor Inc

Lackluster Results Putting Pressure on TRIP StockLackluster Results Putting Pressure on TRIP Stock

Tripadvisor Inc (NASDAQ:TRIP), a company previously known for its online traveler reviews platform, is now allowing users to book hotel accommodations directly after a search. Will this be enough to reverse the course of TripAdvisor stock?

This instant booking system was first tested in the U.S and in Britain, but it’s now becoming more ubiquitous, with hotel bookings accounting for 80% of its business. (Source: “TripAdvisor Misses Expectations as Hotel Revenue Falls,” The Wall Street Journal, August 3, 2016.)

This is both a boon and a curse. It’s a boon because TripAdvisor has earned a solid following and has found ways to beat specialized sites. It’s a curse in that TripAdvisor stock will suffer in the long run if the company does not diversify.

TripAdvisor needs something more substantial to save its falling stock. TRIP stock has lost 7.5%, disappointing the market with an increase in expenses and a decrease in hotel bookings. With 350 million users worldwide and annual sales of $1.5 billion, the U.S.-based online reservation agency and review site, like many similar companies such as Priceline Group Inc (NASDAQ:PCLN), has a challenge ahead: it must convert ever more visitors to its pages into actual bookings. The goal: attract visitors online, have them log into TripAdvisor, and convert those logins into instant reservations shortly thereafter.

TripAdvisor’s Instant Booking Service Excellent—In Theory…

While hotels are the company’s main business, it still has other sources of revenue, such as restaurant, bar, entertainment venue bookings of all kinds. In theory, this should have produced benefits to the group, but it has not. It seems many investors have lost confidence in TRIP stock, which has lost more than 25% year-to-date is almost at half of its $110.00-per-share peak as of 2014.

This begs the question, is TripAdvisor stock a buying opportunity?

The instant booking service certainly has its appeal. It means users can visit TripAdvisor for reviews on their favorite hotels—or other services—and make a direct booking in the same place, thereby bypassing the services of the “Expedias” and “Trivagos” of this world. This delivers the 12%–15% commission fee directly to TripAdvisor.

In theory, that’s an excellent premise, but many travelers, yours truly included, have discovered that calling a hotel in person can get you, the consumer, a better deal. This is because the hotel can work it out directly with the customer without worrying about covering a commission.

“Book” Button Key to TripAdvisor’s Revenues

TripAdvisor has formal booking mechanisms with eight major hotel chains. Among them, Accor, Marriott, Starwood, Hyatt, and Best Western are connected to the company’s instant reservation system. The establishments advertising on TripAdvisor have a “Book” button to complete the booking directly on the site. The group offers the same service for thousands of restaurants. It also has the “Viator” portal to book excursions, museum visits, and other leisure activities worldwide. In April, the company acquired the rentals site HouseTrip, an Airbnb competitor.

There is no question that intermediaries such as TripAdvisor have a strong following. More than half of all people booking trips do so online. The direct booking feature gives TripAdvisor the keys to connecting demand to supply.

However, the short sellers on TRIP have the upper hand now. Indeed, booking ease or not, while TripAdvisor drew in $316 million in hotel revenue in the latest quarter, it was still 7.9% less than a year ago. (Source: Ibid.)

The Bottom Line on TRIP Stock

This is the chronic risk for TripAdvisor stock. Hotels simply account for too heavy a portion of the company’s business. The company must show successful diversification in the next few quarters to warrant a recommendation. While Trip stock is certainly worth following, it may not have reached its bottom yet.