TRIP Stock: Here’s Why Macquarie is Wrong on TripAdvisor Inc.

TripAdvisor StockTripAdvisor Inc. (NASDAQ:TRIP) stock slumped over three percent on Tuesday after a Macquarie analyst downgraded TRIP stock from “outperform” to “neutral.” TRIP stock cratered in September to its year-to-date lows from the $90.00 highs it witnessed in the second quarter. However, it has since then regained some of its lost glory in the last week when it announced its partnership with The Priceline Group Inc. (NASDAQ:PCLN). The partnership news came as a blessing to TRIP stock investors as the stock surged over 23% in one day. But the latest downgrade by Macquarie has yet again left investors nervous.

Tom White expressed his concerns over TripAdvisor’s ability to monetize its Instant Booking service in the coming year and cut his price target for TRIP stock to $84.00 from his previous target of $86.00. According to the analyst, the company “may be giving up” monetization in order to induce higher consumer conversion rates. (Source: “Macquarie Sees ‘Turbulence’ Ahead for Trip Advisor,” Barron’s, October 28, 2015.)

The company, White believes, is now focused more on driving booking sales than just ads. The analyst himself believes this is a “correct strategy” but feels that it “may limit revenue upside” in full-year 2016.

I beg to differ.

TripAdvisor, which started off as a review web site, has now grown into a full-fledged travel planning web site. Today, as its tagline reads, TripAdvisor lets you “Read Reviews, Compare Prices, Book your Best Trip.” The company’s move last year to delve into the bookings service is proving a boon to its operations and its overall brand recognition in the online travel industry.  The company saw an attractive growth in content by 50% and saw an over 20% growth in monthly unique users in the most recent quarter. (Source: TripAdvisor Earnings Call Transcript,” SeekingAlpha, July 24, 2015.)

Its revenue growth is primarily expected to flow from its partnerships with big hotels that will help drive direct bookings from its web site. TripAdvisor has lately entered into an arrangement with the world’s largest hotel company, Wyndham Worldwide Corporation (NYSE:WYN), under which the company is listing its 7,700 properties inventory on TripAdvisor’s Instant Booking platform, allowing users to book any Wyndham hotel without leaving TripAdvisor. Earlier this year, the company also entered into a partnership with the reputed international hotels chain, Marriott, and ten other top hotels.

TripAdvisor is expanding its worldwide presence and I see some promising growth numbers ahead. The company’s Latin American business, having doubled in the last quarter, has great prospects going forward, and its partnership with Priceline, under which the web site will be listing the entire hotel inventory from, will also widen its scope in the European market.

The Bottom Line on TRIP Stock

TripAdvisor reports its latest quarter earnings on November 5th and I see a likely dip in TRIP stock after its earnings announcement. Yes, dip! Reason being that TripAdvisor has not beat earnings in the last six quarters, as far as my memory serves. And I don’t think this quarter will be any different. The earnings figures will most likely come out in line with, if not under, the consensus estimates. And we know from experience, the street hates earnings misses even if the earnings deliver positive growth.  

The bane to TRIP stock’s upside has been the stronger greenback. TripAdvisor has taken a beat on revenue and earnings figures because of unfavorable forex translations, which will cause yet another major dent in TripAdvisor’s third-quarter earnings. But the overall non-GAAP growth numbers are still expected to be promising.

I see great long-term upside to TRIP stock for investors who’d buy off the next dip.

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