Company Reports

Intense metasearch competition blocks Tripadvisor from holding a network advantage over the next decade, despite the continued rise in industry online penetration and the company's ongoing investment in experiences (Viator) and dining (TheFork), brand in the portfolio that we think exhibit network moat characteristics.

Tripadvisor shares were 9% higher on Feb. 15, driven by fourth-quarter 2023 sales growth of 10% (compared with our 6% estimate) and EBITDA of $84 million ($63 million), resulting in a 22% margin versus 12% a year ago. We are impressed that Tripadvisor’s marketing as a percentage of sales leveraged 890 basis points to 45.9% in the quarter, leaving the full-year metric at 52.6%, near the 52.5% in 2022 and beat our 54.7% forecast. Tripadvisor is finding early success in utilizing artificial intelligence and data for its 3 billion profiles to drive advertising efficiencies. We plan to reduce our 2024-25 marketing as a percentage of sales estimates to around 52% from just over 54% on average, resulting in about a $1 per-share increase to our $24 fair value estimate. We now see shares as overvalued, up around 25% in the week, off the back of fourth-quarter results and a potential sale of the company.

Tripadvisor shares increased 14% in Feb. 12 afterhours trading, as the company announced it had formed a special committee tasked with evaluating potential transactions. We plan to re-evaluate our $24 fair value estimate when the company reports its fourth-quarter results later this week. Shares trade slightly above our existing intrinsic value after the sharp move higher on this news.

Intense metasearch competition blocks Tripadvisor from holding a network advantage over the next decade, despite the continued rise in industry online penetration and the company's ongoing investment in experiences (Viator) and dining (TheFork).

No-moat Tripadvisor's shares traveled 10% higher as third-quarter sales increased 16% versus our 10% estimate. That said, we don’t plan to materially change our $23 fair value estimate, as we expect intense metasearch competition to weigh amid an ominous economic landscape. Its shares remain undervalued, but we see narrow-moat Expedia shares, which trades at a 30%-35% discount to our $178 valuation, as more attractive.

Intense metasearch competition blocks Tripadvisor from holding a network advantage over the next decade, despite the continued rise in industry online penetration and the company's ongoing investment in experiences (Viator) and dining (TheFork).

We weren't surprised to see the 9% drop in TripAdvisor shares, as continued stout performance in its experiences vertical was overshadowed by ongoing weakness in its core metasearch business, which faces lasting intense competition (the source of our no-moat rating). We plan to lower our $24.50 fair value estimate by around $1 per share because of lower margins in its core business. While shares remain undervalued, we struggle to identify a catalyst to turn around the core segment. Perhaps renewed discussion on crystallizing its thriving experiences business can reinvigorate shares, which could occur if economic visibility improves.

Intense metasearch competition blocks Tripadvisor from holding a network advantage over the next decade, despite the continued rise in industry online penetration and the company's ongoing investment in experiences (Viator) and dining (TheFork).

No-moat Tripadvisor's experiences and dining business remained stout, but its hotel metasearch platform continued to lag the hotel industry in the first quarter, causing shares to drop around 10%. We expect these trends to endure, driven by the company's lead in experiences and dining remaining in place due to relative high barriers to aggregating these fragmented markets and prudent investment, while lower metasearch barriers face ongoing competition from Google, and in the future Meta and Amazon. We plan to reduce our $27 fair value estimate by a high-single-digit percentage on higher marketing expense, which we see as required to maintain our sales forecast. In fact, marketing as a percent of sales was 59%, up from 54% last year, and we plan to model it at around 51% on average during the next 10 years versus about 50% prior. Still, we think investors are severely discounting the company's experiences and dining assets. We think renewed talk of a potential IPO for Viator could serve as a catalyst for shares, although we don't expect that to be on the table until financial market certainty improves.

We have downgraded our Tripadvisor moat rating to none from narrow as we expect eroding profitability in the company’s core metasearch business (64% of 2022 sales) due to competition from wide-moat companies Alphabet as well as Meta and Amazon (in the future). As a result, our fair value estimate moves to $27 per share from $31, although the shares still appear undervalued.

Intense metasearch competition blocks Tripadvisor from holding a network advantage over the next decade, despite the continued rise in industry online penetration and the company's ongoing investment in experiences (Viator) and dining (TheFork).

Despite intense competition and near-term inflation headwinds, we expect Tripadvisor’s network advantage—the source of its narrow moat—to remain in place over the next decade, supported by a solid global position, the continued rise in industry online penetration, and ongoing investment in experiences (its Viator brand) and dining (TheFork brand).

We don’t expect a meaningful adjustment to Tripadvisor’s $32 fair value estimate after it posted better-than-expected fourth-quarter results, with commentary around 2023 matching our existing forecast. We see shares as undervalued.

Despite intense competition and near-term headwinds from COVID-19 and inflation, we expect TripAdvisor’s network advantage—the source of its narrow moat—to remain in place over the next decade, supported by a solid global position, the continued rise in industry online penetration, ongoing investment in experiences (its Viator brand) and dining (TheFork brand).

Tripadvisor reported solid third-quarter sales at 107% of 2019’s level versus our 103% forecast and 99% last quarter, with year-to-date EBITDA margins of 22% tracking directly in line with our forecast for the year. But shares dropped around 20% because fourth-quarter sales are targeted to reach a low-single-digit percentage above precoronavirus levels which, while above our mid-90% forecast, represents a moderation from third-quarter levels, and EBITDA margin for the quarter was guided at just 10% on higher marketing spending. While we will be increasing our 2022 sales growth estimate slightly, this will be more than offset by higher costs, reducing our $35 valuation by around 10%. We plan to reduce our 2022 EBITDA margin to 19% from 22%, and our 2023-31 average margin to 27% from 29%. We expect discounted shares to remain volatile until management clarifies plans for its core business next year.

Despite enduring travel demand into the fall of 2022 and our view that it can continue into 2023, investor concerns around future trips and credit availability have grounded share price performance across the industry. As a result, we see meaningful opportunities to book investment stays in Sabre, Accor, Booking Holdings, and Norwegian, which trade at 64%, 42%, 44%, and 54% discounts to our $15, EUR 37.50, $2,900, and $28 fair value estimates, respectively.

Despite intense competition and near-term headwinds from COVID-19 and inflation, we expect TripAdvisor’s network advantage—the source of its narrow moat—to remain in place over the next decade, supported by a solid global position, the continued rise in industry online penetration, ongoing investment in experiences and dining, and an opportunity to improve monetization of its platform with products such as Plus (a subscription offering that was beta launched in the United States in early 2021).

With TripAdvisor providing new financial disclosures on its Viator experiences and TheFork dining brands this month (around 35% of sales combined), we have updated our discounted cash flow valuation of those segments to $28.50 per share from $26 in April. The lift is due to a stronger demand recovery, illustrated by Viator’s second-quarter sales improving to 137% of 2019’s level versus 127% in the first quarter, while TheFork’s revenue went to 103% of 2019’s level versus 93% in the first quarter. We estimate 24% average annual growth during the next decade, above our 21% forecast in February. Our long-term mid-20s EBITDA margin forecast is largely unchanged.

Despite intense competition and near-term headwinds from COVID-19 and inflation, we expect TripAdvisor’s network advantage—the source of its narrow moat—to remain in place over the next decade, supported by a solid global position, the continued rise in industry online penetration, ongoing investment in experiences and dining, and an opportunity to improve monetization of its platform with products such as Plus (a subscription offering that was beta launched in the United States in early 2021).

Narrow-moat TripAdvisor's shares traveled nearly 20% higher on second-quarter sales that flew to 99% of 2019’s level versus 70% last quarter. We plan to lift our $35 fair value estimate by a low-single-digit percentage as our 2022 sales forecast moves to the low 90s of prepandemic marks from the mid-80s. The shares remain attractive despite the Aug. 5 move. We remain constructive on the company’s industry-leading experience and dining business (about 40% of sales), which we have viewed as being valued at around $25 per share, but still see enduring competitive pressures in the metasearch segment (45% of sales).