Summary
- Despite the decline of the travel industry, which was caused by the pandemic, TripAdvisor will be able to survive the ongoing crisis and thrive in a post-pandemic world.
- TripAdvisor is able to leverage its media assets to offset some of the losses that were caused by the pandemic and secure a lasting future.
- I'm long TripAdvisor.
Despite the decline of the travel industry, which was caused by the pandemic, TripAdvisor (TRIP) will be able to survive the ongoing crisis and thrive in a post-pandemic world. The company has enough liquidity to stay afloat and it recently started to implement several cash preservation measures, which will help it to save around $200 million in expenses this year. At the same time, the expansion of the E&G (experiences and dining) business will help TripAdvisor to create shareholder value in the long run. While COVID-19 will act as the biggest threat to my bullish thesis, TripAdvisor will be able to leverage its media assets to offset some of the losses that were caused by the pandemic and secure a lasting future. Considering this, I continue to hold a long position in the company.
A Promising Media Play
In the second quarter of the year, TripAdvisor's revenues decreased by 86% year-over-year to $59 million, while its EBITDA was -$74 million and its non-GAAP EPS was -$0.76. Despite the decline, the company's stock has been climbing in recent days and has already appreciated by more than 20% since the initial publication of my article on TripAdvisor back in July.
The major problem of TripAdvisor in the past was the inability of the business to find its edge in the online travel industry. The management has been constantly redefining TripAdvisor's business model. At one time, TripAdvisor wanted to become a major OTA service and compete directly with Booking (BKNG) and Expedia (EXPE), while at the other time it decided to pivot to metasearch business and run ads for both of those services. Without a clear direction, the company's stock has been depreciating for the last six years and only three years ago the management finally figured out what kind of business TripAdvisor should be. By pivoting to the E&G business in 2017, TripAdvisor was able to offset some of the declines of the metasearch business and now E&G accounts for more than a quarter of the company's revenues. Currently, TripAdvisor makes a portion of its revenues from commissions that restaurants and trip providers pay for each booking and reservation that is made on TripAdvisor's platform. From 2017 to 2019 revenues of the E&G business were increasing at the compounded annual growth rate of 31% and were expected to grow even more in 2020 if it were not for the pandemic. However, the growth of the E&G business in the past three years helped TripAdvisor to get more than 460 million MAUs and create one of the biggest online libraries on travel-related content about restaurants, experiences, hotels, airlines, etc., in the world. With so much content and such a high user base, TripAdvisor finally starts to leverage its media assets and is about to start creating shareholder value once again.
According to TripAdvisor's latest presentation, the company influences $546 billion of travel expenses and more than 400 million trips each year and acts as a global travel guidance business. By having a global niche audience, TripAdvisor is able to generate leads for travel-related businesses by acting as a media influencer and receive a hefty commission for its services. As the online global travel market is about to account for the majority of travel revenues, TripAdvisor, which is also the largest travel website around the globe, will be able to leverage its media assets and drive growth in the post-pandemic world.
Source: TripAdvisor
Currently, TripAdvisor works on a couple of its own direct to consumer offerings. In its latest conference call, the management said that the company along with its partners is going to offer paid insurance products that will be sold on the platform and will be covering the whole trip of its customers. The offering is in the early stages, so we need to wait and see how things play out. The second offering involves customizable trips. Recently, TripAdvisor launched Reco, which connects travelers and trip planners with each other. By using the service, trip planners can customize a complete trip for travelers, who don't want to plan trips themselves and only know which location they want to visit. TripAdvisor is able to make money by charging a matchmaking fee. Reco is currently in its early stages, so it's too soon to tell whether the service will be successful. However, one certain thing is that TripAdvisor has finally started to leverage its media assets and is moving in the right direction.
