My Bear Case
I think I am one of the few. I am not saying there are structural issues here that a short is recommended but I believe that the valuation is too optimistic for what is happening with the stock. I think it is a well run and sound business but I think it faces serious head winds around competition, branding and competitive position in its core markets which will see it fall short of the great expectations built into the stock price. Its fringe markets are growing strongly but that is not currently a focus of the team and these markets are too small at the moment to be considered as a potential channel to meet the current valuation.
For revenue per shopper, I think part of the issue with Trip Advisor is that they offer metasearch whereas their main competitors don’t. They tried to address this with instant booking but they kept the comparators on the site beside their own offering. They also face the issue of not being considered the dedicated booking site. Booking Holdings Inc. (NASDAQ: BKNG) and Expedia Group Inc (NASDAQ: EXPE) have this branding and are go to sites for consumers. Booking Holdings highlight how they get a large bulk of their traffic directly which is a huge saving on marketing spend. Anecdotally, I asked my wife about her use of Trip Advisor and she said it’s her first port of call before making any booking. Then I asked her if she books there and she said “oh no”, she would never do that. That’s the problem they face.
I think it would require taking the risk of abandoning metasearch, in a controlled way, in chosen regions at first and just running instant booking alone and capturing visitors as they are on the site. That could kill the majority of their current revenue in the region they choose as a control site but if it took off then it would be far more profitable. They also have an Airbnb like service from their purchase of HouseTrip in 2016 but this is not mentioned much in their communications and could be an area for development given the rise of AirBnb.
Ultimately, I think the current valuation has a growth expectation built into it that is much greater than they have experienced or will experience. It is pricing in a large uptick in revenue per shopper which has in fact, been declining. I don’t know what is needed to change visitor habits on booking through TripAdvisor but I do know that continuing on as they have done will not close the gap between their current performance and the market expectations. They may be acquired but I see little attraction in this route for any of the potential buyers and it would yield little upside for shareholders with a lot of risk attached. I expect that on the current path, regardless of how much effort they throw at it, they will likely see their core business retract at the expense of growing their strength areas.
Disclosure
I have no position in Trip Advisor (NASDAQ: TRIP) and will not be taking a position in the next 72 hours. I would also note that I have failed to get two hedge fund analyst jobs as a result of my views on this stock. The search continues. This article was originally published at https://bryansinvestmentblog.wordpress.com/
