TRIP - Tripadvisor Inc.

[kab60]

I noticed Allan Mecham took a tiny position last quarter and started looking a bit at Trip since the price started coming down and Cimpress' CFO left for the Company. I'm not in love with the valuation but qualitatively I think it's very interesting. I've been traveling in Africa, Asian, Europe and Latin America, and a lot of nice places have this little Tripadvisor sticker in their window which seems to suggest there's a nice network effect that works as free advertising making it a win-win for hotels, cafés, restaurants as well as Trip and its users.

 

I only took a very quick look but it seems like they're trying to stay away from head to head competion with booking sites ala Priceline, Expedia etc. and instead work with them through their new instant booking feature which means Trip keeps the customer relationsship and work as a sort of gatekeeper. It seems their marketing spent has increased a lot which is good if its increasning the LTV of their customers and not so much if it's due to more intense competition. Short interest is pretty high, so if anyone have a thesis I'd love to see it.

[KJP]

I found this overview of the online travel industry to be very helpful:  http://www.jnvestor.com/otas/

 

TRIP currently gets its revenue from advertising by Priceline and Expedia.  But it wants ultimately to take their business.  Very interesting strategy issues.

 

From a qualitative perspective, I like TRIP's position, because it has a network effect driven by free, user-generated content.  But the valuation is high, and it's unclear whether it can grab a large share of bookings away from PCLN and EXPE.

[kab60]

Isn't Instant Booking a way for them to not compete directly but instead work as a sort of toll business (seems like Priceline signed up)? That would make sense to me, because they can leave the rest to slug it out, but I don't know much and need to read up. Thanks for the link!

[flesh]

They have around 80m in marketing costs coming out from discontinuing tv commercials in 16'.

 

Priceline signing up will be huge and the new cfo is baller. I have a 1% tracking position and am following closely, also like priceline here.

[KJP]

Isn't Instant Booking a way for them to not compete directly but instead work as a sort of toll business (seems like Priceline signed up)? That would make sense to me, because they can leave the rest to slug it out, but I don't know much and need to read up. Thanks for the link!

 

My understanding is that OTAs get 10-15% of the price of a hotel room booked on their sites.  PCLN and EXPE currently get that money, and TRIP wants a piece of that pie or, better yet, the whole thing.  How much of the economics will TRIP end up with?  That seems to be the key question with all three, with EXPE also having to deal with greater concentration of hotel ownership in the U.S.

[Sionnach]

I've only looked at the name briefly, but couple of points -

 

The ota business is all about cost of customer acquisition. That's the reason why there's been so much consolidation among the otas. its to try to gain a cost advantage by spreading marketing costs across more revenue.

 

Now all of a sudden people realize that TRIP has by far the lowest cost of customer acquisition. They have 3x the visitors as PCLN with a much smaller marketing spend. Revenue per user is $.50 vs over $3.50 @ PCLN And the UGC flywheel acts as the cost advantage moat. Plus they are at the top of the funnel. You go to TRIP to read reviews then you go to EXPE to book (and spend your money). They call this "plugging the leak".

 

2. The valuation has bad optics, but if you capitalize the marketing spend. EBITDA margins were 54% in 2010, now their 27%, mainly due to increased marketing spend and R&D.

 

 

[ratiman]

Why wouldn't PCLN or EXPE start their own user generated content site? A lot of the superusers who like to write the reviews don't want to be the 432nd person reviewing Disneyworld. They would be glad to review for a new site.

Or maybe buy yelp for a couple billion and focus it more on travel.

[JBTC]

Why wouldn't PCLN or EXPE start their own user generated content site? A lot of the superusers who like to write the reviews don't want to be the 432nd person reviewing Disneyworld. They would be glad to review for a new site.

Or maybe buy yelp for a couple billion and focus it more on travel.

 

I don't think there'll be a new review site. PCLN/EXPE have been encouraging users to review on their booking sites for some time now. Hotels.com even gives away coupons for writing a review. Still, it seems unlikely TRIP's role as the top review site will be threatened.

 

In the perfect world, if TRIP had established backend links with all the hotels in the world, it would no longer need OTAs. It alone would capture all the economic benefits and act as a powerful, one-stop shopping site.

 

Alas this is not what has occurred. Establishing business/processing relationships with thousands of hotels is no small matter. With TRIP having completely missed the boat over the years, today OTAs are much larger businesses, as both clients and competitors. Before TRIP can make an independent living from Instant Booking, it needs OTAs more than OTAs need TRIP.

 

Hence an extremely complex set of relationships and it probably takes a visionary to see how they evolve. I am inclined to own TRIP (owned PCLN before) but this lack of clarity has made me hesitant.

 

 

[rishig]

Why wouldn't PCLN or EXPE start their own user generated content site? A lot of the superusers who like to write the reviews don't want to be the 432nd person reviewing Disneyworld. They would be glad to review for a new site.

Or maybe buy yelp for a couple billion and focus it more on travel.

 

With TRIP having completely missed the boat over the years, today OTAs are much larger businesses, as both clients and competitors.

 

Agree with your points. Minor nit: Trip was part of Expedia before it was spun off. It could not have been in the OTA business, that was not its mission.

[JBTC]

Why wouldn't PCLN or EXPE start their own user generated content site? A lot of the superusers who like to write the reviews don't want to be the 432nd person reviewing Disneyworld. They would be glad to review for a new site.

Or maybe buy yelp for a couple billion and focus it more on travel.

 

With TRIP having completely missed the boat over the years, today OTAs are much larger businesses, as both clients and competitors.

 

Agree with your points. Minor nit: Trip was part of Expedia before it was spun off. It could not have been in the OTA business, that was not its mission.

 

Good point. Which is why their relationships look so convoluted.

 

They now want to become each other, even though they were together in the first place, which didn't work out.

 

Still some brokers suggest TRIP is an acquisition target for OTAs. I wonder which one and what has changed to make the acquisition work.

 

On the surface, if TRIP and PCLN combine, they should be the ultimate winner. But it'll be a more defensive move for both given the lack of tangible benefits for either of them.

 

 

[WneverLOSE]

A few things I don't understand,

1) Why did he bought a position in both TRIP and LTRPA ?

2) It seems that they replacing the CPC (Cost per click) model to CPA (cost per action), why the revenue they get on booking should be better than the revenue the get from CPC ?

3) They are part of the fair search (anti google) so they are not going to sell to them, although it will be a great acquisition, google may compete with them for their business, why can't google take their business ?

 

[Sionnach]

I think the fact that he bought both TRIP and LTRPA is interesting.

 

Is there any chance that it would be the sign of a pair trade?

 

http://thefritzblog.com/pair-trade-idea-liberty-tripadvisor-vs-tripadvisor/

 

LTRPA is trading at a discount despite a potential control premium.

 

Anyone know what could be going on here?

Short positions aren't disclosed in 13fs so it wouldn't show up in Arlington's.

Marathon Partners (shutterfly activist) also has small positions in TRIP + LTRPA

[Guest roark33]

I think this board, not just this specific company, would benefit from refraining to discuss who owns something.  An investment isn't better or worse based on who owns it. 

[ccplz]

Doesn't Instant Booking make the OTAs redundant?

 

 

[kab60]

Doesn't Instant Booking make the OTAs redundant?

I think they might serve different needs. If I know where I'm going and just need accomodation I would go to something like Hotels and not Tripadvisor. But I think Tripadvisor will benefit a lot from Instant Booking and I'd bet on it rather than OTA's.

[KJP]

Doesn't Instant Booking make the OTAs redundant?

 

Not immediately.  Today, how Instant Booking works depends on whether or not the hotel has a direct relationship with TripAdvisor.  See here  https://www.tripadvisor.com/TripAdvisorInsights/n2513/faqs-instant-booking-tripadvisor 

 

If I understand the link correctly, if a hotel has a direct relationship with TripAdvisor and an OTA, then some of the instant bookings will be through the direct relationship and some through the OTA.  Of course, this is only the set up today.  You can see how one potential  endgame is for TRIP to successfully squeeze the OTAs out altogether by exploiting its position at the "top of the funnel" to gain control of the consumer relationships.  Once it has the consumer relationships locked up, the OTAs become essentially distributors, and TRIP will try to cut them out by expanding their direct relationships with hotels. 

[ccplz]

Thanks for the link KJP. Very interesting.

[KJP]

Thanks for the link KJP. Very interesting.

 

I think any investor in Priceline or Expedia has to ask themselves how a digital distributor succeeds when it does not control the digital relationship with the consumer.  What company in that strategic position has ultimately succeeded? 

[ccplz]

Thanks for the link KJP. Very interesting.

 

I think any investor in Priceline or Expedia has to ask themselves how a digital distributor succeeds when it does not control the digital relationship with the consumer.  What company in that strategic position has ultimately succeeded?

 

The bull thesis for TRIP does make sense conceptually. For me the problem is actually valuing the company; although I do agree that, for long term investors, the stock is quite undervalued at current prices.

 

"As we look at the first half of 2016, we expect that these growth rates to decelerate further due to the tougher first half 2015 Meta CPC comps as well as near-term dilution of our instant booking roll out this quarter and next."

 

From the 2015 Q4 earnings call

 

Given that revenue per hotel shopper is higher for instant booking than traditional meta CPC, would you have an idea where this dilution is coming from?

[KJP]

 

 

Given that revenue per hotel shopper is higher for instant booking than traditional meta CPC, would you have an idea where this dilution is coming from?

 

I don't know what is causing the revenue "dilution," which I understand to mean less revenue than TRIP otherwise would have if it had not rolled out Instant Booking.

[JBTC]

 

 

Given that revenue per hotel shopper is higher for instant booking than traditional meta CPC, would you have an idea where this dilution is coming from?

 

I don't know what is causing the revenue "dilution," which I understand to mean less revenue than TRIP otherwise would have if it had not rolled out Instant Booking.

 

This is my guess only. Maybe a couple of factors.

 

1) Until the recent quarter, the conversion rate on IB was lower than meta, meaning people either don't click on IB or click but don't complete the booking. In contrast, travelers generally don't hesitate to click the meta links (the OTAs) just to see what's being offered.

 

2) IB is more important on mobile. But on mobile TRIP gets paid less than on desktop for either IB or meta.

 

So as the trend moves to IB on mobile, for now, TRIP doesn't get paid as much as it did when travelers clicked away on desktop.

 

[ccplz]

Yes but IB doesn't completely replace the OTAs links. If you don't want to click the IB link, the OTA link is right next to it.

 

At least from my understanding of how it works.

[JBTC]

I am not sure. I had the impression that IB takes one of the slots currently being offered to OTAs.

 

I have a more fundamental question:

 

I always assumed travelers would be happy to get planning/booking done in one place. That's what TRIP believes.

 

I am just asking myself - does this have to be the case? Could researching and booking be two inherently different activities that belong to different sites?

 

What might cause travelers to not click on IB or complete booking on IB? Two possibilities I can think of.

 

1) IB is new and people are not familiar with the functionality and the role TRIP is now playing. If so, over time the problem will go away. 2) Travelers may prefer to book from one OTA where his personal info is stored and he gets good service includes points and coupons etc.

 

Any idea which possibility is more plausible, or how big the second group of travelers may be?

 

[Jurgis]

Anecdotally, when I book, I try two or three OTAs ( getting harder with consolidation ... ). Don't use Trip at all. I don't usually even look at their ratings...

 

In USA, I sometimes try the hotel website after narrowing down choices through OTAs.

 

I don't know if I'll ever book on Trip. But never say never. ;)

 

Disclosure: I hold some LVNTA and LTRPA.

[JBTC]

Anecdotally, when I book, I try two or three OTAs ( getting harder with consolidation ... ). Don't use Trip at all. I don't usually even look at their ratings...

 

In USA, I sometimes try the hotel website after narrowing down choices through OTAs.

 

I don't know if I'll ever book on Trip. But never say never. ;)

 

Disclosure: I hold some LVNTA and LTRPA.

 

If you go to a new city say for leisure, how do you decide which hotel to stay then?