TripAdvisor: Innovation, Better Positioning on Deck
We think the narrow-moat firm will generate double-digit sales growth starting in 2019.
We view TripAdvisor’s (TRIP) fourth-quarter results as supporting our view that the company maintains a network advantage (the source of its narrow moat) that it will be able to leverage into reaccelerating double-digit sales growth starting in 2019, a view we believe had been heavily discounted in the share price. And despite the nearly 20% jump in the share price in aftermarket trading, we still think the stock offers investors a modest discount.
Encouragingly, despite leveraging the marketing expense line over 400 basis points during the fourth quarter, total revenue grew 2% in the quarter, above our 2% decline forecast, which should calm fears of sustained elevated costs hindering profitability over the long term. We believe this points to traction that TripAdvisor is seeing in being able to effectively analyze marketing channel data, leading to cost efficiencies. We also think the stabilization in total revenue growth on this lower marketing spending indicates that initiatives launched last summer (new user interface and TV campaign) are taking hold, as we expected. And as highlighted in our January note, we expect the new restructuring initiative (the company plans to organize its hotel, attractions, and restaurant businesses into units that will be responsible for their bottom-line performance and contain their own dedicated personnel) to foster innovation and enhance competitive positioning in the long term.
As a result, TripAdvisor expects 2018 EBITDA to be roughly flat from 2017’s $331 million level, compared with our $325 million forecast. We will provide additional perspective, including any potential impact to our existing $55 fair value estimate (which incorporates over 10% average annual sales growth over the next five years, with operating margins expanding to 23% in 2022 from 8% in 2017) after hearing from management. However, at this juncture we don’t posit any material changes to our long-term outlook or valuation.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.
Dan Wasiolek does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.