KEY POINTS
- 4Q16 = ANCILLARY WEAKNESS: TRIP missed top-line results again. The source of the miss was concentrated in its Display Adverting and Other Hotel Revenue segments; both suddenly declined on a y/y basis with mgmt offering no real color as to why in its prepared remarks; we’d be more concerned if not for its soft 2017 guide (below). TRIP’s core Click-based & Transaction (CBT) revenue accelerated to flat growth (vs. -10% y/y in 3Q16) on moderated declines in revenue/hotel shopper (we expected growth, but at least positive in the US) and accelerating hotel shopper growth, which was likely due to its expanded marketing campaign. EBITDA missed badly in response, which we’re ok with (see Point 3). Mgmt made a point to change the narrative toward revenue growth rather than profitability.
- INFLECTION YES, BUT NO BIG REVEAL: We were definitely early, but TRIP disclosed in its prepared remarks that Total and US CBT revenue returned to high single-digit growth and double-digit growth, respectively, in January 2017. During the call, mgmt suggested the US grew by 20%. Note that before returning to flat growth in 4Q16, CBT revenues were down -13% y/y through 3Q16 YTD. Mgmt also guided to double-digit revenue growth in both CBT and total revenue in 2017, which is good to hear considering the ancillary headwinds mentioned above, but the soft guide loses its luster when it’s buried in an ugly release. TRIP is probably more of a show-me story at this point anyway. Our concern following the soft guide is the trajectory of consensus estimates from here. 2H17 estimates were already elevated (stale) to begin with, so we need to keep an eye for where these trend.
- GETTING INTO THE FIGHT: Marketing is not something we normally get excited about, but we attribute most of TRVG’s success over the past year to aggressive advertising; TRVG’s net revenue growth and advertising expense have grown by nearly identical amounts over the L9M 3Q16. What has become clearer over the last year is that TRIP has allowed TRVG to eat its lunch; TRIP has devolved from an attractive organic traffic story to that share loss. We suspect TRIP realizes that now; its recent ramp it S&M expense, which it plans to extend in 2017, alongside a complete abandonment of any near-term EBITDA objectives suggests it realizes the game has changed. Now when we couple Point 2 above with what could be a meaningful rebound in hotel shopper traffic on a revamped marketing spend (i.e. accelerating ARPU + traffic), we suspect double-digit growth will just be a question of magnitude.
See the below note for more supporting analysis on our thesis. Let us know if you have any questions or would like to discuss in more detail
TRIP | Inflection is Coming
02/14/17 11:57 AM EST
[click here]
Hesham Shaaban, CFA
Managing Director
@HedgeyeInternet
