CALL TO ACTION
A phase transition is slowly taking place in TripAdvisor, and we believe that the stock could be a real winner over the next twelve months. A reversal of business fundamentals and investor sentiment will be fuel for this stock and we’d like to be in front of that next big move.
INTERMEDIATE TERM (TREND)
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 4Q16 headwinds in its ancillary segments.
But that soft guide lost some of its luster when it’s buried in an ugly release; TRIP is probably more of a “show-me” story at this point anyway. Following the print there were sharp revisions lower for most of the important metrics concerning TRIP, indicating that the sell side has really gotten sour on the name.
Though navigating immediate term weakness in the stock price will prove challenging at times, the reward on the back end should be good.
LONG TERM (TAIL)
Marketing is not something we normally get excited about, but we attribute most of Trivago’s (TRVG, a meta competitor) 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; and its recent ramp in 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 our inflection point thesis (explained in the above section) 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. Moreover, we believe that patience will be rewarded in this name, as they begin to report improving trends across their core business.
Additionally, the sell-side appears to be very sour on the name, with 90% of analysts giving it hold or sell rating, and equally so, the buy-side seems to have limited faith in what TRIP can really produce. Thus, a reversal in sentiment will only add fuel to how well this stock could do over the NTM.
