KEY POINTS
- 2Q17 = BAD PRINT, MORE NOISE: 2Q Hotel Click-Based & Transactional (CBT) revenue results came in light vs. rebased estimates following the soft guide at the JPM conference, and continued acceleration in hotel shopper growth. Revenue per Hotel Shopper (RPS) reverted to y/y declines basis given mix-shift toward mobile shopper, which monetizes at fraction of the rate of desktop shoppers. That mix shift was partly due to a surge in mobile hotel shopper growth, but also a slowdown in desktop shopper growth on the heels of slowing online ad spend, which we also suspect is the main reason why it cut its FY outlook for double-digit CBT growth; especially since that mix shift is continuing into July (next bullet)...but at least TRIP beat on 2Q EBITDA.
- PIVOT CONFIRMED: Our concern heading into this print was that mgmt might pull back on online ad spend as it ramped its TV spend; even though it didn't need to do so to maintain its irrelevant EBITDA guide (flat to down y/y). The 2Q print basically confirmed that will be the case. The growth in its Direct S&M spend decelerated into 2Q, even more so after backing out its TV spend, which was only $16M during the quarter. It's not like TRIP couldn't have afforded to ramp both (the original 2017 plan); TRIP's total 2Q EBITDA actually grew y/y…to $101M. We suspect TRIP got baited by the sell-side and is trying to appease near-term EBITDA expectations, even though every event b/w its 1Q results and today (JPM included) suggests that the only thing the buy-side cares about this year is the growth in its CBT segment.
- CLOSING LONG: The pivot confirms that this mgmt team is playing scared, so we can't be here right now. Further, we now have to consider that CBT revenue declines are a possibility now that mgmt has all but confirmed that the TV budget will be cannibalistic to its total online ad budget. For context, if mgmt slowed its online ad spend in 2Q on a $16M blip in TV spend, what happens when the majority of its ~$75M TV budget is slated to hit the P/L in 3Q? The only saving grace here is that TRVG is having its own issues; otherwise a reversion to CBT declines would be unavoidable. But this risk isn't confined to 3Q since the TV ad budget is expected to grow in excess of $100M next year. Note that we're not against the TV campaign, just that it's cannabalizing its online budget, which at minimum needs to grow inline with its industry peers; all of which are spending considerably more. All said, TRIP will never get out of its hole until its ready to put its EBITDA to work.
Let us know if you have any questions or would like to discuss in more detail.
Hesham Shaaban, CFA
Managing Director
@HedgeyeInternet
Todd Jordan
Managing Director
@HedgeyeSnakeye
Sean Jenkins
Associate
