TripAdvisor (TRIP) Gains on Priceline (PCLN) Agreement Seems Like' Overreaction' - Janney

Janney is out with commentary on the TripAdvisor (Nasdaq: TRIP), Priceline (Nasdaq: PCLN) deal, which was announced early Wednesday.

Analyst Brian McGill sees action in TripAdvisor following the deal as an "overreaction." The analyst noted the following:

• Booking.com will be the first PCLN brand to participate in instant book with Priceline.com, and Agoda.com likely to follow in the future. When someone clicks the "Book on TripAdvisor" button, their reservation will be handled by Booking.com without leaving TripAdvisor. PCLN will then pay TRIP a commission percentage.
• The question remains whether consumers will use TRIP as a reservation tool, rather than just using it for research. We think it will take time to change behavior and drive conversion rates higher. It is often pointed out by industry participants that changes in online travel do not happen quickly because the core customer is a leisure traveler and not a more frequent business traveler.
• If we assume that consumers migrate over to using instant book, we question how much more revenue it will bring in, given that we would expect the pay per click business to decline. It seems only logical that someone would either make their reservation on TRIP or click to see the deals and go to an OTA site, not both. We generally expect the initial impact of the PCLN deal will be disappointing and that it will take longer than expected for TRIP to benefit.
• This was a defensive move for PCLN and we think EXPE will now to have to sign up. We would also expect more hotels to participate in instant book. It also leads investors to wonder if eventually TRIP will become an OTA. While management continues to state it has no plans to be an OTA, that would be a negative for EXPE and PCLN. Right now, it is still questionable how much more PCLN will actually pay TRIP with this deal, given that it will go towards instant book and away from pay per click. We continue to remain cautious on the stock and keep a Neutral rating and $71 fair value.

Janney rates TripAdvisor at Neutral.

For an analyst ratings summary and ratings history on TripAdvisor click here. For more ratings news on TripAdvisor click here.

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