TripAdvisor (TRIP): Travel Weakness is Already Baked In - Piper Jaffray

Piper Jaffray analyst, Michael Olson, thinks travel weakness is already discounted in TripAdvisor (NASDAQ: TRIP) shares and investors should consider buying ahead of the 4Q report.

TRIP is off 26% YTD, vs EXPE at 22% and PCLN at 17%, due to concerns that the company will drastically cut guidance because of conversion and monetization headwinds from Instant Book (IB), and over the broader health of travel. While we do believe the company will guide revenue below the Street's 14% y/y, the balance of probability would indicate that shares excessively compensate for this.

Misunderstandings over IB mechanics has led to a black box effect creating undue concerns over 1) whether or not TripAdvisor will see improved conversion, 2) how big of a headwind monetization will be, and 3) whether IB will actually ever offset lost meta clicks.

TripAdvisor’s model earns and recognizes revenue when shoppers are planning trips (whereas OTAs recognize revenue at the stay), so decelerating trends in global hotels likely played themselves out in Q2 and Q3 as suppliers (OTAs, hotels) lowered the CPC they were willing to pay as ADRs/conversion softened for upcoming months. Specifically, during Q3 TripAdvisor experienced a 400bps/$10M headwind to CPC revenue from an accelerated IB rollout; however, there was an additional 600bps deceleration that the company attributed to CPC pricing (i.e. 400bps IB impact + 600bps CPC pricing impact = 1,000bps headwind to FXN CPC revenue growth). Therefore the company likely included weak travel trends in Q4 guidance and the Street, largely unknowingly, baked industry headwinds into estimate revisions

No change to Overweight rating or $120 PT.

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

Shares of TripAdvisor closed at $62.77 yesterday.

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