TripAdvisor (TRIP) Falls into the Instant Bookings Revenue Gap - Needham & Company

TripAdvisor's (NASDAQ: TRIP) Instant Booking is proving to be a painful transition. TRIP reported 3Q15 revenue of $415mm up 17% y/y but 4% below consensus estimates. Non-GAAP EPS of $0.53 was up 11% y/y which was 1% below estimates). TRIP is changing its business model to be a booking engine and move down the purchase funnel to share revenue at the point of booking. This shifts more risk to TRIP but it also increases the reward.

TRIP lowered its FY15 guidance to high teens revenue growth (from low to mid-twenties), slightly negative adjusted EBITDA growth (from low-to-mid single digits positive growth previously) and raised its CapX guidance to 7% of total revenue (up from 5%).

The Instant Booking business model redirects TRIP’s revenue streams away from traffic based clicks to rev-share upon consumption. Likely higher margin over the long term but near term, it may create a revenue gap as the company waits for the transaction to complete and payment to take place rather than getting the upfront revenue. This is similar to the transition software companies went through shifting from perpetual licensing to ratable.

There is more upside than just a higher revenue share. Priceline offers premium content, global scale in native languages and a significantly larger room inventory. These contributions will enable TRIP to roll out internationally faster. TRIP now has to integrate 400K properties in 12 languages, a large task that should reap rewards when complete.

Needham & Company analyst, Laura Martin, notes TRIP’s CPCs have fallen in each of the past 2 quarters and maintains her Hold rating on the stock.

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 $83.11 yesterday.

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