Macquarie Cuts TripAdvisor To Neutral, Sees 'Turbulence' Ahead

• TripAdvisor Inc TRIP shares have surged 26 percent since September 28, when it touched a low of $62.88.
• Macquarie’s Tom White downgraded the rating on the company from Outperform to Neutral, while reducing the price target from $86 to $84.
• TripAdvisor may be sacrificing near-term monetization in exchange for broader consumer awareness and conversion rates for its Instant Booking product, White mentioned.

TripAdvisor’s business model transition to offer Instant Booking could cause “turbulence,” analyst Tom White said. He enumerated the reasons for being “incrementally cautious on 2016 monetization” for the company as:

1. More challenging “top of the funnel” comps – This includes hotel shopper growth and any traffic benefit from the company’s 50 percent y/y hike in brand and ad spend in 2015.
2. Uncertainty related to the trade-off for Instant Booking monetization – There is “potential for weaker relative economics/take-rates” due to the company’s recent high-profile Instant Booking deals with Marriot, Priceline, Wyndham and others.
3. Ongoing incremental investments – TripAdvisor would probably make investments into areas like branding Instant Booking with consumers, including a global roll-out.

Any revenue slowdown due to the IB transition would adversely impact EBITDA, which could be further hit by the company’s attempts at building new adjacencies like restaurants, tours and attractions.

White pointed out that TripAdvisor could be foregoing near-term monetization in its attempt to achieve broader consumer awareness and conversion rates for the Instant Booking product.

“This is the correct strategy for the long-term health and defensibility of TRIP’s business, in our view, due to its potential to diversify TRIP’s revenue sources over time. However, we believe the transition may limit revenue upside in ‘16; we’re modeling Click-based rev growth of 17% next year and total rev growth of 20% (vs. cons. at +20.5% and +21.7%, resp.),” White wrote.