1 Big Concern For TripAdvisor

• Shares of Tripadvisor Inc TRIP have appreciated 15.65 percent over the past month, from a low of $66.315 on October 7.
• Oppenheimer’s Jed Kelly has downgraded the rating on the company from Outperform to Perform.
• Kelly expressed concern that the slightly weaker hotel shopper trends and “monetization drag” in the near term from Instant Booking might limit cap the stock’s multiple expansion.

Analyst Jeb Kelly mentioned that the roll out of Instant Booking (IB) to Priceline Group Inc PCLN's brands and large global hotel groups “should eventually enhance earnings long term, especially as revenue leakage and improving mobile monetization eventually equates to higher revenue per hotel shopper.”

Related Link: This Is A Major Long-Term Tailwind For TripAdvisor

Kelly believes that there could be downside risk to the stock over the next six months.

For 3Q15, Tripadvisor reported its revenue below the estimate and the consensus, driven by softer CPC. Click-based revenue also came in below the estimate and the consensus, while hotel shopper decelerated from the Q2 levels.

The EBITDA, however, was in-line with the consensus, with Direct S&M above the estimate. “Excluding TV/ acquisitions, online channels resulted in ~400 bps of de-leverage. As a result, Hotel margins declined 187 bps y/y vs. -646 bps in 2Q,” Kelly stated.

Management announced its intention to shift 100 percent of TV to online channels in 2016, while lowering the 2015 revenue and EBITDA growth guidance, driven by FX headwinds and IB acceleration.

Kelly believes that this suggests that the Q4 revenue and EBITDA would come in below the consensus and the estimates. Hotel shopper comparisons are also expected to be more challenging in 4Q15 and 1Q16, while improving in 2H16 due to “improved IB product roll-outs.”

The 2015 and 2016 revenue and EBITDA estimates have been lowered to reflect “accelerating Instant Booking providing a near-term drag on revenue.”