Guggenheim Downgrades TripAdvisor To Sell, Cites OTA Efforts, Competition And Valuation

TripAdvisor Inc TRIP could face challenges due to Online Travel Agent (OTA) rationalization trends and a tough competitive backdrop, while valuation appears to be aggressive, according to Guggenheim analysts.

The Analyst

Guggenheim’s Jake Fuller downgraded TripAdvisor from Neutral to Sell with a $40 price target.

The Thesis

OTAs are "tilting" from room nights to margin, which has undermined meta channel growth and put the company in competition with OTA advertisers like Trivago NV TRVG to “own” the traveler, Fuller said in a note.

While TripAdvisor has stabilized its core business, there is potential estimate risk if OTAs continue to “squeeze for efficiency,” the analyst said.

There is also a tough competitive backdrop for the company as Trivago’s ad spend is ramped up, said Fuller, who expects Tripadvisor's ad spend to fall 4 percent this year.

Another issue is the ramp of Alphabet Inc GOOG’s own hotel metasearch efforts. Google’s hotel ads enjoy prime placement above organic links and it doesn't have to acquire traffic, he said.

“It is hard to see how TRIP can maintain or grow share unless it is willing to reverse course and aggressively ramp brand spend or unless it gets some sort of regulatory relief in terms of GOOGL's placement above organic links.”

TripAdvisor’s valuation also seems “excessive” for a company with no history of growth and an uncertain trajectory, Fuller said.

Price Action

At time of publication, shares of TripAdvisor were trading around $48.68. The stock had also received an upgrade to Outperform from Macquarie analysts.

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